The offer also includes a mentioning to net working capital (NWC) and will state something like “the business needs to have a normalized level of net working capital at closing”. This goes further than just your reported cash- and debt-balances and also includes cash-like and debt-like items. You need to add the cash and deduct any debt balances of your Company before you arrive at the net purchase price (so-called equity value). It only means an investor values your business at $100m (so-called enterprise value). If you receive an offer saying your business is worth $100m on a cash- and debt-free basis, this does not mean you eventually get $100m. In short, this means the Seller receives all cash and repays all debt at the time of sale of the Company. Most transactions and M&A deals are on a cash-free and debt-free basis. Knowing how a purchase price is structured and which elements impact the price will ensure you reaching the highest value for your business. The first one has significant transaction experience and speaks in technical terms, while the last only wants to know the money he will receive.
This often happens when a large corporate tries to acquire a smaller self-made entrepreneurial business. Many deals collapse due to inability between a Buyer and Seller to communicate and negotiate on the purchase price.
In order to have meaningful negotiations it is crucial to understand the mechanics of a purchase price and what elements can impact the underlying price.
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