Working Capital Adjustments in Turkish M&A: How the Purchase Price Is Recalculated
A buyer should not pay full price for a business that is delivered short of the working capital required to operate it. This guide explains normalized working capital, the working capital peg, completion-account adjustments and the Turkish balance-sheet issues that can move the final purchase price.
In many M&A transactions, the buyer and seller agree that the target will be delivered with a normal level of net working capital at closing. That benchmark is commonly called the working capital peg. If actual closing working capital is below the peg, the purchase price is typically reduced; if it is above the peg, the price may increase, subject to the precise SPA mechanics.
The difficult part is not the formula. It is agreeing what counts as working capital, what “normal” means, how seasonality is treated, and how to prevent the same balance from being adjusted again through net debt or another purchase-price mechanism.
Working capital is one of the most common sources of post-closing price disputes because the commercial concept is simple but the accounting definition is highly deal-specific.
PwC describes net working capital assessment as a core financial due diligence workstream used to determine the capital required to operate the target and to support the working capital target, or “peg,” included in the purchase agreement. KPMG Türkiye similarly lists purchase-price adjustments and closing-account analysis among core transaction-services activities.
This article is intentionally separate from our guide to Net Debt & Debt-Like Items in Turkish M&A. Net debt asks which financing and seller-period obligations reduce equity value. Working capital asks whether the business is being delivered with the normal operating liquidity embedded in the agreed enterprise value.
The basic working capital adjustment formula
The arithmetic is straightforward. The dispute usually sits underneath the numbers: whether a receivable is collectible, whether overdue suppliers are ordinary trade payables or debt-like financing, whether inventory is saleable, whether customer advances belong in working capital, and which period best represents a normal level.
1. What should count as net working capital?
For M&A purposes, net working capital is normally a negotiated subset of operating current assets and operating current liabilities. It is not automatically equal to “current assets minus current liabilities” from the statutory balance sheet.
| Often included | Often excluded / separately treated |
|---|---|
| Trade receivables | Cash and cash equivalents |
| Inventory | Bank debt and accrued interest |
| Trade payables | Shareholder loans |
| Operating accruals | Debt-like items |
| Selected prepaid operating expenses | Income tax balances, depending on SPA definition |
| Selected customer advances / deferred operating balances | Transaction costs and seller-specific liabilities |
2. How should the working capital peg be determined?
The peg should represent the normal level of working capital required to operate the business at the level of activity assumed by the valuation. A common starting point is historical monthly working capital over 12 to 24 months, adjusted for seasonality, growth, unusual periods, one-off balances and structural changes.
Historical average
What level of NWC has the business historically required over a representative period?
Seasonality
Is closing happening at a seasonal high or low point that makes a simple annual average misleading?
Growth
Has revenue grown enough that an old historical average understates current working-capital needs?
Structural change
Have supplier terms, customer mix, inventory strategy or business model changed materially?
3. Seasonality can make the “average” wrong
A distributor may build inventory before peak season and collect receivables later. If the deal closes at an unusual point in that cycle, a simple trailing average can produce a distorted peg. In seasonal businesses, a month-specific or seasonally adjusted benchmark may be more defensible than one fixed annual average.
4. Receivables: book value is not automatically working-capital value
- Ageing by customer
- Post-closing cash collections
- Disputed balances
- Related-party receivables
- Credit notes after closing
- Revenue cut-off
- Customer concentration
- Long-outstanding balances
- Bad-debt provisioning
- Factored receivables
A TRY 10 million receivable outstanding for 360 days should not necessarily carry the same purchase-price weight as a current trade receivable collected the week after closing.
5. Inventory: quantity is not the same as economic value
| Inventory issue | Buyer question |
|---|---|
| Slow-moving stock | How long has the item remained unsold and what evidence supports recoverability? |
| Obsolete stock | Is a write-down required before including the balance in closing NWC? |
| Excess stock | Does the quantity exceed normal operating needs? |
| Standard-cost variances | Does recorded cost reflect current economic cost? |
| Imported stock | Are FX and landed-cost effects consistently recorded? |
| Goods in transit | Who owns the stock at closing under the contractual terms? |
6. Supplier stretch can artificially improve closing cash
A seller can increase closing cash by delaying supplier payments immediately before completion. Economically, the company has not created value; it has converted an operating payable into temporary cash. Buyers should compare days payable outstanding with historical patterns, supplier terms and post-closing cash requirements.
7. Turkish trial-balance accounts that deserve attention
| Account / area | Working-capital question |
|---|---|
| 120 — Trade Receivables | What portion is current, collectible and genuinely trade-related? |
| 121 — Notes Receivable | Are notes ordinary customer balances or financing arrangements? |
| 128 — Doubtful Trade Receivables | Are provisions adequate and should doubtful balances be excluded? |
| 150 / 151 / 152 / 153 — Inventory | What portion is normal, saleable operating stock? |
| 159 — Advances Given | Are advances recoverable and operating in nature? |
| 180 — Prepaid Expenses | Will the buyer benefit from the prepaid balance after closing? |
| 320 — Trade Payables | Are suppliers current or have payments been delayed before closing? |
| 321 — Notes Payable | Are these ordinary trade obligations or financing in substance? |
| 340 — Advances Received | Does the buyer inherit delivery obligations associated with cash already received? |
| 381 — Expense Accruals | Which balances are recurring operating accruals versus debt-like or seller-specific items? |
8. Avoid double counting with net debt
A balance should not normally reduce the price once through working capital and again through net debt. An overdue supplier balance, for example, may already depress NWC. If it is then also deducted as debt-like, the same economic issue may be counted twice.
9. Completion accounts vs locked box
Working-capital true-ups are most commonly associated with completion accounts, where the final price is adjusted using accounts prepared at closing. A locked-box mechanism instead fixes price by reference to an earlier balance sheet and relies more heavily on leakage protection. Completion accounts give a direct closing-date true-up but create more post-closing accounting work and dispute risk.
10. A more realistic purchase-price example
11. What sellers should do before the buyer arrives
- Prepare 12–24 months of monthly NWC
- Explain seasonality
- Reconcile customer and supplier ageing
- Identify old receivables and provisions
- Prepare inventory ageing
- Document obsolete stock
- Identify unusual payment delays
- Separate normal accruals from seller-specific liabilities
- Map tax balances separately
- Prepare proposed SPA NWC definition
- Run a mock closing calculation
- Reconcile NWC to the trial balance
12. Working capital red flags
Receivables rise faster than revenue
May indicate slower collections, weak customers, cut-off issues or aggressive revenue recognition.
Inventory days increase sharply
Could signal demand slowdown, obsolete stock or overproduction.
Suppliers are unusually overdue
Closing cash may have been temporarily improved by delaying payments.
The peg uses one balance-sheet date
A single month may not represent normal operating needs, particularly in seasonal businesses.
Large “other receivables” balances
Not every current asset should count as operating working capital.
Debt-like items also sit inside NWC
Classification overlap can produce an unintended double purchase-price deduction.
Frequently asked questions
What is a working capital peg?
It is the agreed benchmark level of net working capital that the target is expected to deliver at closing.
Is working capital simply current assets minus current liabilities?
Not usually for M&A purposes. The SPA normally defines a specific operating perimeter and excludes cash, debt and selected other items.
How many months should be used to calculate normal working capital?
There is no universal period. Twelve to twenty-four months is often a useful starting point, but seasonality, growth and structural change matter more than a mechanical average.
Can inventory be excluded from working capital?
It depends on the business and SPA. Inventory is often included, but obsolete, excess or non-operating stock may require adjustment.
What is the biggest working-capital mistake?
Using a mechanical balance without analyzing seasonality, ageing, collectability, supplier stretch and overlap with net debt.
Is the target being delivered with enough working capital?
SystemsCPA can analyze monthly working-capital trends, receivable and payable ageing, inventory quality, closing classifications and the proposed NWC peg for Turkish acquisitions — and connect the calculation directly to the completion-account and purchase-price mechanism.
Discuss a Transaction →Sources & further reading
- PwC — Financial Due Diligence
- PwC — Managing Risk in M&A: Working Capital Adjustments
- KPMG Türkiye — Financial Due Diligence
- PwC — Sale and Purchase Agreement Advisory
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