Locked Box vs. Completion Accounts: Two Ways to Set the Price

You sign a price today — but what if the business's value changes before the deal is actually completed, weeks or months later? That question is resolved by one of two methods: locked box or completion accounts. The choice between them is one of the most important negotiation points early in the process — often already in the letter of intent (LOI).

Short answer: In a locked box, the price is fixed based on a historical account on an agreed date, and there's no adjustment afterward. In completion accounts, the buyer pays a provisional amount at closing, after which the final price is calculated based on the business's actual accounts on the takeover day itself — with a subsequent adjustment up or down.

Locked box: The price is locked at signing

The parties agree on the price based on accounts as of a fixed "locked box" date, typically the business's most recent audited annual accounts. From that date, the buyer is considered to own the economic benefit and risk of the business, even though the seller continues running operations until closing.

"Leakage": The seller's key restriction

To protect the buyer, so-called "leakage" provisions are inserted into the agreement, preventing the seller from extracting value from the business in the meantime — e.g. unusual dividends, bonuses, or other payments that effectively drain the business of value before the buyer officially takes over.

Completion accounts: The price is finalized at closing

Here the buyer pays a provisional price at takeover, after which a "closing accounts" statement is prepared as of the takeover day itself. The difference between the provisional and final figures is adjusted afterward — typically focused on net debt and working capital.

Who prefers what?

Sellers often prefer locked box, because it provides price certainty and a faster, more predictable process. Buyers often prefer completion accounts, because it provides better protection against fluctuations in the business between negotiation and takeover. Neither method is "the right one" — the choice depends on how much the buyer trusts the historical accounts.

What does it mean for you?

The longer the time between signing and closing (e.g. because the deal requires regulatory approval, see merger control or FDI screening), the greater the risk with a locked box — and the more relevant completion accounts become. In a fast, trust-based deal between parties who know each other well, locked box is often the simpler solution.