Debt-like items: the 12 lines that move your equity price

In small-cap deals, the gap between headline EV and the equity cheque is settled on debt-like items more than on EBITDA. The twelve lines we contest most often, and how to treat them.

On a small-cap deal, the EBITDA debate usually ends with a gap of a few hundred thousand euros. The debt-like debate often ends with a gap of several million. A headline multiple is agreed in the LOI; what the seller is paid depends on what the SPA calls "financial debt".

This matters more this month. Many sellers want to sign before year-end, while the 2026 budget is still before Parliament and the final tax measures are unknown. Under time pressure, teams leave the debt definition to the last SPA draft. That is the wrong order. Below are the twelve lines we contest most often, then the overlap between seasonal cash and the working capital peg.

The twelve lines

1. Factoring and reverse factoring

Non-recourse factoring is the most common and largest item we add back on French targets. France is the leading factoring market in Europe: the ASF reported €425.9bn of receivables financed in 2023, about 15% of GDP. Under French GAAP, receivables sold without recourse leave the balance sheet, so net debt looks lower and DSO looks excellent. We rebuild the funded amount (receivables sold, less the guarantee deposit and reserve withheld by the factor) at the reference date and over twelve months. A buyer who will keep the programme can argue for working capital treatment. A buyer who will refinance it cannot.

Reverse factoring is harder to see. The supplier is paid early by a bank; the target pays the bank at an extended due date, and the balance stays in trade payables. Since 1 January 2024, IFRS reporters must disclose these programmes under the IAS 7 and IFRS 7 amendments: carrying amount, the part already paid to suppliers, and the range of payment due dates. Most small-cap targets report under French GAAP and disclose nothing. We ask for the programme agreement and the bank statements, and compare payment terms with the statutory limit in France (60 days from invoice, or 45 days end of month). Payables beyond normal terms are financing, and we treat them as debt.

2. Deferred capex, bonuses and past acquisitions

Deferred capex. If capex has fallen to 2% of sales against a historical 4%, the buyer will fund the catch-up. We review the capex plan, asset ages and maintenance reports. A deduction holds only if the underspend is documented and specific; a general claim that "the plant needs investment" will rightly be refused.

Bonuses and profit-sharing. The 2025 bonus is often paid in March 2026 but only partly accrued at a 31 December reference date. We take the full amount earned for the pre-closing period, plus employer social charges. The same applies to participation and intéressement for the year.

Earn-outs from past acquisitions. Targets built by bolt-ons often owe earn-outs to former owners, sometimes recorded only in the notes, or not at all. We read every previous SPA in the data room and price the expected payment, not the cap or the floor.

3. Tax exposures and the CIR/CII: debt, cash, or neither

Corporate income tax due for the pre-closing period, net of instalments paid, is debt. Exposures found in the tax DD (a challenged transfer price, a disputed VAT position) are uncertain: we recommend an indemnity or an escrow rather than a price deduction, which would cost the seller even if the risk never materialises.

The research tax credit (CIR) and innovation tax credit (CII) cause the most disputes. Sellers call the receivable cash-like; buyers often give it no value. Our position depends on three facts.

• Who can get a refund, and when. Under article 199 ter B of the CGI, the credit is first set against corporate tax. An SME within the EU definition can claim an immediate refund of the excess the following year. Other companies set the excess against tax for the next three years, and only then is the remainder refunded. An SME's receivable is close to cash. A mid-cap's receivable is a three-to-four-year asset and should be discounted.
• Audit risk. We look at the history of tax audits, whether a rescrit was obtained, and the quality of the technical file. A receivable that has never been audited carries risk, and we reflect it with a haircut or a specific indemnity.
• The 2025 changes. The 2025 Finance Act (law no. 2025-127 of 14 February 2025) cut the CII rate from 30% to 20% for expenses incurred from 1 January 2025. It also removed patent costs and technology watch costs from the CIR base, and reduced the flat rate for operating costs from 43% to 40% of eligible staff costs. Where the credit is booked in operating income, run-rate EBITDA must reflect these rules. The 2026 bill adds more uncertainty: at first reading the Assemblée adopted an amendment that would claw back CIR received over the past three years if production moves abroad. Its fate is unknown, so it belongs in the warranties, not in the price.

On a recent mid-cap file, the CIR receivable was €0.9m. The seller wanted all of it as cash. We proposed €0.6m: the amount refundable in the next 24 months, discounted, after a haircut for an unaudited project. The parties settled near that figure.

4. Seasonal cash and the NWC peg: avoid double counting

A 31 December reference date flatters most targets: customers pay before year-end, suppliers are paid in January, and cash peaks. If the buyer pays euro for euro for that cash while the NWC peg is a twelve-month average, the seller is paid twice for the same timing effect.

We use three rules:

1. One item, one place. An item in the peg cannot also be a debt-like deduction, and the reverse is true too. Customer deposits, VAT and social charges are the usual examples.
2. Peg and debt on the same basis. If factoring is added back as debt, the peg must be computed gross of factored receivables for every month.
3. Normalise the cash, not only the NWC. Where cash swings by more than 10% of EV over the year, we propose a normalised level of cash, or a peg measured on the same date as the reference date.

A worked example

Take a €40m EV target, priced at 8x a €5m EBITDA. For context, the Argos mid-market index stood at 9.2x in Q2 2025. Seller's net debt at 31 December: €6.0m of bank debt, less €4.5m of cash. Our bridge added €3.2m of factoring, €1.1m of reverse factoring beyond normal terms, €0.8m of documented deferred capex, €0.6m of bonuses, €1.5m for an old earn-out, and €0.4m of seasonal cash excess. It credited €0.6m of CIR. The equity price fell from €38.5m to €31.5m. The EBITDA adjustments in the same file moved the price by €0.8m.

What to do before signing

• Sellers: prepare your own debt-like schedule before the LOI and agree the main lines in it. Disclose factoring and reverse factoring yourself; they will be found anyway.
• Buyers: ask in the first request list for factoring statements, supplier finance agreements, previous SPAs, the CIR files and the capex plan. Do not wait for the draft report.
• Both: write the SPA debt definition line by line, with a worked example attached, and check it against the NWC definition before signing.
• Lenders: use the adjusted net debt, not the reported figure, in the leverage covenant at closing.
• Year-end deals: if you sign on a 31 December balance sheet, settle the seasonal cash question before the reference date, not in the completion accounts dispute.

This note is general information, not advice on a specific transaction.