Definition. The specific dollar amount of Net Working Capital the seller agrees to deliver at close. If actual NWC at close exceeds the target, the seller is paid the excess; if it is below, the seller pays the buyer the shortfall. Negotiated separately from the headline purchase price and often the single most-contested non-price term in lower-middle-market deals.
The NWC peg is what makes the NWC negotiation real. The headline price is paid; the NWC adjustment is settled in cash, typically 60 to 90 days after close, after the closing balance sheet is finalized.
Sellers should track NWC monthly for at least 12 months before going to market, and ideally model the trailing-twelve-month average through the expected close date. Buyers expect the seller to deliver against the target; surprises after close erode the relationship that the seller may still depend on through an earnout period.