- · Working capital adjustments now appear on over 90% of private M&A transactions, making the "peg" a near-universal feature of deal mechanics.
- · The average buyer adjustment claim is 0.9% of transaction value — modest in percentage terms, but material in absolute proceeds on any mid-market deal.
- · Approximately 63% of practitioners report working capital disputes at least occasionally, with buyers frequently accused of incorporating value-maximization logic into closing statements.
- · Locking accounting methodology at the LOI stage, not the purchase agreement stage, eliminates the majority of dispute hooks.
There is a particular irony embedded in the anatomy of a private M&A transaction. Months of negotiation, multiple rounds of due diligence, and considerable legal expenditure converge on a headline purchase price. Then, in the weeks after closing, a separate calculation — quiet, technical, and contractually binding — redistributes a meaningful share of that price between the parties. The working capital adjustment is not a footnote. It is, increasingly, where deal economics are finalized.
According to data cited by LockRoom's 2026 analysis of lower mid-market M&A mechanics, drawing on the SRS Acquiom 2025 Working Capital PPA Study covering more than 1,200 private transactions, working capital adjustments now feature in over 90% of private deals. A decade ago, that figure stood at roughly 50%. The shift reflects the maturation of buyer-side diligence teams, the institutionalization of standard purchase agreement templates, and, frankly, the hard lessons of practitioners who once closed transactions without this mechanism and subsequently discovered what a motivated seller can do to a balance sheet in the final weeks before signing.
The working capital peg is the contractually agreed target level of current assets minus current liabilities that the seller is expected to deliver at closing. It is not an estimate. It is a reference point against which the actual closing-day working capital balance is measured, with the difference — whether positive or negative — flowing as a post-close adjustment to the purchase price.
In practice, the peg is almost always calculated as a trailing 12-month average of month-end working capital balances, normalized for seasonality, one-time items, audit corrections, and transaction-specific add-backs. This calculation is typically completed during the data room phase and locked into the Letter of Intent. Once embedded in the LOI, it becomes the contractual standard against which closing-day reality is judged.
The logic is sound. Without a peg, a seller could legally accelerate collections, defer supplier payments, or reduce inventory in the weeks before close, leaving the buyer to fund the working capital deficit from day one. Equally, without the mechanism, a buyer could claim inheritance of an underfunded balance sheet despite having paid a price that implied adequate operational capital. The peg is the contractual solution to both risks.
On a CHF 30 million transaction, the average initial buyer adjustment claim of 0.9% of transaction value — documented in LockRoom's 2026 research — represents approximately CHF 270,000. That figure changes hands not at signing, not at closing, but during a post-close true-up window that typically runs 60 to 90 days. Twenty-four percent of claims exceed 1% of enterprise value, which on a transaction of any meaningful size moves from the realm of rounding error into the realm of genuine commercial consequence.
Median purchase price adjustment escrow sizing has grown to approximately 1% of transaction value in the 2024-2025 period, reflecting market consensus on the scale of expected adjustments. For sellers who entered a transaction focused on headline valuation multiples, the true-up window can feel like a second negotiation conducted on terrain they did not choose and may not have prepared for.
As one practitioner observation from financial social media captures it with uncomfortable precision:
You negotiate price for months. The working capital peg gets settled in a 10-minute call. That's where six figures quietly moves after closing.§ @FHTax
The observation is, of course, an overstatement for effect — no competent advisor allows the peg conversation to last ten minutes — but the underlying point stands. The peg is frequently under-negotiated relative to its economic significance.
Lincoln International's 2026 Post-Close M&A Disputes survey offers the most granular picture currently available of where and why things go wrong. Approximately 63% of respondents report experiencing working capital disputes at least occasionally, and 25% report involvement in disputes multiple times per year. Working capital adjustments rank as the single most frequent source of post-close accounting disputes.
The survey surfaces a finding that deserves careful attention from any sell-side advisor: approximately 60% of respondents believe buyers incorporate some degree of value-maximization logic into closing statement preparation, rather than strict consistency with historical accounting treatments. Approximately 8% cite value-maximization as their primary objective. This is not an allegation of fraud. It is, rather, a structural observation about the latitude that GAAP affords at the margins.
Consider inventory reserves. A buyer preparing the closing statement — the standard drafting convention in most purchase agreements — may apply higher obsolescence reserves than the target company historically recorded. Both treatments may be defensible under generally accepted accounting principles. The effect on net working capital can nonetheless be substantial, and the burden of challenging that position falls on the seller, who must object within the review period and, if unresolved, escalate to a neutral accountant.
This dynamic has not gone unnoticed. Lincoln International's data shows that 64% of respondents with sell-side experience report increased scrutiny of buyer-prepared closing statements, with 25% characterizing the increase as significant.
It is worth resisting the framing that all working capital disputes are adversarial. Lincoln International's research indicates that 41% of divergences between peg and closing working capital stem from business volatility and seasonality — not accounting disagreements. A higher receivables balance at closing may simply reflect strong sales activity near the measurement date. A lower inventory balance may reflect seasonal drawdown. Both can produce a material adjustment against the seller without any accounting manipulation occurring on either side.
Accounting assumption differences account for 34% of disputes. Inventory valuation methodology, accrued liability timing, and the treatment of one-time items are the most common friction points. Inadequate pre-close diligence represents 14% of drivers, and post-signing operational changes account for the remainder.
The structural dynamics of dispute resolution deserve attention. Under most purchase agreements, the buyer prepares the initial closing statement and the seller receives a defined review period — typically 30 days — in which to file objections. This drafting convention grants the buyer a first-mover advantage: the buyer's position becomes the baseline that the seller must actively challenge, rather than a position that must be affirmatively defended.
Seventy percent of sellers accept the buyer's calculation without formal dispute, according to LockRoom's analysis. Of the 30% that escalate, the process moves to a neutral accountant — a mechanism that Lincoln International's survey respondents rate as approximately 85% effective. The neutral accountant reviews disputed line items and issues a binding determination on each, with costs typically allocated in proportion to the share of each party's position that the accountant rejects. Median resolution via this process runs 60 to 120 days. Formal litigation is rare and generally reserved for disputes involving fraud allegations or methodology questions outside the accountant's contractual scope.
The evidence points consistently in one direction: preparation before LOI signing is the most cost-effective form of working capital risk management available to either party.
Locking working capital methodology in the LOI rather than deferring it to the purchase agreement eliminates the majority of subsequent dispute hooks. Specifying, in writing, the precise accounting policies applicable to receivables reserves, inventory valuation methodology, and accrual timing prevents recharacterization of historical practices at closing. A Quality of Earnings provider with sector-specific experience is not interchangeable with a generalist. Healthcare receivables, software deferred revenue, manufacturing inventory, and professional services work-in-progress each carry distinct normalization patterns that a generalist may not identify correctly during diligence.
PPA escrow sizing at approximately 1% of transaction value reflects current market practice and covers the median adjustment claim. Sellers and their advisors are well served to treat the 60 to 90 day true-up window as an extension of the deal economics — not a post-closing administrative formality.
For those framing this within a broader view of how financial metrics can obscure or reveal underlying business health, the point is reinforced by practitioner commentary on the limitations of accrual-based valuation measures:
FCF Yield is a KPI I use all the time but was not included within my original scoring framework. Formula: (Operating Cash Flow - CapEx) / Enterprise Value. Why it matters: P/E, PEG and EV/EBITDA are all accrual-based. Stock comp add-backs, aggressive revenue recognition and capitalised costs can...§ @EUnicornHunter
The observation is made in an equity market context, but its relevance to private M&A is direct. Accrual-based metrics — the same metrics that underpin working capital peg calculations — are susceptible to the judgment assumptions that drive post-close disputes. The closer the alignment between cash flow reality and balance sheet presentation at closing, the less exposure either party carries into the true-up window.
The working capital adjustment mechanism exists because it solves a genuine problem: the asymmetry of information and incentive between seller and buyer in the weeks around a transaction close. Its near-universal adoption reflects a market that has learned, sometimes expensively, why the mechanism matters. The disputes that arise within it are not evidence of a broken process. They are evidence of the precision required to execute that process correctly.
For Swiss mid-market transactions, where deal sizes of CHF 10 to 50 million are common and legal and advisory costs already compress net proceeds meaningfully, a contested working capital adjustment is among the more avoidable sources of value erosion. The inputs are knowable. The methodology is specifiable. The risks are quantifiable. That combination makes preparation not merely advisable, but straightforward.
Market observations in this article are drawn from the Lincoln International 2026 Post-Close M&A Disputes Survey and LockRoom's 2026 working capital analysis, which references the SRS Acquiom 2025 Working Capital PPA Study. Nothing in this article constitutes financial, legal, or transactional advice.
