VC & PE Glossary
What Is Purchase Price Adjustment?
Updated
Definition
A purchase price adjustment is a post-closing change to what the buyer pays — or what sellers receive — based on verified financial metrics at closing versus targets agreed in the deal, such as working capital, cash, or debt.
Useful for: Founders, Investors
A purchase price adjustment recalibrates transaction proceeds after closing when actual balance-sheet items differ from the targets or estimates in the purchase agreement.
How it works
In a /glossary/cash-free-debt-free deal with a working capital target, the parties agree on a peg — often trailing average working capital. At close, accountants prepare a closing statement; variances flow through to the purchase price. Collars cap how much adjustment either side bears. Alternatives like the /glossary/locked-box fix price at a locked date and penalize value leakage instead of post-close true-ups.
Venture exits and acqui-hires use simpler structures, but growth sales and PE roll-ups rely heavily on adjustments. Definitions of cash, debt, and working capital are negotiated line by line.
Why it matters
- Founders: Run the business normally through close; aggressive distributions or deferred payables can trigger downward adjustments.
- Investors: Proceeds models should include adjustment risk, not only headline enterprise value.
- Buyers: Adjustments align price with economic reality at the moment ownership transfers.
Common mistake
Ignoring the working capital peg until the last month of diligence. Sudden inventory or receivable swings become purchase price fights.
Related ideas
/glossary/cash-free-debt-free, /glossary/locked-box, closing accounts, and earnouts.
Related terms
- Cash-Free Debt-Free — Cash-free debt-free (CFDF) is an M&A pricing convention where the purchase price assumes the company delivers no excess cash and no debt at close — with adjustments after closing for actual balances.
- Locked-Box — Locked-box is an acquisition pricing method where enterprise value is fixed at an agreed historical date, transferring economic benefit to the buyer from that date forward while the seller operates under anti-leakage rules until closing.
Common questions
Short answers for founders, LPs, and operators