In a deal, the gap between a signed Letter of Intent and a successful integration is paved with complexity and nuance. In the middle market, the big picture strategy is rarely what kills a deal — it’s the mechanical friction of working capital, the structure of earnouts, and the human element of post-close management.
Greg McGuire, Senior Manager of Transaction Advisory Services at Louis Plung & Co., dives deep into the technical traps that can erode deal value. He discusses why a standard 12-month average for net working capital might actually be penalizing your business, the art of the earnout, the often-undervalued roles that cause the most integration friction, how to stress-test for post-close cash injections during diligence, and the "smoking guns" in financial data that signal a deal is headed south.
Here’s an excerpt:
“You just need this calculation to be defensible,” McGuire says. “Both parties aren't going to know exactly how to put it onto paper and do it. You just need to make sure that you've covered the scenarios and that when it comes down to it, you guys can agree on what happened and how we adjust this. Sometimes you'll see it the day of signing that estimated working capital can lead to delays, and it can cause a lot of issues between the buyer and seller, and they have to be friendly going forward. So, at the end of the day, you just have to be ahead of it, make sure it's defensible. and then whatever the idea, the metrics, the calculation that you come up with, that everybody's on board and that it covers you in the long run.”
