A purchase price adjustment based on the working capital (current assets minus current liabilities) of the target company or business. This is the most common type of purchase price adjustment. Most businesses need a minimum amount of working capital to maintain their operations. A buyer acquiring a target company or business needs to make sure that the target company or business has enough working capital after the closing to continue its operations as previously conducted by the seller. If working capital is inadequate, the buyer needs to infuse more cash into the business, effectively increasing the purchase price it is paying. To avoid this increase, the buyer often requires a working capital adjustment that decreases the purchase price if the closing date working capital of the target company or business is below a certain level (for an example of a working capital adjustment, see Standard Document, Stock Purchase Agreement: Working Capital Purchase Price Adjustment Provision).

The timing of working capital adjustments varies from deal to deal. Because the balance sheet or other financial statements of the target company or business as of the closing date generally cannot be finalized by the closing, the purchase price will usually be adjusted a certain number of days after the closing (typically 60 to 90 days). In some cases, the parties may agree to include an adjustment at closing based on estimated information in addition to the final post-closing adjustment (known as a two-part adjustment).

For more information on purchase price adjustments generally, see Practice Note, What's Market: Purchase Price Adjustments.