The two-step price of a completion accounts deal worked line by line: the estimate paid at closing, the final accounts, the true-up, and where the money moves.
Equity price = enterprise value + cash − debt − debt-like items + (working capital at completion − the peg). It is calculated twice: on estimates at closing, to fix the amount paid on the day, and on the final completion accounts, with the difference settled afterwards. On an illustrative 120.0 million enterprise value the buyer pays 82.7 million at closing, the final accounts give 80.3 million, and the seller repays 2.4 million.
Worked in full in Closing the Deal by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The headline on the signature page is an enterprise value, cash-free and debt-free, assuming a normal level of working capital. Completion accounts turn that headline into a price for the shares by measuring the balance sheet on the day the business changes hands. Nobody can measure it on the day itself, so the mechanism has two stages, and most of the arguments happen in the gap between them.
| Line | Estimated at closing | Final accounts |
|---|---|---|
| Enterprise value agreed | 120.0 | 120.0 |
| Cash | 6.5 | 6.1 |
| Financial debt | 40.0 | 40.0 |
| Debt-like items | 3.0 | 4.2 |
| Net working capital | 17.2 | 16.4 |
| Working capital peg | 18.0 | 18.0 |
Price = EV + cash − debt − debt-like items + (NWC − peg)
True-up = final price − estimated price. Positive: the buyer pays the seller. Negative: the seller repays the buyer. In Excel: =EV+Cash-Debt-DebtLike+(NWC-Peg) in each column, and =Final-Estimated for the true-up.
| Step | Estimated | Final | Movement |
|---|---|---|---|
| Enterprise value | 120.0 | 120.0 | |
| Plus cash | 6.5 | 6.1 | −0.4 |
| Less financial debt | −40.0 | −40.0 | |
| Less debt-like items | −3.0 | −4.2 | −1.2 |
| Working capital adjustment | −0.8 | −1.6 | −0.8 |
| Price for the shares | 82.7 | 80.3 | −2.4 |
At closing the buyer pays 82.7 million on the seller's estimates. The working capital came in 0.8 below the peg, so the seller already gave up 0.8 on the day. When the buyer's finance team prepares the final accounts, three lines move against the seller and the price falls to 80.3 million. The seller owes 2.4 million back, 2.9 per cent of what it received.
Watch for the double count. If the 1.2 of accrued bonuses is counted as a debt-like item, it must stay out of the working capital calculation. Left in both, it cuts the price twice: net working capital would be 15.2 and the final price 79.1, a further 1.2 that the business never cost anyone. The agreement should say that no item is counted in more than one line of the bridge.
| Final NWC | Adjustment vs peg | Final price | True-up |
|---|---|---|---|
| 15.4 | −2.6 | 79.3 | −3.4 |
| 16.4 | −1.6 | 80.3 | −2.4 |
| 17.2 | −0.8 | 81.1 | −1.6 |
| 18.0 | 0.0 | 81.9 | −0.8 |
| 19.0 | 1.0 | 82.9 | 0.2 |
Even if working capital had landed exactly where the seller estimated it, at 17.2, the cash and debt-like reclassifications alone would leave a 1.6 repayment. Working capital is euro for euro, so every euro of provision the buyer adds in the final accounts is a euro off the price. A de minimis threshold changes that at the margin: with no adjustment inside 0.5 either side of the peg, a final 17.6 would cost the seller nothing; with a deductible of 0.5 instead, the 1.6 shortfall becomes 1.1.
A price adjustment escrow of 1.5 million, held back from the 82.7, would cover most of the true-up. The remaining 0.9 million has to be paid by the seller directly, which is where completion accounts become a collection problem as well as an accounting one. Size the escrow from the lines that can move, not as a round percentage of the price.
The price under completion accounts is one formula applied twice, and the true-up is the difference: 82.7 paid, 80.3 final, 2.4 back to the buyer. Whoever prepares the final accounts holds the pen on every line that moves. The free workbooks for Closing the Deal run the equity bridge with both sides' columns and the locked box against completion accounts on identical terms, the locked box ticker prices the alternative mechanism, and the working capital peg covers the number this adjustment is measured against.
Usually the buyer, because it controls the business and its finance team after closing; the seller then has a review period to dispute items. That is why the true-up tends to run against the seller. In the illustrative case the buyer's final accounts move the price from 82.7 to 80.3 million, a 2.4 million repayment, through three judgement-heavy lines.
The estimate is the seller's best view of cash, debt, debt-like items and working capital at completion, used to set the amount paid on the day. The final statement replaces each estimate with the audited or agreed figure. The price difference between them, 2.4 million in the illustrative deal, is paid by whichever side was overpaid.
Large enough to cover a plausible true-up without a claim against the seller. Size it from the lines that can move: cash, debt-like items and working capital. In the illustrative case a 1.5 million escrow leaves 0.9 million of a 2.4 million true-up to be collected from the seller directly.
This article is one calculation from Closing the Deal. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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