Definition. Current operating assets minus current operating liabilities, typically excluding cash and debt. In a transaction context, the buyer expects a target level of NWC to be delivered at close, ensuring the business has the working capital required to operate normally in the period immediately after change of ownership.
NWC is one of the most-contested items in lower-middle-market transactions. The buyer wants a high NWC target (which keeps more working capital in the business at close). The seller wants a low NWC target (which lets the seller take more cash out before close). The gap between the two positions is sometimes 5% to 10% of the headline purchase price.
The NWC target is typically set as a trailing twelve-month average of NWC, adjusted for seasonality and for one-time items. Seasonal businesses (industrial services with summer or winter peaks, consumer-facing businesses with holiday peaks) require careful normalization; getting this wrong, in either direction, is one of the most common deal frictions in the lower middle market.