---
title: "What Is Working Capital Peg?"
term: "Working Capital Peg"
description: "A working capital peg is the target net working capital level agreed in an M&A deal — the baseline used to calculate post-closing purchase price adjustments."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/working-capital-peg
---

# What Is Working Capital Peg?

> A working capital peg is the target net working capital level agreed in an M&A deal — the baseline used to calculate post-closing purchase price adjustments.

**A working capital peg** is the agreed target for net working capital at transaction close — the reference point for [working capital adjustments](/glossary/working-capital-adjustment) that true-up purchase price.

### How it works

Buyers and sellers negotiate:

- **Peg amount** — often 12-month average NWC excluding cash/debt-like items per definition schedule
- **Collar** — sometimes immateriality band where no adjustment unless variance exceeds threshold
- **Accounting principles** — GAAP consistency, no unusual accrual games pre-close

Example: peg set at $4M NWC. Close at $3.2M → $800K purchase price reduction to buyer (subject to caps). Close at $4.5M → seller may receive $500K add-back if symmetric collar.

Seasonal businesses peg off normalized months — not peak inventory alone. Services firms focus on deferred revenue and unbilled AR treatment.

Locked-box deals fix price at a historical date and pay interest instead of peg adjustments — alternative structure in some UK/EU deals.

### Why it matters

- **Founders:** Run peg forecasts weekly in final quarter of sale. Align AR collection, inventory builds, and AP timing with advisors.
- **Investors:** PE sponsors model peg in returns — missing peg is equivalent to hidden price increase post-signing.

### Common mistake

Negotiating peg using headline NWC without agreeing account definitions — disputes over prepaid marketing or customer deposits blow up at close.

### Related ideas

See also [working capital adjustment](/glossary/working-capital-adjustment), [working capital](/glossary/working-capital), and [locked box](/glossary/locked-box).

## FAQ

### What is a working capital peg in simple terms?

The peg is the agreed 'normal' amount of working capital the buyer wants on day one after the deal closes — usually based on recent averages — used to adjust price if you deliver too much or too little.

### Why does a working capital peg matter?

For founders, missing the peg reduces cash at close. For buyers, it prevents sellers from pulling cash and starving the business — peg negotiation is core M&A economics.


---
Source: https://venturecapitaltracker.com/glossary/working-capital-peg