Working Capital Peg
Also known as: Working Capital Target, NWC Peg, True-Up
A working capital peg is the normal level of net working capital a buyer expects to be delivered at closing, used to true up the purchase price.
The working capital peg (also called the target) is the agreed normal level of net working capital that a buyer expects to find in the business on the day a deal closes. It exists so the buyer is not forced to inject cash on day one just to keep operations running.
How the true-up works
At closing, actual net working capital rarely lands exactly on the peg. The purchase price adjusts dollar for dollar for the difference. If actual working capital comes in above the peg, the seller receives more. If it comes in below, the price is reduced.
Why it gets contested
Setting the peg usually relies on a trailing twelve-month average, but seasonal businesses, lumpy collections, and one-time swings can distort that average. Independent searchers and lower middle market private equity buyers often underestimate how much value moves through this single mechanism, which is why a careful working capital analysis is a standard part of a quality of earnings review.