Purchase price adjustment

The purchase price agreed in the definitive agreement is usually based on financial figures as of a certain date, but closing often happens weeks or months later. In the meantime, cash, inventory, receivables and payables all keep moving. A purchase price adjustment reconciles that gap, comparing the actual position at or near closing to what was assumed when the price was set.

How it usually works

The most common version ties to a working capital peg: the parties agree on a target level of working capital, and if the actual amount at closing is higher or lower, the purchase price moves accordingly, dollar for dollar. Other adjustments can cover specific known items, such as a piece of equipment sold or a contract that did not renew before closing.

Why disputes happen

Because the adjustment depends on an accounting calculation done after the fact, disagreements over which accounting method applies or which items count are a frequent source of post-closing dispute. A clear, detailed adjustment mechanism in the agreement, agreed before signing, reduces that risk considerably.