IT Services & MSPs Working Capital Adjustments: An Independent Sponsor's Counsel
Negotiating Working Capital Adjustments on IT services and MSPs deals, with the structure protection and capital connectivity an independent sponsor actually needs.
An independent sponsor closing IT services and MSPs transactions in the $8M to $100M EV range has a defined set of moves at the Working Capital Adjustments stage. Most of them are not in a generic M&A textbook.
The typical IT services and MSPs platform sits at $8M to $100M EV with EBITDA in the $2M to $18M range. The thesis runs on MSP platform with regional or vertical-specific bolt-ons. An MSP at 70% recurring revenue trades at one multiple, at 90% trades at a different one. The mix is the deal.
How Working Capital Adjustments actually gets structured.
Set the peg based on a trailing 12-month average, normalized for seasonality.
Define each line item in the schedule, especially deferred revenue and accrued vacation.
Cap the dispute resolution timeline at 30 days post-close.
Build a true-up payment mechanism funded out of escrow.
In IT services and MSPs, layer in MSA assignment review with carve-outs noted as part of the Working Capital Adjustments workstream.
Using an unadjusted average that ignores seasonality. You pay twice for the same cash.
"Working capital is where deals are won or re-traded after LOI. Read every line of the schedule."Jason Powell · Working Capital Adjustments
The deal is one thing. The capital that opens up after close is another.
The capital that opens up post-close, from refinancing to growth equity to strategic exit, runs through a small set of Wall Street relationships. That network is built in.
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An LOI on the desk, a IT services and MSPs target, and a Working Capital Adjustments question worth a real conversation.
Twenty minutes of practitioner-grade input from a securities attorney whose first move is to read the deal, not the engagement letter.