What is a working capital peg in an M&A deal?
A working capital peg is the target level of net working capital the buyer expects at close; delivery above or below the peg results in a dollar-for-dollar purchase price adjustment, which can move the headline price at close in either direction.
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Definition
A working capital peg is a negotiated benchmark for current assets minus current liabilities that the target business must deliver at closing, with any shortfall or surplus adjusting the purchase price dollar for dollar.
The detail
The peg is usually the average of monthly net working capital over the trailing twelve months, with cash and debt left out because the deal is done on a cash-free, debt-free basis. BDO calls the twelve-month average typical and notes that buyer and seller sometimes agree on the trailing six or three months when those better represent the business. Common items inside the peg: accounts receivable, inventory, prepaid expenses, accounts payable, accrued payroll, accrued vacation, and accrued expenses. If closing working capital is below the peg, the seller owes the buyer the difference. If above, the buyer pays the seller extra. The peg is a common area of retrade: buyers argue for a higher peg (which effectively reduces the purchase price) and sellers argue for a lower one. Healthcare-specific complications: aged AR discounts, payer mix changes, and seasonal fluctuations in collections can all affect how a normal peg should be defined. The adjustment is close to universal. SRS Acquiom finds working capital purchase price adjustments in more than 90% of private-target deals, up from 50% a decade earlier, and in its 2025 study 91% of deals with the mechanism ended up with an adjustment, 55% of them in the buyer's favor.
The peg is typically an average of normalized net working capital for the latest trailing twelve months; buyer and seller can agree on a trailing six or three months if those periods better represent the business.
Working capital purchase price adjustments appear in more than 90% of private-target deals, up from 50% a decade ago.
Source: SRS Acquiom: 2026 Working Capital Purchase Price Adjustment Study
91% of deals with a working capital purchase price adjustment mechanism had an adjustment, and 55% of those adjustments favored the buyer.
What this means for clinic owners
From Sorso
The working capital peg is where sophisticated buyers quietly claw back part of the headline price. Sellers who negotiate the multiple hard and then rubber-stamp the peg language lose real money. Have a finance advisor model the peg under multiple methodologies before signing the LOI.
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What is the average EBITDA multiple for PT clinics?
Breakwater M&A publishes physical therapy (physiotherapy) multiples by adjusted EBITDA: $150K to $500K at 2.5–4x for a single owner-operated location, $500K to $1M at 4–6x once a professional manager is in place, $1M to $3M at 5–7x for a platform practice with a regional footprint, and $3M+ at 6–8x+ for a roll-up target. It sums the whole market up as "2.5x to 8x EBITDA" in 2026. Peak Business Valuation states 3.0x to 6.0x with no size breakdown behind it, so read that as a cross-check on the middle of Breakwater's ladder rather than a band for any one clinic size.
How do PE firms value medical practices?
Private equity firms value a medical practice as a multiple of its trailing-twelve-month adjusted EBITDA, and the multiple rises with scale. Published ladders run from 2.5–4x for a single owner-operated physical therapy clinic (Breakwater M&A) to 10x–20x for large primary care platforms (Scope Research), and payer mix, growth and owner dependence move a practice within its band.
What is a quality of earnings report?
A quality of earnings (QoE) report is a financial due diligence analysis, usually commissioned by the buyer, that normalizes EBITDA, tests whether revenue and expenses are reliable, and flags risks that affect the purchase price. Breakwater M&A puts the fee at $10,000 to $25,000 for a business with under $1M of EBITDA, rising to $50,000 to $150,000 at $10M to $25M.
What is an LOI in healthcare M&A?
A letter of intent (LOI) in healthcare M&A is a mostly non-binding agreement that sets the proposed purchase price, structure, exclusivity period, and diligence timeline before a buyer commits the resources to close a deal. The exclusivity and confidentiality clauses are the parts that usually bind.
What is rollover equity in a practice sale?
Rollover equity is the portion of sale proceeds that the selling owner retains as equity in the buyer's platform, generally 10 to 40 percent of the practice's total enterprise value in physician deals according to Foley & Lardner, creating a second liquidity event when the platform is later sold.
What is an earnout in a healthcare M&A deal?
An earnout is a portion of the purchase price paid only if the practice hits financial targets after closing, usually revenue, collections or EBITDA measured over one to three years. In dental DSO deals, Jaffe Law puts earnouts at 10% to 30% of deal value, and SRS Acquiom's deal data put the achievement rate for earnouts outside life sciences at 21 cents on the dollar.
Founder of Sorso and a CFA charterholder. Before Sorso, Stan spent 19 years in corporate finance at institutions including UniCredit and Société Générale — managing a $450M loan portfolio and making senior partner at a major mezzanine lender by 29 — then built a fractional CFO firm exclusively for outpatient healthcare clinics.
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