Preparing, negotiating, and finally signing a company sale agreement can feel like a marathon, but the real sprint often happens around the price-setting mechanism. Practitioners in mergers and acquisitions (M&A) generally gravitate toward two structures—the locked-box model and the closing-accounts model. Both aim to answer a deceptively simple question: “What is the business truly worth on the day I get the keys?” Each framework offers a different blend of certainty, complexity, and risk allocation. Below is a practical guide to help you decide which poison you’re willing to swallow.

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Two Routes to the Same Destination

In every share purchase agreement, the buyer and seller must agree on a price that reflects the target’s financial reality at closing. A locked box and closing accounts attack this issue from opposite ends of the timeline.

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The Essence of a Locked Box

The locked-box mechanism sets the purchase price by reference to a historical balance sheet—often the most recent year-end or a stub period reviewed by auditors. Once that date (the “locked-box date”) is agreed:

• The purchase price is fixed upfront.
• Value leakage clauses prevent the seller from extracting cash, assets, or benefits outside the ordinary course between the locked-box date and completion.
• Any cash the seller legitimately withdraws is typically compensated through interest-like “ticking fees” to the buyer.

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Because everything is measured at a single snapshot in time, there are no post-closing true-ups. The parties rely on warranties, covenants, and, sometimes, a modest ticking fee to keep the books honest until completion.

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The Mechanics of Closing Accounts

Closing accounts, by contrast, postpone the final price until after the deal closes:

• The buyer pays an estimated price on completion day.
• Within a set period (usually 60–90 days), closing accounts are prepared as at the completion date.
• Any differences between the estimated and actual balance sheet items—often net debt and working capital—generate a post-closing adjustment, up or down.

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Because the accounts reflect the exact hand-over moment, this structure is perceived as more precise but also more administratively heavy. Negotiation doesn’t end at signing; it merely takes a short coffee break.

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Buyer vs. Seller Perspectives

Whether you find yourself advocating for a locked box or closing accounts often hinges on which side of the table you’re sitting.

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Cash-Flow Certainty vs. Adjustment Flexibility

Sellers frequently prefer a locked box because it delivers certainty. They know the final price on signing day, can plan cash distributions, and avoid drawn-out post-closing disputes. Buyers, especially private-equity funds under tight return thresholds, may lean toward closing accounts: they’ll pay precisely what they receive, nothing more, nothing less. That said, strategic buyers with robust integration teams might choose a locked box to fast-track closing with minimal back-office friction.

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Risk Allocation and Control

Under a locked-box regime, the seller retains economic risk from the locked-box date to completion. If EBITDA soars, the buyer wins; if it dives, the buyer takes the hit. In closing accounts, risk sits squarely with whichever party misjudges the closing-date balance sheet. Sellers face a potential claw-back, and buyers may need to top-up if they received better-than-expected working capital. Lenders often scrutinize the residual risk: locked-box deals can simplify debt-financing models because the consideration is fixed, whereas post-closing adjustments in closing accounts may complicate leverage calculations.

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Decision Drivers—How to Pick Your Poison

Need a quick cheat sheet before you dive into SPA drafting? Consider the following factors:

• Quality of Interim Financials: If the target produces monthly management accounts that can double as quasi-audit material, a locked box is viable. Shaky or irregular reporting? Closing accounts provide a safety net.
• Speed of Execution: Locked boxes often accelerate timelines: fewer schedules, no post-closing recalculations. Closing accounts can drag negotiations into the post-completion period.
• Deal Size and Complexity: Billion-dollar multi-jurisdictional carve-outs may demand closing accounts for surgical precision. A single-country, cash-generative asset may be perfect for a locked box.
• Competitive Tension: In auctions, sellers sometimes dictate locked-box terms to simplify bids. Bilateral deals with less competition leave room for buyers to insist on closing accounts.
• Industry Volatility: Stable utilities, software-as-a-service companies with predictable MRR, or subscription models fit well with locked boxes. Commodity-driven businesses, seasonal retailers, and startups with lumpy cash flows often require closing accounts.

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Practical Tips for Implementation

For a Successful Locked Box

• Select a reliable locked-box date: audited or at least reviewed statements deliver credibility.
• Negotiate watertight leakage covenants: dividends, management fees, and related-party transactions must be carved out or compensated.
• Agree on a ticking fee methodology: simple interest on equity value or a pre-agreed daily amount.
• Conduct robust due diligence: absent a post-closing adjustment, your pre-signing audit substitutes for the safety net.

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For a Smooth Closing Accounts Process

• Define GAAP clearly: IFRS, US GAAP, or local standards—ambiguity breeds disputes.
• Lock in accounting policies: specify consistent application, especially for revenue recognition and provisioning.
• Set tight but realistic timelines for preparing, reviewing, and finally locking the accounts.
• Establish a dispute-resolution path—often an independent accountant whose decision is final and binding.

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Regional and Market Trends

The balance between locked-box and closing-accounts transactions varies by region. Continental Europe, especially the UK, has long favored locked-box structures, influenced by private-equity sellers eager for price certainty. North America still skews toward closing accounts, though locked-box deals are gaining traction as auction processes globalize. APAC sits somewhere in the middle, with jurisdictions like Singapore and Australia increasingly comfortable with locked boxes while Japan and parts of China lean traditional. Understanding local market norms can help you avoid proposing a structure that raises eyebrows before negotiations even start.

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Final Thoughts

Neither mechanism is universally “better.” A locked-box gives you the comfort of a fixed price, provided you trust the historical numbers and can police leakage. A closing-accounts model offers precision but at the expense of time, additional legal fees, and the possibility of a post-closing tug-of-war. As with most things in M&A, context is king. Evaluate the quality of information, the volatility of the business, and the leverage each party holds. Then pick your poison—locked box or closing accounts—and draft the agreement accordingly. Whichever route you take, a clear-eyed assessment of risk and reward will transform the mechanism from a potential pitfall into a strategic advantage.

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