The buyer is insisting on a high net working capital target that includes our specialized raw materials, effectively forcing us to give away valuable inventory for free. How do we use IVS 105 and an Adjusted Book Value analysis to extract this specialized inventory from the working capital peg?

Question

Tyler Smith · Accepted Answer

A buyer will often try to include specialized raw materials or custom inventory in the net working capital peg at a standard historical average, which essentially forces you to leave valuable cash behind. To prevent this, you must separate your specialized assets from standard operating working capital using an Adjusted Book Value analysis.

Under the IVS 105 valuation framework, you have the right to revalue individual assets to their approximate market value. For specialized raw materials, argue that this inventory represents a distinct capital asset with high utility, rather than standard liquid working capital.

To win this negotiation, document the specific value of this inventory. Show that these materials are essential for delivering future, high-margin projects already on your V/TO®. Prove that if the buyer had to purchase these materials on the open market today, they would pay a significant premium due to supply chain lead times.

Negotiate a dual-track working capital target. Establish a standard peg for ordinary items like receivables and accounts payable, and treat your specialized raw materials as a separate, dollar-for-dollar addition to the purchase price at close. This ensures you get paid full market value for the specialized resources you have secured, rather than giving them away in a generic working capital calculation.