Working capital peg
Factual definition
The agreed target for operating net working capital delivered at closing, measured under the purchase agreement’s definitions. The agreement sets any resulting price adjustment. Cash and debt are commonly excluded; the peg is not simply total current assets minus current liabilities.
Working capital peg in round numbers
Hypothetical agreement: the parties set a US$5.0 million peg and define operating net working capital to exclude cash and debt. Delivered working capital under that definition is US$4.8 million. Assuming a dollar-for-dollar adjustment with no other limits, the US$0.2 million shortfall reduces the price by US$0.2 million. A single balance-sheet date does not by itself establish a normalized target.
Scroll horizontally to read all columns.
| Measure | Amount |
|---|---|
| Agreed peg | 5.0 |
| Delivered NWC | 4.8 |
| Shortfall | 0.2 |
| Price adjustment | −0.2 |
Shayne Fitz-Coy’s definition of Working capital peg
Sellers think of working capital as “our cash,” and the peg reframes it as part of the price, which is why the discovery lands late. A seller who collects receivables aggressively in the months before closing, or lets payables stretch, has not extracted value.
They have manufactured a purchase-price adjustment at the true-up, dollar for dollar. The frustration sellers feel at closing (where did my money go) is usually the peg doing exactly what it was designed to do: making the balance sheet part of the negotiated price.
How Shayne Fitz-Coy uses Working capital peg
Buyers: set the peg on a trailing twelve-month average and true up after closing, so seasonal timing at the closing date cannot distort the price. Sellers: manage working capital to normal levels straight through closing, and negotiate the peg’s definition (what counts as “normal,” which accounts are included) as carefully as the headline price, because that definition is where the adjustment is won or lost.
The peg is where the seller learns the balance sheet was part of the price all along.
Why Shayne Fitz-Coy’s perspective on Working capital peg matters
The peg prevents both sides from paying twice for the same cash. For the seller, understanding it early converts a closing surprise into a managed expectation.
For the buyer, it is the clause that keeps the price honest between signing and funding.
Terms Related to Working capital peg
Locked box vs completion accounts · Debt-free cash-free · SPA / definitive agreement · Sources & Uses · Debt-like items · All of the glossary