What is a purchase price adjustment clause?

A purchase price adjustment clause modifies the final transaction price based on financial conditions at closing. It is included in most M&A agreements for private company acquisitions to ensure the final price reflects the true value of the businesshttps://mallon-lonnquist.com/blog/purchase-price-adjustments/#:~:text=A%20purchase%20price%20adjustment%20is,agreement%20and%20the%20closing%20date. These adjustments often account for changes in working capital, debt or other specified metrics between signing and closinghttps://mallon-lonnquist.com/blog/purchase-price-adjustments/#:~:text=A%20purchase%20price%20adjustment%20is,agreement%20and%20the%20closing%20date. The parties agree on initial benchmarks, definitions and methodologies; for example, a working capital adjustment uses a benchmark for accounts receivable, inventory and prepaid expenses minus accounts payable and liabilitieshttps://mallon-lonnquist.com/blog/purchase-price-adjustments/#:~:text=includes%20confirming%20which%20accounts%20and,debt%20would%20be%20addressed%20separately. If the closing figures differ from the benchmark, the purchase price is adjusted dollar‑for‑dollar above a threshold or within a caphttps://mallon-lonnquist.com/blog/purchase-price-adjustments/#:~:text=The%20most%20common%20type%20of,adjustment%2C%20or%20a%20capped%20adjustment. Purchase price adjustments protect both buyer and seller by ensuring neither party is unfairly advantaged by fluctuations before closing. Prime 100 helps clients negotiate purchase price adjustment clauses that are clear and fair. We define the financial metrics, agree on calculation methods and ensure the contract includes dispute resolution mechanisms and timelines. Our team explains how adjustments work so you can prepare for any post‑closing true‑ups.