By Denis Reinhardt
“Cash and debt free basis” is one of the fundamental assumptions for pricing an M&A transaction. The rationale is straightforward: a seller wants to be compensated for any liquidity left in the company, and a buyer likewise seeks compensation for the future obligations that come with any remaining third-party debt.
But cash isn’t always just cash. Even if an amount in the company’s bank account appears to be readily available liquidity, it’s often worth a closer look for both buyer and seller. For example, cash held in a fiduciary/escrow capacity—therefore not freely available to the new owners after closing—complicates matters. Another example is pass-through items (durchlaufende Posten). These can be especially significant when the timing of inflows and outflows diverges widely. In healthcare, such timing gaps can easily stretch over several months. In situations like these, i-capital adds value through extensive experience and an external perspective, helping with early identification and clear communication of potential special cases.
A closer analysis of a company’s cash reserves and their intended uses pays off for two reasons. First, it creates transparency and thus a stronger negotiating position. When both sides can fully contextualize the facts, a transaction “on equal footing” becomes possible. Second, a deeper look can explain sharp swings in cash—such as the settlement of a large pass-through item that has built up over several months.
By characterizing and reclassifying cash balances in such special situations, you can arrive at a more realistic view of a company’s financial position. This enables better valuation and negotiation for all parties. At the same time, potential adjustments also affect net working capital—another core metric in every M&A transaction—so a holistic and consistent approach is essential. Here, as M&A advisor, i-capital can establish a clear throughline across both analyses and ensure the information released is coherent.
