Insights

How to calculate purchase price in an M&A transaction. In this example we start with enterprise value and work towards purchase price.

A covenant is a promise to take an action (or refrain from taking an action) that must be true for the period of time described in the purchase agreement.

An indemnity is simply protection against loss. Indemnification protects a party from losses due to broken “promises” (i.e., breaches of representations and warranties or covenants), and requires that the breaching party make the other party whole for losses realized.

The working capital adjustment can have a direct impact on the price paid for the business. Given that price is arguably the most important variable in a transaction, and that the working capital adjustment can impact price, it follows that the working capital adjustment deserves special attention.