Locked box deal meaning

When someone acquires the share capital of a company, the deal is commonly described as one of the following: a completion accounts deal an accounts date deal a locked box deal Each label captures how the parties set or refine the purchase price for the target and affects the extent to which the buyer is safeguarded against historic tax exposures under the tax covenant (also called a tax deed). In virtually every transaction, a headline price for the shares is agreed first. That figure is then adjusted using an agreed approach—the most prevalent being completion accounts, accounts date, or locked box. For more detail on the purpose and effect of a tax covenant, see Practice Note: Why have a tax covenant? Completion accounts Under a completion accounts deal, the consideration is adjusted by reference to a set of accounts prepared as at the completion date...

Private M&A (share sale and asset sale)—glossary of terms A Term Description Accounts date deal On a transaction priced by reference to an accounts date in a share acquisition, the purchaser sets the consideration by looking at the last audited accounts (together with any other information uncovered through due diligence), and the SPA contains no built‑in price adjustment mechanism (save to the extent of warranty or covenant claims). A straightforward accounts‑date model is now rarely adopted, as it affords the buyer no safeguard (other than the specific protections within the tax covenant) in respect of the conduct of the target (or its group) after the accounts date. For more detail, see Practice Note: Completion accounts, accounts date and locked box and tax, under the heading ‘Accounts date’. Anti-embarrassment clause These provisions usually state that the seller becomes entitled to a further monetary sum for the shares or assets transferred to the buyer under the SPA or APA if, within a specified period following completion of...

The way consideration payable for the acquisition of shares is structured is not always straightforward. In many transactions, how the consideration payable for a share purchase is arranged is far from simple. Quite often, payment is postponed, deferred or made conditional upon the satisfaction of specified contingencies. The structure and timing of such payments are therefore rarely straightforward. Most of the time, this reflects the buyer’s desire to: be satisfied that, when the deal completes, the company is in fact worth what the buyer believes it is worth at that point in time In such circumstances, sale agreements commonly include a price adjustment mechanism, typically calculated by reference to a set of accounts that are prepared as at the completion date. Any further sum payable (or any repayment due) is only settled once those accounts have been prepared, finalised and agreed, which can be several months after completion in practice. For discussion of alternative pricing methods, and the ways different types of...