Working capital disputes in M&A transactions in Mexico
In M&A transactions in Mexico, working capital disputes typically arise when actual working capital at closing does not match what was agreed in the LOI or purchase agreement, or when buyer and seller interpret the definition of working capital differently. Those gaps lead to price adjustments, escrow holdbacks, or dispute resolution procedures. This guide explains why disputes arise, what mechanisms are used (peg, true-up, escrow, expert determination), and how to avoid or negotiate them with a clear definition and data backup.
The dispute arises when actual working capital at closing does not match what was agreed in the LOI or SPA; a clear contractual definition and data backup are what prevent the conflict.
Why disputes arise
The transaction price is usually set assuming a certain level of working capital (peg or target). If actual working capital at closing is lower than agreed, the buyer asks for a downward adjustment; if it is higher, the seller may argue for an upward adjustment. The dispute appears when there is disagreement on the actual number or on which items fall within the definition.
- Unclear definition in the contract. If the SPA does not precisely define which balance sheet accounts form working capital (current assets, current liabilities, exclusions such as financial debt or minimum cash), each side can include or exclude items to its advantage.
- Accounting or cut-off issues. Cut-off dates, accounting policies, or treatment of seasonal items can change the number; without clear rules, buyer and seller arrive at different figures.
- Insufficient or late data. If the closing balance sheet is not backed in time or with the agreed detail, the discussion drags on and gets more expensive.
Typical mechanisms
In Mexican SME transactions, a combination of peg (target working capital), true-up (post-closing adjustment), and—when the amount at stake is material—escrow or expert determination is commonly used to resolve disagreements.
| Mechanism | What it does | When it's used |
|---|---|---|
| Peg (target working capital) | The LOI/SPA sets a working capital level; the price assumes that level. If actual at closing differs, the price is adjusted (seller pays or receives the difference). | Standard in almost all transactions with a working capital adjustment. |
| True-up (post-closing adjustment) | After closing, actual working capital is calculated using the agreed definition; the difference from the peg is paid in cash (seller to buyer or vice versa) within an agreed period. | When closing accounts are not final at signing; a period (e.g. 60–90 days) is set for the final calculation. |
| Escrow | Part of the price is held in a custodial account until the working capital adjustment is determined or a deadline passes; undisputed amounts are released to the seller. | When the potential adjustment is large or there is concern about the figure the other side will present. |
| Expert or independent determination | If buyer and seller cannot agree on the working capital figure, an expert or independent firm applies the contract definition and its determination is binding (or in some contracts only within certain ranges). | When the dispute is not resolved within the agreed period; the contract usually specifies who selects the expert and who bears the cost. |
How to avoid or reduce disputes
Defining the concept clearly and backing it with data reduces the risk of conflict and speeds the true-up.
- Define working capital in the LOI and in the SPA. Include an operational definition: which balance sheet accounts form part of it (current assets less current liabilities, with explicit exclusions: cash above X, current financial debt, etc.). Refer to accounting policies and cut-off date. What is not written down is disputed later.
- Set the peg with backup. Use the working capital calculator to align the target level with the business; document in the data room how the peg was derived and with what historical data.
- Agree who prepares the closing figure and who reviews. Specify in the SPA who presents the working capital calculation at closing (usually the seller) and by when the buyer may object; short, clear deadlines avoid drawn-out disputes.
- Document the closing position. Back the closing balance sheet and the working capital account detail with accounting reports and reconciliations; without backup, the dispute becomes subjective.
In this guide:
Working capital — definition and how it supports the business.
Working capital calculator — calculate the target and back the peg.
How to structure a purchase offer in Mexico — price, consideration and adjustment mechanisms.
Due diligence in Mexico — what the buyer reviews and how to prepare.
Seller note in Mexico — consideration structure and timing.
Consideration structure — cash, note, earn-out and adjustments.
How to sell your company in Mexico — full process and preparation for closing.
Sources
What to review after this guide?
The glossary entry on working capital defines the concept and links to the calculator to set the target. The guide on How to structure a purchase offer in Mexico covers price, consideration structure and adjustment mechanisms that typically include working capital.