Pricing a deal on a cash-free, debt-free basis means the headline price assumes the target arrives with no cash and no interest-bearing debt — both are settled or excluded outside the price — alongside a normal, defined level of working capital.
Treadstone’s own explainer on working capital adjustments states the convention plainly: most private Canadian deals price a business “debt-free and cash-free with a normal level of working capital.” Because a business keeps operating between signing and closing, the actual cash, debt and working capital delivered at closing rarely matches what was assumed when the price was agreed — “the adjustment fixes that gap — and it is one of the most argued-over clauses in private M&A.”
The same source is careful about what the mechanism does and does not do: “the adjustment is not a substitute for the indemnity. It corrects the level of ordinary operating assets and liabilities.” A working capital shortfall against the agreed target gets trued up through the adjustment; a misrepresented balance sheet is a separate indemnity claim, and treating the two as interchangeable is a common drafting mistake on both sides of the table.
A platform agrees to buy a target for $10,000,000 enterprise value on a cash-free, debt-free basis, with a working capital target of $1,200,000 set from the trailing twelve months’ average. At closing the target actually delivers $950,000 of working capital — $250,000 short of target — so the buyer pays $9,750,000 instead of $10,000,000. The seller separately keeps the company’s $400,000 of cash and pays off its $600,000 term loan before closing; neither figure moves the $10,000,000 headline price, because cash and debt were never part of it.
See also: Leveraged buyout · Platform investment · Multiple arbitrage.
A 30-minute call is enough to tell you whether AI pays for itself here.
Nobody publishes Canadian transaction data, so every valuation in this country quotes an American benchmark. We are building the Canadian one — multiples, asking-to-sale spreads and days on market, by sector and by city. Leave an email and you will see it first.
No pitch, no listings. One email when the first report lands.
