When buying or selling a business, managing working capital is crucial for a successful deal. One important tool in this process is the working capital peg (“peg”) —a mutually agreed target level of working capital between the buyer and seller. The peg is essential for preventing disputes, aligning expectations, and safeguarding the financial interests of both parties.
This whitepaper will delve into the concept of working capital pegs, their significance in M&A deals, how to calculate them, and provide a case study of a Quality of Earnings Analysis conducted by Sapling Financial Consultants, Inc. (“Sapling”) that involved working capital peg analysis.
