Normalized operating working capital

Normalised operating working capital is the level of working capital required to sustain the company's normal operating cycle, derived from historical ratios (DSO, DIO, DPO) after eliminating exceptional or non-representative items. It serves as the contractual reference in completion accounts price adjustment mechanisms: any deviation between actual working capital at closing and the normalised reference triggers a euro-for-euro price adjustment in favour of buyer or seller. Its determination is one of the most technically complex and commercially significant aspects of M&A price negotiations.

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Example: a Swiss distribution company presents working capital varying between CHF 2.8 and 4.2 million across 12 months due to seasonality. After 24-month analysis excluding the year-end seasonal peak and normalising for exceptional customer payment delays, normalised operating working capital is fixed at CHF 3.2 million in the SPA. At closing, actual working capital is CHF 2.9 million — generating a CHF 300,000 price reduction in favour of the buyer via the completion accounts mechanism.

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Hectelion constructs and defends normalised operating working capital positions in completion accounts disputes for sellers and buyers.