Locked Box vs. Completion Accounts – which model to choose?

When advising on M&A transactions, we often see that the choice of price adjustment mechanism has a greater impact on the outcome of negotiations than the valuation itself.

Completion Accounts

A model in which the purchase price is adjusted post-closing based on financial statements prepared as of the closing date. It allows the buyer to account for changes in net debt, working capital, and cash.

In practice, it may lead to disputes – the final purchase price often becomes the subject of intensive negotiations after signing the agreement.

Locked Box

The price is determined based on historical financial statements (e.g. from a few months prior).For the seller, this means greater price certainty and no post-closing renegotiations.

It requires clear provisions regarding “leakage” – i.e. a prohibition on value being extracted from the company between the locked box date and closing.

Case study

In one of the transactions where a fund was acquiring a technology company from its founders, the fund insisted on using completion accounts to retain control over the balance sheet as of closing – a key issue in light of rapidly increasing indebtedness.

The founders preferred a locked box mechanism, aiming for a quicker closing and greater price certainty. Ultimately, a hybrid solution was agreed upon, combining anti-leakage protections with a targeted adjustment mechanism limited to selected items.

As a result, the parties mitigated the risk of post-closing disputes while maintaining a fast and transparent process.

Choosing the right pricing mechanism is not a minor detail – it’s a strategic tool for building trust and minimizing risk.

Are you planning a company sale or entering into investor discussions? The Hoogells team would be happy to support you in structuring the transaction in the most effective way. Feel free to get in touch!