What Comes Out of the Purchase Price in an M&A Transaction?

One thing for sellers to understand is that that they generally will not receive the top-line purchase price at closing.  

So, what usually comes off the so-called closing waterfall before the balance is sent to the seller:

• Debt, whether assumed or paid off (remember, the purchase price was likely calculated on debt-free basis)

• Agreed debt-like items such as deferred revenue, pension liabilities, and other items

Note that generally speaking, debt-like items should be included in the working capital calculation OR paid off at closing as a debt-like item, but not both

• Any negative variance between the estimated working capital at closing and the target working capital

• Any outstanding transaction expenses, such as attorney and investment banker fees

Earnouts and other contingent payments, as well as the value of any rollover equity

Escrow and holdbacks

It’s important to be aware of you’re actually receiving at closing as a seller.