The headline number is a marketing line. Cash at close is a math problem.
A seller hears “$25 million” and starts picturing the wire. That’s normal. It’s also where trouble starts.
In M&A, enterprise value is not equity value, equity value is not cash at close, and cash at close is not the full check the seller will eventually receive. Working capital pegs, debt-like adjustments, holdbacks, escrows, earnouts, rollover equity, and post-close true-ups all sit between the headline and the wire.
Each one moves real money. A few of them quietly move a lot.
That gap matters.
For home-based care operators, it matters even more. Accounts receivable timing, unbilled revenue, denials, payroll accruals, accrued PTO, branch-level performance, and payer mix all feed into purchase price adjustments and post-close disputes. A deal that looks strong in the first summary can feel very different once the economics are unpacked.
The market tends to talk about valuation first and proceeds later. We think that is backwards. The right question is not just what the business is worth. It is what the seller is likely to receive, when, and under what conditions.
That is a big part of how we think at Montauk AI.
Operate. Optimize. Exit.
Operate well enough to build a company buyers want. Optimize before the process exposes the weak spots in your numbers. Exit through a structure that protects value instead of quietly moving it away from you after the LOI is signed.
This topic sits right in the middle of that.
Enterprise value is not seller proceeds
This is the first distinction sellers need to understand. And most don’t, until it costs them.
A buyer says your business is worth $25 million. That does not mean you are receiving $25 million at close. It means the transaction is being discussed at a $25 million enterprise value. From there, the actual seller proceeds move through a sequence of adjustments that almost no first-time seller sees coming in full.
Here is the bridge, simplified.
Enterprise value is the headline. It is the value of the business as an operating entity, independent of how it is financed.
Minus debt and debt-like items. Bank debt, capital leases, deferred bonuses, accrued earn-outs from prior deals, unfunded pension or retirement obligations, certain unpaid taxes, and other items the buyer treats as obligations the seller is responsible for retiring at close.
Plus or minus the working capital adjustment. If the business is delivered above the agreed working capital target, the seller is paid up. If it is delivered below, the price is reduced.
Equals equity value.
Minus the escrow and holdback. A portion of equity value is set aside to secure indemnity claims and post-close adjustments. That money is not lost. But it is not in the seller’s pocket either.
Minus deferred consideration. Earnouts. Seller notes. Rollover equity. Each one is real value on paper. None of it is cash today.
Minus transaction expenses. Banker fees, legal, QofE, tax advisory, R&W insurance premiums, and other deal costs that the seller is paying out of proceeds.
Equals cash at close.
A clean way to picture it: a $25 million enterprise value transaction can produce $18 to $20 million of cash at close in a clean structure, and meaningfully less in a structure with a heavy holdback, a large escrow, a deferred earnout, and a working capital target the seller is at risk of missing.
Same headline. Very different outcome.
What working capital actually means in M&A
Working capital sounds technical. It is. But the concept is simple.
Buyers expect the business to be delivered with enough normalized working capital to keep operating on day one after closing. They do not want to buy a company and then immediately fund a shortfall because the seller pulled too much out before the deal closed.
So the purchase agreement includes a working capital target. Most people call it the peg.
If the business is delivered above the peg, the seller may receive more. If it is delivered below the peg, the purchase price is reduced dollar-for-dollar.
That sounds fair in theory.
In practice, working capital is one of the easiest places in a transaction for value to move quietly.
The fight nobody warns sellers about: working capital vs. debt-like items
This is one of the most underappreciated battlegrounds in any deal.
Working capital items get netted against the peg. Debt-like items get subtracted dollar-for-dollar from purchase price. The same balance sheet item, classified two different ways, produces two very different outcomes for the seller.
Holdbacks, escrows, and indemnity exposure
Sellers often treat holdbacks and escrows as legal fine print. They are not.
A holdback or escrow means part of your proceeds are delayed, restricted, or placed at risk after closing.
Earnouts and rollover: the proceeds that are not really proceeds
Earnouts are often used to bridge a valuation gap between buyer and seller. The buyer is not willing to pay the seller’s headline number today. The seller is not willing to walk away from it.
Rollover equity is real value, often with meaningful upside if the buyer executes. It is also illiquid.
Post-close true-ups: where headline deals get tested
A lot of sellers think the purchase price is settled once the LOI is signed. Some think it is settled at close. It isn’t.
Most deals include post-close purchase price adjustments tied to working capital and sometimes to debt-like items or cash delivered at closing.
A strong headline price can still be a weak deal
A high headline valuation does not automatically mean strong seller proceeds.
A buyer can offer a premium number and still structure the deal in a way that shifts risk back to the seller.
What sellers should pressure-test before signing the LOI
Normalized working capital. The look-back window. Debt-like classification. Add-back durability. Branch and payer detail. Cash at close as a percentage of headline. Indemnity exposure.
How we approach this at Montauk AI
We do not treat working capital and holdbacks as technical cleanup after the real negotiation is done. We treat them as part of the negotiation.
What sellers should remember
Working capital is not a side issue. Holdbacks are not minor details. Escrows are not just legal language.
Earnouts and rollover are not “more proceeds.” They are deferred and at-risk.
FAQ: Working Capital and Holdbacks in M&A
What is working capital in M&A?
Working capital in M&A usually refers to the short-term operating assets and liabilities delivered with the business at closing.
What is a working capital peg?
A working capital peg is the agreed target level of working capital the seller is expected to deliver at closing.
What is a holdback in M&A?
A holdback is a portion of the purchase price that is withheld from the seller at closing and paid later.
What is an escrow in M&A?
An escrow is money set aside with a third party after closing to secure certain seller obligations.
What is an earnout?
An earnout is consideration paid to the seller after close based on post-close performance.
Is rollover equity the same as cash?
No. Rollover equity is illiquid ownership in the buyer or the post-close company.
Final thought
A seller hears “$25 million” and starts picturing the wire. That is not how deals work.
The real question is what gets wired, what gets held back, what gets adjusted later, and what is still at risk after closing.