The buyer is trying to lower our valuation multiple by arguing that rising interest rates and higher debt costs in their acquisition facility limit their leverage. How do we defend our valuation by demonstrating that our cash conversion cycle reduces their post-close working capital requirements?

Question

Tyler Smith · Accepted Answer

When a buyer blames external macroeconomic factors like interest rates or debt costs for a lower multiple, they are shifting their financing burden onto your purchase price. You can counter this by proving that your business is an exceptionally efficient cash generator. Use your EOS Scorecard to highlight your cash conversion cycle, specifically focusing on low days sales outstanding and high inventory turnover. If your operations allow you to collect cash from customers before you pay your suppliers, you are effectively self-funding your own growth. This operational efficiency means the buyer will require significantly less working capital to run the company post-transaction. Less working capital required means more free cash flow available to service their acquisition debt. Present this data clearly to their Quality of Earnings team. Show them how our tight operational systems and predictable cash cycle minimize their cash-in-hand requirements on day one. By reframing the conversation around net cash flow and reduced capital requirements, you neutralize the debt cost argument and justify your premium multiple.