Cash-free debt-free (CFDF) is a deal structure where enterprise value assumes the target has neither excess cash nor outstanding debt at closing — with post-close adjustments for actual balances.

How it works

Buyers and sellers agree on enterprise value. Under CFDF:

• Debt is paid off at or before close — reducing equity proceeds to sellers
• Excess cash above a working-capital target often flows to sellers or adjusts price downward if cash is thin
• Working capital target (normalized WC) true-ups add or subtract from purchase price if closing WC differs

Example intuition: if EV is fixed but the company closes with more cash than agreed, sellers may keep some via price adjustment; less cash than target reduces proceeds.

Venture exits to strategics or PE often use CFDF language even when debt is minimal — clarity on cash traps, customer prepayments, and escrows still matters.

Negotiate the locked-box vs completion accounts mechanism up front: locked-box fixes price at a historical date; completion accounts true up at close — each shifts who keeps cash generated between signing and closing.

Why it matters

• Founders: Negotiate WC peg and definition of “debt-like” items (convertible notes, unpaid taxes). Surprises in closing accounts erode headline valuation.
• Investors: CFDF standardizes comparables across portfolio exits; diligence focuses on quality of earnings and WC seasonality.

Common mistake

Spending down cash aggressively pre-close without modeling WC true-up — sellers can lose dollars they thought were “theirs.”

Related ideas

See also buyout, working capital peg, enterprise value, and change of control.