Financial Due Diligence

Working Capital Adjustments Now Appear in 90 Percent of Private M&A Deals: What the 2026 SRS Acquiom Study Tells Sellers

A decade ago, half of private-target acquisitions included working capital adjustments. Today nearly all of them do, and three-quarters carry separate escrows. Here is what that shift means for owners preparing a sale.

KAS Advisors • April 25, 2026 7 min read

The 2026 SRS Acquiom Working Capital Purchase Price Adjustment Study, drawing on more than 1,500 private-target acquisitions valued in aggregate at over $385 billion, confirms what advisors have observed across the past decade: working capital adjustments have moved from negotiable extra to standard contract architecture in private M&A. More than 90 percent of private-target deals now include a working capital purchase price adjustment, up from roughly 50 percent ten years ago. Three-quarters carry a separate working capital escrow, typically around 1 percent of transaction value, held for 60 to 90 days post-closing. For owners contemplating a sale, the practical implication is that the working capital provisions are no longer a back-office accounting matter to be sorted out at closing. They are central deal terms that can swing closing proceeds by meaningful amounts.

What a Working Capital Adjustment Actually Does

A working capital adjustment is a purchase price mechanism that ensures the seller delivers an agreed level of operational liquidity at closing. The buyer and seller negotiate a "peg," which is the target level of net working capital the business should have at the time of closing. If the actual working capital at closing is higher than the peg, the purchase price increases dollar for dollar. If actual working capital is lower than the peg, the purchase price decreases dollar for dollar.

The mechanism solves a real economic problem. A business operating in the ordinary course generates and consumes working capital throughout the year. A buyer paying for the operating business expects to receive enough cash, accounts receivable, and inventory at closing to fund operations without an immediate cash injection. The working capital adjustment ensures the seller cannot strip working capital out of the business immediately before closing or, conversely, that the buyer cannot benefit from a temporary working capital build-up that the seller would have monetized in the ordinary course.

That logic is uncontroversial. The contention lies in how the peg is set, what counts as working capital, how disputes are resolved, and how much money is held back to fund potential adjustments.

The Numbers from the SRS Acquiom Data Set

Several findings from the 2026 study deserve attention. The 90 percent prevalence figure is the headline, and it confirms that working capital adjustments are no longer optional drafting. A seller proposing to omit the adjustment will be perceived by sophisticated buyers as either inexperienced or attempting to obscure a working capital problem.

The 75 percent of deals with separate working capital escrows is the second material datapoint. A separate escrow, distinct from the general indemnity escrow, signals that the parties expect post-closing adjustment amounts large enough to require dedicated security. The median size around 1 percent of transaction value, held for 60 to 90 days, defines the seller's exposure to a delayed payment of meaningful capital. For a $50 million deal, that is roughly $500,000 sitting in escrow for two to three months, available to the buyer if the post-closing adjustment runs against the seller.

The third datapoint, which the SRS Acquiom team has discussed in resolved disputes, is the variability in claim size. Working capital disputes that proceed to formal resolution are often material relative to deal value, and the cases where sellers recover gains tend to involve definitional disputes over specific accounts (deferred revenue, customer deposits, accrued bonuses) rather than disputes over the underlying numbers.

A seller proposing to omit the working capital adjustment will be perceived by sophisticated buyers as either inexperienced or attempting to obscure a working capital problem.

How the Peg Is Set, and Why It Matters

The peg is most commonly set as the average net working capital over a trailing twelve-month period, adjusted for seasonality and one-time items. The mechanics sound clinical. The negotiation is anything but.

A trailing twelve-month average is sensitive to the cutoff date. A business with a declining working capital cycle (the company has gotten more efficient at collecting receivables or managing inventory) will have a higher trailing-twelve-month average than its current run-rate. If the peg uses that trailing average, the seller is effectively required to deliver more working capital at closing than the business currently operates with, transferring economic value to the buyer without explicit price adjustment. The reverse scenario also occurs in growth businesses, where current working capital exceeds the trailing average and benefits the seller at closing.

Sellers should analyze their working capital trajectory carefully and propose a peg methodology that reflects current operating reality, not a backward-looking average that disadvantages them. Buyers will negotiate to the contrary, and the resulting compromise (often a six-month or three-month average) determines real money at closing.

What Counts as Working Capital

The definition of working capital in the purchase agreement is the second area where deal economics shift quietly. Standard accounting working capital is current assets minus current liabilities. Standard M&A working capital is current assets minus current liabilities, with adjustments for items the parties agree should not be in the calculation.

Cash is almost always excluded. Indebtedness (which receives a separate purchase price adjustment in most deals) is excluded. The harder questions include: deferred revenue (is it a working capital liability the seller must fund, or is it an indebtedness item paid through a separate adjustment); customer deposits (similar question); accrued bonuses for the closing year (often paid by the buyer post-closing but earned during the seller's period); income tax accruals (usually carved out, but the precise mechanics matter).

Each of these line items can swing the post-closing adjustment by a material amount. A seller who agrees to include deferred revenue as a working capital liability without a corresponding asset adjustment is effectively taking a haircut on the contracts that funded that deferred revenue. A buyer who agrees to exclude accrued bonuses from working capital is potentially absorbing a liability without compensation.

The lesson from a thousand-deal data set is that the definition of working capital in the purchase agreement is more economically important than the peg itself. A favorable definition with an unfavorable peg often produces a better seller outcome than the reverse.

The Collar and Basket Question

The 2026 study highlights another structural feature that is becoming standard: the working capital collar, sometimes called a basket. A collar is a range, typically 1 to 2 percent of purchase price, within which no adjustment occurs. If actual working capital differs from the peg by less than the collar amount, the purchase price is not adjusted. The collar prevents minor and economically immaterial variations from triggering true-up payments and reduces the volume of post-closing disputes over small dollar amounts.

For a $100 million deal with a 1 percent collar, the buyer absorbs the first $1 million of working capital shortfall and the seller gives up the first $1 million of working capital surplus. Beyond the collar, the dollar-for-dollar adjustment applies. The collar is a clean way to manage administrative friction, but it shifts economics meaningfully and should be negotiated with care. Sellers should generally seek collars; buyers should generally resist them, particularly in deals where the working capital cycle has been volatile.

Practical Steps for Sellers Going to Market

The market evolution captured in the SRS Acquiom data has direct implications for sellers preparing a transaction. Owners who treat working capital as an afterthought lose money on deal terms that should have been negotiated from a position of preparation.

Pre-Sale Working Capital Preparation Checklist

Run a 24-month working capital analysis. Understand the trajectory, the seasonality, and the variability. The analysis is the foundation for the peg negotiation and should be ready before the first sophisticated buyer enters diligence.
Identify and document one-time items. Pandemic-era inventory builds, post-pandemic destocking, customer payment timing shifts, and other non-recurring movements should be documented with explanation. A buyer's diligence team will identify them and propose adjustments. Better to have the explanation prepared than to react during negotiation.
Review the inclusion list for line items. Deferred revenue, customer deposits, accrued bonuses, accrued vacation, and warranty accruals all deserve specific attention in the purchase agreement. The right answer for each depends on the business and the deal, but the wrong answer is to leave the question to the buyer's first draft.
Negotiate a collar. A 1 percent collar in a private market deal is achievable in most negotiations and protects the seller from material true-ups based on minor working capital variations.
Push back on escrow size and duration. The 1 percent escrow held 60 to 90 days is a market norm, but it is negotiable. A seller with a clean working capital track record and a sophisticated buyer should resist longer holds and larger escrows.
Understand the dispute resolution mechanism. Most purchase agreements designate an independent accounting firm to resolve working capital disputes. The firm chosen, the scope of its review, and the standards it applies all affect outcomes. Negotiate the mechanism in the purchase agreement, not at the time of dispute.

Forward Look

The trajectory from 50 percent to 90 percent prevalence reflects increasing sophistication on both sides of the transaction table. The next several years will likely bring more detailed treatment of subscription deferred revenue, more granular handling of contract liabilities under ASC 606, and potentially insurance products to bridge larger working capital disputes. Sellers should expect buyers to bring detailed working capital analysis and should match that sophistication on the sell side.

The Bottom Line

The 2026 SRS Acquiom data confirms that working capital adjustments are now standard architecture in private M&A. For sellers, the practical implication is that working capital is a deal term to be analyzed, prepared, and negotiated with the same care as the headline price and the indemnification structure. The 90 percent prevalence rate, the 75 percent escrow frequency, and the 1 percent escrow sizing are market norms that establish the baseline. Within that baseline, the specifics of peg methodology, working capital definition, collar size, and dispute resolution can shift closing proceeds by amounts that easily exceed the cost of senior advisory engagement on the question.

Disclaimer: This article is for informational purposes only and does not constitute financial, investment, tax, or legal advice. KAS Advisors recommends consulting with qualified professionals before making business or financial decisions. Past performance and market trends discussed herein are not indicative of future results.