The completion mechanism is where a licensing finding becomes real cash. Here is how software exposure should sit in working capital and net debt, and how buyers keep it from being absorbed after close.
Software exposure and working capital adjustments sit at the point where a licensing risk stops being a diligence finding and starts moving the actual cash a buyer pays. The completion mechanism in most deals adjusts the headline price for working capital and for debt like items. Inherited software exposure is usually latent and unquantified in standard due diligence, so it rarely reaches either schedule, which means the buyer pays the headline price and absorbs the exposure separately after close. This page explains how software exposure should be reflected in the working capital and net debt mechanism, where it belongs as a debt like item rather than working capital, and how buyers stop the same exposure being settled twice.
The completion accounts true up the price for the level of working capital delivered against a target, and separately deduct debt and debt like items. Software exposure can touch both, but in different ways. Accrued but unpaid maintenance and support that relates to the period before close is a genuine working capital item, because it is a liability for value the seller has already consumed. A contingent licensing true up, by contrast, behaves like debt. It is a known risk of a future outflow that the buyer will carry, and treating it as a debt like item deducts it from the price cleanly rather than burying it in a working capital peg.
The distinction matters because the two mechanisms work differently. Working capital is usually set against a normalised target, so a one off licensing accrual can be argued away as outside the normal course. A debt like item is a direct deduction that does not depend on a peg. Buyers that understand software exposure and working capital adjustments push the contingent true up into the debt like category, where it reduces the price pound for pound, and keep only the genuinely recurring accruals inside working capital.
Getting the classification right is where value is protected or lost. If a contingent licensing settlement is treated as working capital, it is netted against other current items and can disappear inside the normal range, leaving the buyer to fund it later. If it is treated as a debt like item, it is named, quantified, and deducted. The seller will resist the debt like treatment, because it reduces proceeds directly, so the buyer needs a defensible number to anchor the position. That number comes from the same reconciliation that drives the rest of the valuation work.
The reps and warranties and the indemnity then sit behind the mechanism as a second line. Even a well drafted completion adjustment cannot capture an exposure that only surfaces after close, which is why a specific software licensing indemnity and tailored reps and warranties for software licensing matter. The completion accounts handle what is known and quantified at close; the indemnity handles what emerges afterwards. Buyers that rely on only one of the two leave a gap.
| Type of exposure | Correct treatment | Effect on price |
|---|---|---|
| Accrued maintenance before close | Working capital item | Adjusts against the peg |
| Contingent licensing true up | Debt like item | Direct deduction from price |
| Recurring run rate increase | EBITDA adjustment | Lowers the multiple base |
| Post close audit risk | Indemnity and escrow | Recovery after close |
| Disputed historic position | Specific indemnity | Ring fenced from the cap |
Where the exposure changes the ongoing cost of running the estate rather than a one off cure, it belongs in the software licensing and EBITDA adjustments instead, because a recurring cost reduces the earnings base the multiple is applied to. Separating the one off from the recurring keeps the buyer from either double counting the same pound or missing it entirely.
A common error is to capture the same software exposure in more than one place. If a contingent true up is deducted as a debt like item and the same amount is also reflected in a lower working capital target and again in an EBITDA adjustment, the seller is being charged three times for one risk, and the negotiation collapses when the seller spots it. The discipline is to map each exposure to exactly one mechanism: a one off accrual to working capital, a one off contingent settlement to debt like items, and a recurring cost to EBITDA. The cost to cure model is the single source that feeds all three, which is why it must be built carefully using the approach in quantifying cost to cure for the deal model.
Documentation closes the loop. Each adjustment should trace back to a line in the reconciliation, so that during the completion accounts dispute the buyer can show exactly what was counted where and why. This is also where buyer side discipline earns its keep, because completion accounts disputes are won on evidence rather than assertion. A buyer that can point to deployment data, entitlement records, and a clear classification holds a far stronger position than one arguing from a general sense that the estate looked risky.
The size of the prize is worth the discipline. In publicly reported disputes, SAP pursued AB InBev for a reported 600 million dollars and Diageo for a reported 60 million over disputed and inherited licensing, as of June 2026. Exposures of that order do not belong in a footnote to the working capital schedule. They belong in the price mechanism, named and deducted, with an indemnity behind them for anything that surfaces later.
The mechanism only works if the analysis is ready when the lawyers draft the completion accounts policy. That means the software reconciliation has to run early enough to feed the definitions of working capital, debt like items, and the indemnity. A buyer that discovers the exposure after the policy is agreed has to reopen the drafting from a weaker position. Sequencing the diligence so the number is in hand before the sale and purchase agreement is finalised is the difference between a clean deduction and an awkward retrofit.
The output the deal team needs is simple to state and hard to produce: a quantified exposure, classified by mechanism, with a central estimate and a range, and a clear note of what the completion accounts will cover and what the indemnity will catch. With that in hand, the buyer can negotiate the price adjustment from evidence and size the escrow to the residual risk. Without it, software exposure and working capital adjustments stay disconnected, and the buyer funds the gap from the value it acquired.
Software exposure and working capital adjustments sit within software in deal valuation, alongside pricing, EBITDA adjustments, and indemnity. The reconciliation that classifies the exposure comes from software spend diligence. Engage your own counsel for legal interpretation of any agreement or claim.
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