January 31, 2025
Post-Closing Adjustments: SRS Acquiom Issues Working Capital PPA Study
SRS Acquiom recently issued its “2025 M&A Working Capital Purchase Price Adjustment Study,” which analyzes purchase price adjustment terms and claims in over1,200 private-target acquisitions. Here are some of the key findings:
– PPAs are now virtually ubiquitous, appearing on well over 90% of private deals. A decade ago, PPAs were present in only around half of deals.
– No two PPA provisions are the same, as parties continue to actively negotiate and customize terms such as which financial metrics to include, accounting methodology, PPA escrows, and caps.
– The median size of a separate PPA escrow increased to about 1% of transaction value for the last two years, which tracks with the average size of buyers’ initial PPA claim sizes (0.9% of transaction value), However, 24% of PPA claims exceeded 1% of transaction value.
– SRS Acquiom continued to see an increase in working capital surpluses (seller-favorable), with nearly equal prevalence of claims and surpluses for deals closed in 2024.
– Buyers’ proposed calculations were reviewed and ultimately accepted in 7 out of 10 PPAs.
The report also says that although the amount of time necessary to resolve PPA claims varies, even contested claims took less than two months to resolve on a median basis. The report also offers tips on drafting key purchase agreement PPA terms, including the seller rep’s information rights, dispute resolution provisions, sources of recovery and escrow release mechanics.
– John Jenkins