The True-Up: Why Nearly Nine in Ten Deals Change Price After Closing

The purchase price on the signature page is rarely the purchase price. In most private company sales, a mechanism buried in the agreement recalculates what the seller receives weeks after closing, based on how much working capital the business actually delivered against a target set during negotiation. Sellers who treat that target as a technical detail routinely discover it was one of the more consequential numbers in the deal.

The mechanic in plain terms

A buyer acquiring a business expects it to arrive with enough short-term assets to keep operating: receivables to collect, inventory to sell, and payables coming due on a normal schedule. Working capital is what remains when you subtract current liabilities from current assets, and it is the fuel a business burns between the day it does the work and the day it gets paid.

Because working capital fluctuates week to week, buyers and sellers agree in advance on a target, commonly called the peg. It is normally set from a trailing twelve-month average of the company's monthly working capital balance, adjusted for seasonality. If the business delivers more than the peg at closing, the seller receives the excess. If it delivers less, the buyer deducts the shortfall from the price, dollar for dollar.

There is nothing controversial about the concept. It exists to stop a seller from collecting every receivable, stretching every payable, and running inventory down to nothing in the final month before handing over a company that needs an immediate cash injection to function. The controversy lives in how the peg is calculated and who prepares the closing balance.

Almost every deal now carries one

The mechanism has gone from common to close to universal. SRS Acquiom's 2026 Deal Terms Study, drawn from more than 2,300 private-target acquisitions worth $569 billion, found that 93 percent of deals include a purchase price adjustment, and that 89 percent of deals containing the mechanism produced an actual adjustment. A decade ago, roughly half of private-target transactions carried a working capital adjustment. Today the figure sits above 90 percent.

The related SRS Acquiom Working Capital Purchase Price Adjustment Study covers more than 1,500 private-target acquisitions worth over $385 billion with finalized adjustments, most of which were never publicly reported. That volume matters, because it means the terms a seller encounters are not idiosyncratic. They are market convention, and an owner negotiating without knowing the convention is negotiating at a disadvantage.

The escrow data points the same direction. More than three-quarters of these deals hold back a special-purpose escrow dedicated to the purchase price adjustment, separate from any general indemnity escrow. Nearly three in ten also carry a standalone escrow for discrete matters such as taxes or pending litigation. A portion of the seller's proceeds is not paid at closing by design; it sits in an account waiting for the true-up to resolve.

Where sellers lose the money

The structural problem is that the peg is negotiated while the seller still has leverage, and the closing balance is calculated once the seller has none.

Buyers argue for the highest trailing average they can defend, because a higher peg obliges the seller to deliver more working capital to avoid a deduction. Sellers argue for the lowest defensible figure. The gap between two reasonable calculations is often substantial, and it converts directly into cash: a $200,000 difference in the peg is $200,000 of proceeds. On a business generating $6 million of revenue, a peg set two weeks' worth of receivables too high is a real reduction in what the owner takes home, agreed to in a schedule that few sellers read as carefully as the price on the first page.

The second half of the problem is procedural. After closing, the buyer owns the company, controls the accounting records, and prepares the closing statement that determines the final adjustment. The buyer's team applies the buyer's reading of the agreement's accounting definitions. By the time the seller reviews the calculation, the numbers have generally moved in the buyer's favor, sometimes by amounts exceeding what both parties expected the entire indemnity exposure to be.

If the parties cannot agree, the disputed items go to an independent accountant whose determination is binding. That process is faster and cheaper than litigation, which is why it exists, but it gives the seller no second venue. A working capital determination that goes against the seller is usually final.

Where the definitions decide the outcome

Most disputes are not arguments about arithmetic. They are arguments about what counts.

A buyer preparing the closing statement may reserve against receivables the seller considered collectible, write down inventory the seller considered saleable, or accrue liabilities the seller never recorded. Each judgment reduces delivered working capital and increases the deduction. Whether the buyer is entitled to make them depends entirely on the accounting language in the agreement, and specifically on whether the closing statement must be prepared using the same policies, methodologies, and practices the company applied historically, or whether the buyer may apply generally accepted accounting principles as the buyer interprets them.

That distinction sounds academic and is worth real money. A company that has consistently reserved two percent against receivables has a historical practice. A buyer running a fresh analysis of the aging schedule may conclude eight percent is appropriate. Both positions can be defended in the abstract. Only one of them is what the seller priced into the deal.

The balance sheet items drawing the most scrutiny are predictable: stale inventory, receivables aging past terms, prepaid expenses that will not convert to value for the new owner, accrued liabilities that were never booked, deferred revenue representing work still owed to customers, and debt-like items sitting quietly among the current liabilities, such as accrued bonuses, deferred compensation, customer deposits, and unpaid capital expenditures.

What sellers can do about it

The leverage is concentrated in the weeks before signing. Once the agreement is executed, the seller's remaining tools are documentation and attention. Most of the work below costs a few weeks of finance time and can be done well before a buyer is at the table.

What to watch

Two developments deserve attention over the next several quarters. The first is the continued growth of special-purpose escrows dedicated to the adjustment. As more proceeds are held back specifically for the true-up, the size and duration of that escrow becomes a distinct negotiating point rather than an afterthought folded into the indemnity discussion.

The second is the effect of deeper diligence on how pegs get set. Buyers now arrive at the negotiation with monthly working capital detail rather than annual averages, which produces more precise targets and fewer arguments about methodology, but also fewer places where a seller benefits from a favorable simplification. Precision cuts both ways, and it rewards whichever party ran the analysis first.