Navigating the purchase price mechanism in M&A deals

In mergers and acquisitions (M&A), agreeing on a headline price is only the beginning. A core aspect of the value can be the adjustments and mechanisms that transform the Enterprise Value (EV) into the Equity Value the seller ultimately receives.

This difference is not just a technicality. It’s a core financial reality that can significantly alter the economics of your deal. Misunderstandings or oversights can mean significant sums lost – or gained – depending on how well you prepare and negotiate.

Why this matters

Even in well-negotiated deals, sellers are often surprised when the final settlement is lower than expected, while buyers can find themselves inheriting unforeseen liabilities.

The gap arises because:

• EV reflects the overall value of the business including debt and equity.
• Equity Value is what changes hands, once debt, cash, working capital adjustments, and other agreed items are factored in.

This transition is governed by the Sale and Purchase Agreement (SPA) – a legal document, but also a powerful financial instrument, which can be tuned to your advantage or your detriment.

How we help you protect and optimise value

At Azets, we approach SPA mechanisms with the precision of accountants and the foresight of deal strategists. We work side-by-side with you to:

Bridge the EV–Equity Value gap

We ensure you understand the bridge between EV and Equity Value, explaining the concepts in plain English, and advising what is on and off market.

Select the right closing mechanism

We analyse whether Completion Accounts or a Locked Box approach will best protect your position based on the deal type, timeline, and counterparties.

Analyse and benchmark working capital

We use historical and industry data to ensure the target’s working capital reference point is fair, avoiding “value leakage” at completion.

Advise on tax and accounting clauses

We advise you and your legal advisers of the accounting and tax aspects of the SPA. This includes commentary on the pricing clauses, relevant indemnities and warranties, and any other accounting-related clauses of the SPA.

Build negotiation strategies

We provide the arguments to support your proposed approach or the negotiation stance to counter the opposing side’s arguments - making sure you are in the best position to get the value you expect..

The risks of getting it wrong

We’ve seen deals where:

• Sellers inadvertently gave away value because the working capital target was set too high.
• Buyers paid more than intended because debt-like liabilities were missed during diligence.
• Parties spent months in disputes that could have been avoided with tighter SPA definitions.

These aren’t rare exceptions – they are common pitfalls. In competitive deal environments, the winners are rarely those who only focus on the headline price.

Overall, the purchase price mechanism is one of the most powerful, yet often overlooked, value drivers in mergers & acquisitions. Mastering it can be the difference between a good deal and a great one.

We’re here to help

If you’re preparing for a transaction – or already mid-negotiation – let’s discuss how we can help protect your interests and maximise your deal’s true value.

Get in touch with us today.