hard · Private Equity value-creation
A buyer excludes 'Income Taxes Payable' from the working capital peg but includes it as a 'Debt-like' item.
If the company has a $2.0M tax liability at close, how does this affect the buyer's IRR compared to including it in the peg?
- The buyer's IRR decreases because they have to pay for the taxes later
- IRR increases only if the EBITDA multiple is above 10.0x
- The buyer's IRR increases because they get a certain $2.0M price reduction instead of a variable true-up
- There is no difference in IRR as the cash outflow is the same
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