M&A Glossary
Locked box or completion accounts: how the price is settled
These are two competing mechanisms for settling the price. Under a locked box the price is fixed on the basis of a balance sheet from an earlier date and does not change after closing. Under completion accounts the price is adjusted after closing, against a balance sheet drawn up on that day. The choice decides who carries the risk of what happens between signing and closing.
How they work
Locked box
- fixed price, agreed upfront
- balance sheet dated before closing
- no post-closing adjustment
- risk and benefit sit with the buyer from the box date
- seller may not extract value, the leakage ban
- faster and cheaper to settle
Completion accounts
- provisional price, then an adjustment
- balance sheet drawn at closing
- adjusted for net debt and working capital
- risk sits with the seller until closing
- requires closing the books and agreeing them
- slower, costlier, prone to dispute
Which to choose
A locked box works well where results are predictable and the gap between the box date and closing is short. It is simpler and removes months of argument over calculations. It does require confidence in the numbers, because the buyer pays for the company as it stood at the box date.
Completion accounts win with seasonal businesses, with a long run-up to closing, and where the buyer is unsure about the quality of the books. The cost is several weeks of reconciliation after the deal and a real risk of dispute over items nobody defined precisely enough.
Whichever the parties choose, the definitions of net debt and of target working capital are what matter. The amount is decided in those definitions, not in the mechanism itself.
Frequently asked
Questions about price mechanisms.
What counts as leakage in a locked box?
Any transfer of value from the company to the seller after the box date: a dividend, a bonus, waiving a loan, a purchase at an undervalue. The agreement lists and prohibits them, and sets out permitted exceptions separately.
Which mechanism is more common in Poland?
In smaller transactions completion accounts appear more often, because buyers want certainty about the position at closing. Locked box shows up where a fund is selling or where the books are well kept and audited.
Does the seller receive interest under a locked box?
Often yes. Since the buyer enjoys the benefit of the business from the box date, the parties agree compensation for the period to closing, usually as a fixed daily rate added to the price.
See also
- M&A glossary - 72 terms used in transactions
- How we run a company sale
- How we work and how we charge