Navigating the post-closing working capital adjustment in an M&A deal can be fraught with legal risks. This blog post uses a recent Delaware court case to highlight a common mistake and reveals how sellers and their advisors can protect a purchase price adjustment with ironclad contractual language. Learn the non-obvious provisions—including condition precedent and “time is of the essence”—that can prevent costly disputes and secure your deal’s value.
M&A Stories
September 25, 2025
In most M&A deals, the final purchase price is a moving target. It is common practice for the parties to agree on an estimated purchase price at closing, which is later adjusted based on the target company’s actual working capital. The working capital adjustment process is simple in theory: if the final number is higher than the estimate, the seller gets paid more; if it’s lower, the buyer pays less.
This routine process hit a snag in a recent Delaware federal court case, Versar Environmental Services, LLC v. Black & Veatch Special Projects Corp. The asset purchase agreement required the buyer to deliver a final working capital statement to the seller within 90 days of the closing. When the buyer finally delivered its statement 128 days after closing, it showed a final working capital number that would require the seller to return a significant portion of the purchase price. The seller refused, arguing that the buyer had missed the deadline, rendering its statement invalid. The dispute ended in litigation, with the court allowing the buyer’s claim to proceed to discovery. The court held that it was plausible the buyer and seller had a side agreement to extend the deadline, meaning a clear, written deadline in the contract was not enough to prevent a costly legal battle.
The court’s decision serves as a valuable lesson for both sellers and their advisors. The seller in this case could have significantly reduced its risk by including specific language in the purchase agreement. It is not enough to simply state a deadline. To give that deadline real force, the agreement should explicitly state that compliance is a condition precedent, a material part of the bargained-for exchange, and that time is of the essence. This language would have made it much more difficult for the buyer to argue that a verbal extension was a valid reason for missing the deadline and would have created a much stronger case for the seller.
This lesson has a powerful flip side, one that sellers should not ignore. What happens when the seller’s initial working capital estimate turns out to be too low, meaning the seller is owed a positive adjustment, but the buyer fails to submit a final calculation? If the buyer sits on the numbers, the seller could lose out on the additional payment. To prevent this, a well-drafted agreement would include a provision that empowers the seller. If the buyer fails to deliver the final statements by the deadline, the seller gains the right to prepare their own proposed statement. This proposed statement would then be subject to a much shorter objection period by the buyer, with any disputes ultimately resolved by an independent accountant. This contractual protection forces the buyer to act and prevents them from using a procedural loophole to avoid a legitimate payment.
See: Versar Environmental Services, LLC v. Black & Veatch Special Projects Corp., Civil Action No. 23-01450-RGA, United States District Court, D. Delaware (September 9, 2025). (Based upon Glenn Doyle West, A Crack in Delaware’s Contractarianism: The Survival Clause, Claims Notices, and the Law’s Abhorrence of Forfeitures, Bus. L. Today, May 13, 2025).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law in lower middle market private target deals.
By John McCauley: I write about recent problems of buyers and sellers in lower middle market private target deals.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Established Business Assets: A Guide for Owners, https://www.amazon.com/dp/B09TJQ5CL5
and Advisors and Selling Established Business Assets: A Guide for Owners and Advisors, https://www.amazon.com/dp/B0BPTLZNRM
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