Answers / Financial Due Diligence
Why is the NWC peg important?
A core Financial Due Diligence interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
The NWC peg protects the buyer from the seller stripping working capital before close. If the seller collects all receivables and delays paying suppliers, they leave the buyer with an underfunded business. The peg sets a target: if actual NWC at closing < peg, the purchase price decreases dollar-for-dollar. It ensures Day 1 the business has enough working capital to operate.
WHAT INTERVIEWERS LISTEN FOR
- ✓Protects buyer from seller stripping NWC
- ✓Sets target NWC level
- ✓Dollar-for-dollar price adjustment
- ✓Ensures adequate working capital at close
COMMON MISTAKES
- ✗Thinks peg is about financing
- ✗Confuses NWC with net debt
- ✗Ignores operational continuity
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