Purchase Price Adjustment

The purchase price adjustment is a mechanism that subsequently adjusts the preliminary purchase price agreed at signing to reflect the actual economic circumstances at the completion date. It is typically used in the closing accounts model and stands in contrast to the fixed locked box price.

The reference points are usually the actual net working capital as well as net financial debt at closing, measured against pre-agreed target values. If the actual working capital exceeds the target, the price increases; if it falls below, the price decreases. The same logic applies to deviations in net debt on a cash & debt free basis.

Because the size of the adjustment can move substantial amounts, clear definitions, reference-date accounts and a dispute resolution procedure are essential. In our transaction structuring, we formulate the adjustment mechanism clearly and in a way that minimises conflict.