September 28, 2021
A private equity firm had a winner on its hands – the sale of a successful rollup to an international buyer for $1 billion. But a few months later, the Seller and Buyer were embroiled in a dispute over post-closing working capital.

What might have been resolved timely with $16.1MM paid to Seller took nearly a year, with only $6.5MM paid to Seller. Here’s what happened:
Working Capital Adjustment Timeline
BEWARE! Purchase Agreement Term Limits
The Buyer astutely noted that, pursuant to the Purchase Agreement, the Seller could not claim more than the $10MM escrowed because it had not filed a counterclaim within the prescribed 30 days. The Seller did receive approximately $5MM more than the Buyer’s original calculation as a result of our analysis, interpretation of the CARES Act rules and regulations, and assistance with negotiations.

The moral of this story? Scrutinize your purchase agreement for limiting clauses. Considering the multitude of variables that impact working capital calculations – restricted cash, prepaids, inventories, payables, accruals, contractual requirements, industry or governmental regulations, subsidiary reporting, taxes and more – try to negotiate sufficient time to respond to the post-closing working capital adjustment calculation in case of disputes. And, when necessary, hire specialists early. 

How Can We Help You?
Brandlin & Associates is an exclusive provider of financial workouts and restructurings, forensic accounting, financial due diligence and litigation support for senior lenders, mezzanine funds, private equity groups, attorneys and middle market companies.

We pride ourselves on offering superior technical expertise, years of practical experience and unparalleled service to decipher financial and operational performance metrics. As a result, our clients are able to make informed decisions in a timely manner.