Purchase Agreement Terms Cost Seller $10 Million

September 28, 2021

Purchase Agreement Terms cost Seller $10MM

A private equity firm had a winner on its hands – the sale of a successful rollup to an international buyer for $1 billion. But a few months later, the Seller and Buyer were embroiled in a dispute over post-closing working capital.

What might have been resolved timely with $16.1MM paid to Seller took nearly a year, with only $6.5MM paid to Seller. Here’s what happened:

BEWARE! Purchase Agreement Term Limits

The Buyer astutely noted that, pursuant to the Purchase Agreement, the Seller could not claim more than the $10MM escrowed because it had not filed a counterclaim within the prescribed 30 days. The Seller did receive approximately $5MM more than the Buyer’s original calculation as a result of our analysis, interpretation of the CARES Act rules and regulations, and assistance with negotiations.

The moral of this story? Scrutinize your purchase agreement for limiting clauses. Considering the multitude of variables that impact working capital calculations – restricted cash, prepaids, inventories, payables, accruals, contractual requirements, industry or governmental regulations, subsidiary reporting, taxes and more – try to negotiate sufficient time to respond to the post-closing working capital adjustment calculation in case of disputes. And, when necessary, hire specialists early.

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