[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"detail-sidebar-cat-1-en-105":3,"doc-seo-280782-105":53,"doc-detail-280782-en":127},{"code":4,"msg":5,"data":6},0,"success",[7,14,19,24,29,34,39,44,49],{"id":8,"doc_module":9,"doc_module_name":10,"category_name":11,"show_sort_weight":12,"slug":13},11,1,"Template","Presentations",90,"presentations",{"id":15,"doc_module":9,"doc_module_name":10,"category_name":16,"show_sort_weight":17,"slug":18},12,"Resumes",80,"resumes",{"id":20,"doc_module":9,"doc_module_name":10,"category_name":21,"show_sort_weight":22,"slug":23},14,"Invoices",70,"invoices",{"id":25,"doc_module":9,"doc_module_name":10,"category_name":26,"show_sort_weight":27,"slug":28},15,"Posters",60,"posters",{"id":30,"doc_module":9,"doc_module_name":10,"category_name":31,"show_sort_weight":32,"slug":33},16,"Social Media",50,"social-media",{"id":35,"doc_module":9,"doc_module_name":10,"category_name":36,"show_sort_weight":37,"slug":38},17,"Forms",40,"forms",{"id":40,"doc_module":9,"doc_module_name":10,"category_name":41,"show_sort_weight":42,"slug":43},18,"Letters",30,"letters",{"id":45,"doc_module":9,"doc_module_name":10,"category_name":46,"show_sort_weight":47,"slug":48},21,"Paper Templates",5,"papers-templates",{"id":50,"doc_module":9,"doc_module_name":10,"category_name":51,"show_sort_weight":4,"slug":52},158,"General","general-158",{"code":4,"msg":54,"data":55},"ok",{"site_id":56,"language":57,"slug":58,"title":59,"keywords":60,"description":61,"schema_data":62,"social_meta":120,"head_meta":122,"extra_data":124,"updated_unix":126},105,"en","working-capital-in-merger-acquisition-transactions-part-3-setting-the-target-and-documentation-recommendations","Working Capital in Merger & Acquisition Transactions - Part 3 - Setting the Target and Documentation Recommendations","","Working capital in M&A transactions is explored through a practical, advisory framework focused on how the parties set the Working Capital “Target” or “Peg” and reduce disputes at reconciliation. The guidance covers the typical transaction stages from Letter of Intent through due diligence, closing estimates, post-closing reconciliation, and settlement, including what must be agreed regarding scope and calculation. The LTM average method is detailed, showing how to derive an absolute target from average working capital assets and liabilities, plus risks when historical balance-sheet profiles shift.",{"@graph":63,"@context":119},[64,80,102],{"@type":65,"itemListElement":66},"BreadcrumbList",[67,71,74,77],{"item":68,"name":69,"@type":70,"position":9},"https://docshare.wps.com","Home","ListItem",{"item":72,"name":10,"@type":70,"position":73},"https://docshare.wps.com/template/",2,{"item":75,"name":11,"@type":70,"position":76},"https://docshare.wps.com/template/presentations/",3,{"item":78,"name":59,"@type":70,"position":79},"https://docshare.wps.com/template/working-capital-in-merger-acquisition-transactions-part-3-setting-the-target-and-documentation-recommendations/280782/",4,{"url":78,"name":59,"@type":81,"image":82,"author":87,"headline":59,"publisher":90,"fileFormat":93,"inLanguage":57,"description":61,"dateModified":94,"datePublished":95,"encodingFormat":93,"isAccessibleForFree":96,"interactionStatistic":97},"DigitalDocument",{"url":83,"@type":84,"width":85,"height":86},"https://docshare.wps.com/thumbnails/working-capital-in-merger-acquisition-transactions-part-3-setting-the-target-and-documentation-recommendations/280782.png","ImageObject",442,249,{"name":88,"@type":89},"Felix Montgomery","Person",{"url":68,"name":91,"@type":92},"DocShare","Organization","application/pdf","2026-10-30","2026-09-16",true,{"@type":98,"interactionType":99,"userInteractionCount":101},"InteractionCounter",{"@type":100},"ViewAction",10,{"@type":103,"mainEntity":104},"FAQPage",[105,111,115],{"name":106,"@type":107,"acceptedAnswer":108},"What transaction stages are used to manage working capital in an M&A deal?","Question",{"text":109,"@type":110},"The document outlines stages from LOI negotiation to due diligence, closing calculations comparing estimated versus target working capital, post-closing reconciliation comparing actual versus target, and final settlement after agreement on reconciliation.","Answer",{"name":112,"@type":107,"acceptedAnswer":113},"How is the Working Capital “Target” or “Peg” typically determined?",{"text":114,"@type":110},"A common approach uses the LTM (Last Twelve Months) average by taking average month-end balances of each working capital account over the prior twelve months to compute average net working capital.",{"name":116,"@type":107,"acceptedAnswer":117},"When might the LTM method be problematic and require adjustment?",{"text":118,"@type":110},"If changes within the prior twelve months materially alter the balance-sheet profile—such as a sold business unit, altered practices, new client payment terms, or liquidated aged inventory—the parties may adjust the methodology instead of strict LTM adherence.","https://schema.org",{"og:url":78,"og:type":121,"og:title":59,"og:site_name":91,"og:description":61},"article",{"robots":123,"canonical":78},"index,follow",{"doc_id":125,"site_id":56},280782,1790299894,{"code":4,"msg":5,"data":128},{"doc_id":125,"user_id":129,"nickname":88,"user_avatar":130,"doc_module":9,"category_id":8,"category_name":11,"doc_title":59,"doc_description":61,"doc_content":131,"file_id":132,"file_url":133,"file_type":134,"file_size":135,"view_count":101,"is_deleted":4,"is_public":9,"is_downloadable":9,"audit_status":9,"page_count":76,"language":136,"language_code":57,"site_id":56,"html_lang":57,"table_of_contents":137,"faqs":138,"seo_title":139,"seo_description":61,"update_tm":140,"read_time":9},549768064778,"https://ap-avatar.wpscdn.com/davatar_6f874abed73319feea01a86fa6f0fab8","EDUCATIONAL SERIES PART 3, PAGE 1  \nAN EXPERT VIEW – CORPORATE FUEL  \nPART 3:  \nWorking Capital in Merger & Acquisition Transactions  \nSetting the working capital target and our recommendations on the best ways to document agreement on what constitutes working capital and the calculation methodology for the purposes of reconciliation  \n3  \nWe continue with our series on Working Capital in M&A Transactions – Our expert views on how it works and what you can do to protect your interests through an M&A transaction.  \nIn earlier parts of this series, we discussed why working capital is most often included in a business when it is sold and then covered the mechanics of including working capital and the impact of resulting changes on the Buyer and Seller.  \nIn this section, we discuss the process of setting the working capital target, the typical and not-so-typical methods used and some of the potential risks of poor planning or lack of preparation.  \nLet us review the typical scope of an M&A transaction and the several stages of the transaction process and the related working capital activities. The typical scope of an offer made by a Buyer in a Letter of Intent to purchase a business is that it is on a “cash-free, debt-free basis and includes a normal level of working capital”, sufficient to operate the business and its current activities.  \nAt the time a Letter of Intent (LOI) is negotiated, you typically should agree on the scope of the transaction, how you will determine what constitutes a “normal level” of working capital and any special circumstances. Later, in the due diligence phase of the project, you typically set the Working Capital “Target” or “Peg”.  \nTransact ion Stages  \n>>> LSettegre of Intent >>> DSutaegDeiligence  \nAgree that WC included Set Working Capital  \nin deal. “Target” or “PEG”.  \nAgree on LTM* or other  \nMethod for determining  \nthe “Target” Scope,  \nMeasurement and  \nother special circumstances.  \n(*Last Twelve Months)  \n>>>  \nClosing Stage  \nWC estimated for Closing calculations.(Estimated vs. Target)  \n>>>  \nPost Closing Stage  \nWithin 60-120 days of Closing, WC Reconcilliation Process.  \n(Actual Received vs.Target)  \n>>>  \nSettlement Stage  \nAfter Agreement on Reconcilliation,$ Settled betweeen Parties.  \n“At the time a Letter of Intent (LOI) is negotiated,  \nyou typically should agree on the scope of the transaction, how you will determine what constitutes a “normal level” of working capital  \nand any special circumstances.”  \nCopyright © Corporate Fuel Advisors, LLC 2021 All Rights Reserved [www.corporatefuel.com](www.corporatefuel.com)  \nEDUCATIONAL SERIES PART 3, PAGE 2  \nAN EXPERT VIEW – CORPORATE FUEL  \nLTM (Last Twelve Months) Average Method  \nThe most common method used to arrive at a Working Capital Target is to take the average month-end balances of each working capital account over the prior twelve months. Using the LTM average of each working capital account, you can then determine the Average Net Working Capital for that historical period. To be clear, you take the average of the current assets that are within the transaction scope and subtract the average of the current liabilities that are included in the transaction scope. The Target will an absolute number.  \nHere is an example:  \nProject Sample Working Capital Analysis  \nTotal WC Assets  \nWorking Capital Liabilities  \nTotal Accounts Payable Total Accrued Liabilities  \n$4,050 $3,956 $4,175 $4,705 $4,308 $4,892 $5,217 $5,231 $5,517 $5,638 $4,991 $5,071  \n$773 $566 $703 $1,312 $1,083 $972 $1,028 $1,327 $1,149 $873 $881 $1,102 174 99 135 52 181 140 311 318 414 393 261 199  \n$4,813  \n$981  \n$223  \nLast Twelve Month Period  \n($ in thousands) Sept ‘19 Oct ‘19 Nov ‘19 Dec ‘19 Jan ‘20 Feb ‘20 Mar ‘20 Apr ‘20 May ‘20 Jun ‘20 Jul ‘20 Aug ‘20 LTM Average  \nWorking Capital Assets  \nAccounts Receivable Inventory  \n$3,040 1,010  \n$2,900 1,056  \n$2,965 1,210  \n$3,355 1,350  \n$3,293 1,015  \n$3,642 1,250  \n$3,917 1,300  \n$4,211 1,020  \n$4,360 1,157  \n","cbCaivmryfmzoC2Z","https://ap.wps.com/l/cbCaivmryfmzoC2Z","pdf",206271,"English","# Working Capital in Merger & Acquisition Transactions\n## Transaction stages and agreement points\n## Setting the working capital target (Peg)\n## LTM average method and practical example\n## Adjusting methodology when LTM is problematic","[{\"question\":\"What transaction stages are used to manage working capital in an M\\u0026A deal?\",\"answer\":\"The document outlines stages from LOI negotiation to due diligence, closing calculations comparing estimated versus target working capital, post-closing reconciliation comparing actual versus target, and final settlement after agreement on reconciliation.\"},{\"question\":\"How is the Working Capital “Target” or “Peg” typically determined?\",\"answer\":\"A common approach uses the LTM (Last Twelve Months) average by taking average month-end balances of each working capital account over the prior twelve months to compute average net working capital.\"},{\"question\":\"When might the LTM method be problematic and require adjustment?\",\"answer\":\"If changes within the prior twelve months materially alter the balance-sheet profile—such as a sold business unit, altered practices, new client payment terms, or liquidated aged inventory—the parties may adjust the methodology instead of strict LTM adherence.\"}]","Working Capital in Merger & Acquisition Transactions - Part 3 - Setting the Target and Documentation Recommendations | PDF",1789556982]