Target Working Capital.
Hello all;
Quick question: when negotiating a target working capital amount on a deal, what are the pros and cons of setting absolute dollar amounts and days of inventories, payables and sales outstanding? Can anyone please shed some light?
Thank you,
Gabriel
If the target working capital agreed is based on days etc., the main cons is the need for further DD and more time needed to negotiate.
You will need to negotiate with the sellers on what the appropriate days should be (as both obviously will be arguing for opposite direction), and even when the days is agreed, the actual working capital will need to again be calculated from the latest accounts on the date of signing, this means more DD will need to be done to make sure the latest accounts is alright.
I think most transactions use lockbox nowadays.
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