You recently sold your company. Your advisers have been paid, you’ve taken a long overdue vacation and the burdens of deal-making are behind you. Then, surprise! The buyer is claiming you have to “give back” a million dollars of the proceeds from the sale because the assets of the company were below agreed-upon targets.
Welcome to the world of purchase price adjustments.
The most common form of price adjustment in an M&A deal is known as the Net Working Capital Purchase Price Adjustment (PPA). The PPA is a mechanism included in most purchase agreements that protects both buyers and sellers in the event the balance sheet of the acquired company does not meet the expectations of either party at closing. The adjustment is an important aspect of any deal, regardless of whether it is structured as an asset or a stock sale.
Many find the PPA in a transaction confusing, but it doesn’t need to be. Understanding the need for the PPA and its application is essential for a deal structure that is fair for buyers and sellers alike.
Contact Jim Lisy at email@example.com to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.
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