What is the locked-box mechanism, and why is it so popular?
Locked-box is an SPA mechanism where the purchase price is based on a balance sheet as of a fixed past date (the locked-box date, LBD) — and is not adjusted at closing. The completion-accounts audit is dispensed with entirely.
Why popular (>70% of deals in many European markets)? Speed and certainty. Buyer and seller know the final price immediately, with no six-month completion-accounts dispute. Family owners like the fixed-pricing mechanism. The buyer is protected between LBD and closing by anti-leakage covenants.
Deep diveShow more details
| Aspect | Locked-box | Completion accounts |
|---|---|---|
| Price basis | balance sheet at LBD | balance sheet at closing |
| Pre-closing risk | buyer | seller |
| Completion-accounts review | no | yes (often disputed) |
| Speed-to-close | faster | slower |
| European acceptance | >70% | rarer |
| US acceptance | 20–30% | dominant |
| Item | Value |
|---|---|
| EV (pricing basis) | $250m |
| Net debt at LBD | $80m |
| Equity value at LBD | $170m |
| Pre-closing profit (4 months pro-rata) | $4m |
| Effective buyer price | $174m |
dividends outside permitted leakage, management bonuses unless agreed, asset transfers to affiliates, cash sweeps, unusual salary increases.
Question: "Why locked-box over completion accounts?"
Answer: "In the European mid-market, locked-box dominates for speed and certainty. Family owners like fixed pricing — no six-month completion-accounts dispute. A pro-rata pre-closing profit compensates the seller for the operating period. Buyer protection runs through anti-leakage. The US standard is completion accounts; locked-box is rarer there."