Whilst disputes between buyers and sellers in this area tend not to be deal breakers it is still of significance and can be where your advisory team really earn their corn.
Examples of contentious topics we’ve seen recently include:
- The period of averaging working capital figures (i.e. 6 months? 9 months? 12 months?)
- An argument from a buyer that normal VAT liabilities represent debt and not working capital
- Large customer payment profiles not being represented by receivable balances at period ends
- Deferred income – is revenue recognition in line with stated policy/UK GAAP and should it be included at full value for the purposes of working capital calculations?
- Provisions for slow moving inventory, or similarly slow paying customers.
Arriving at a “net cash” (cash less debt) figure can also be fraught with complexity. Lively debates are often experienced around, for example, the basis for a corporation tax calculation, whether or not cash is “trapped” and whether value can be attributed to some elements of deferred tax.
It’s advisable in my view to try to anticipate these debates and reach agreement on as much as possible at an early point so that progression to a smooth completion is not disrupted, and to have an experienced advisory team in your corner to help you in what can become a battleground.
If you’d like to discuss this or any other aspect of M&A deals please contact James Price or any of your local UHY experts.
