We need to make significant investments in our technology infrastructure and facility upgrades before closing, but we are worried these cash outflows will reduce our net proceeds or working capital peg. How do we structure these pre-close capital expenditures so we do not pay for them twice?

Question

Tyler Smith · Accepted Answer

Making necessary capital expenditures, or CapEx, right before a transaction can easily destroy your deal value if you do not structure the treatment of these investments upfront. If you spend your own cash to upgrade your systems, you reduce your cash at close. If you delay the upgrades, the buyer will demand a purchase price reduction, claiming your facilities and systems are outdated. To prevent this, you must negotiate a clear distinction between maintenance CapEx and growth CapEx in your letter of intent. Agree with the buyer on a specific CapEx budget for the transition period. Any growth CapEx, such as implementing new AI-powered operational tools or upgrading your infrastructure, should be treated as a dollar-for-dollar addition to the purchase price at close, or excluded from your net working capital calculation. By using your V/TO® to lay out your clear long-term infrastructure plan, you can show the buyer that these investments directly accelerate their future growth. Proving that these expenditures directly increase capacity allows you to justify treating them as capital improvements rather than operating expenses, ensuring you get paid for building a stronger business foundation.