medium · Private Equity & LBOs
A target company has $10.0M in 'Deferred Revenue' representing cash collected for services not yet performed.
If the buyer includes this in the working capital peg, how does it influence the closing price?
- It acts as a liability that reduces net working capital, potentially increasing the purchase price if it decreases at close
- It is treated as 'Cash' and increases the purchase price dollar-for-dollar
- It is excluded from working capital because it is a non-cash item
- It increases the enterprise value via a higher EBITDA multiple
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