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Locked Box vs Completion Accounts

How do these two options work when you are selling a company? And which one might be right for you?

March 10, 2022

When an acquirer makes a formal offer to buy your business, the price is always linked in some way to your company’s financial performance. Whether the valuation has been based on the Net Asset Value shown on your balance sheet, or a multiple of your EBITDA, your accounts are the starting point for agreeing a price.

But once you have accepted a formal offer, the due diligence and completion process will take several months. During that time, your company will continue to trade and its financial position will change.

The end result is that the value of your business at completion will be different to the value at the time you received the original offer.

This creates some risks and uncertainties for both buyers and sellers. However, there are two different mechanisms that are commonly used to resolve the issue.

Completion Accounts

The most common solution is for the sale price of a business to be dependent on Completion Accounts – accounts that are specially prepared as at the date of completion.

To take a simplified example, consider an acquirer who agrees to pay 8x EBITDA for Company A. During the due diligence process, the buyer and seller agree a figure of £1m, as an estimate of Company A’s likely EBITDA for the 12 months to the completion date.

The buyer therefore pays the seller £8m at completion – 8x the £1m EBITDA estimate.

After completion, accurate Completion Accounts are prepared, based on principles stipulated in the final Share Purchase Agreement (SPA). The Completion Accounts Profit & Loss statement reveals that Company A actually achieved EBITDA of £1.1m. The buyer therefore owes the sellers a further payment of £800,000 (8x the additional £100,000 of EBITDA).

For the buyer, the main advantage of the Completion Accounts approach is that it reduces the risk of overpaying for a business. If the business does not perform as expected between the agreement of the offer and completion, then the price paid for the business is reduced accordingly.

The Completion Accounts approach also allows sellers to capture the benefit of any additional value they create between accepting the offer and completing the sale of the business. But it is also true that Completion Accounts create uncertainty about the proceeds that the sellers will receive. As mentioned above, if performance is poor in the run up to completion, the final sale price will be lower than the sellers had hoped for at the time of the offer.

Locked Box

‘Locked Box’ transactions provide an alternative to the approach described above.

A locked box offer is based on the target company’s financial position as at the date of the offer, factoring in an accurate assessment of all line items on the P&L and Balance Sheet, including cash, debt and working capital.

After the offer is signed, the business continues to trade (and remunerate its employees and shareholders) in the normal way. But the performance of the business between signing the offer and the completion date will not alter the agreed sale price, which is written as a fixed amount in the SPA.

This mechanism means that the buyer bears the risk of a downturn in performance, but also stands to benefit from any additional value that may be created prior to completion. The buyer will protect its position by adding ‘leakage’ clauses to the SPA, designed to prevent the seller from releasing money to themselves outside the normal course of business.

A locked box agreement is often combined with a ‘profit ticker’. The ticker is best thought of as an additional payment, which shifts the benefit of profits generated between signing the offer and completing the deal back to the seller.

Depending on the nature of the business, tickers can be calculated using management accounts to arrive at a profit-after-tax or cash generated figure, or it may be appropriate to simply agree a daily amount that is added to the purchase price every day until completion.

Buyers are generally happy to agree a profit ticker, since it keeps the sellers motivated to maximise the performance of the business prior to the completion date.


The choice between Completion Accounts and Locked Box will depend on the buyer’s and seller’s preferences, the nature of the business, and the expected timing of the transaction. If you are working with an M&A adviser, they should support you through the negotiation process and agree an appropriate mechanism.

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What our clients say

  • Thank you all for your excellent and urgent support in finalising our deal.  I appreciate that it was all rather late in the process - but you never flinched once. Your ability to get up to speed so quickly and provide great intervention and solid guidance is a credit to your professionalism. I was particularly impressed with your patience in providing expert help at a time when our stress levels were running high.
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    Director, Analytical Services International
  • Time and time again as we went through the process, I was relieved that we had Rockworth at our side. They have excellent contacts and were able to unearth a wide range of suitors for the business.
    Neil Cameron
    Co-founder, CHL Software
  • The relationship we have built with Rockworth over the last five years helped to lay the foundations of a smooth and successful transaction. Selling a company I have built up over the last 20 years comes with some mixed emotions. It has been quite a journey. But I am delighted with the outcome that Rockworth helped to achieve, and I am looking forward to seeing the business continue to thrive under new ownership.
    Dr Donald Gibb
    Founder, The Birth Company
  • Thank you for your hard work and trustworthy advice on this deal - your focus and patience have been incredible. I've been hugely impressed at all stages on how you've guided me through this process, and how you've kept cool heads when it must have been very challenging to do so. Extremely happy to recommend Rockworth.
    Andy Crysell
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  • Thank you everyone at Rockworth for your guidance, advice and pragmatism during what has been a very quick turnaround. It has been a pleasure.
    Andy Whittard
    Managing Director, Cherwell Laboratories Limited
  • Rockworth provided the support, experience and the technical knowledge that we needed to secure a successful sale.  Lawrence and his colleagues are all high calibre individuals, and I would certainly recommend them.
    Alice Watson
    Founder, Porge Research
  • During the whole process the team at Rockworth was always available to answer questions, no matter how banal, and held our hand throughout. I can honestly say that without the Rockworth calm hand on the tiller I am not sure we would have got through it in such an easy manner.  
    David Bilton
    Director, CadCam Technologies Limited
  • We chose to work with Rockworth on the basis of their approach, networks and reputation. Lawrence and his team provided excellent support throughout the entire sale process and enabled the company to achieve an outstanding result. Whilst there was a great deal of complexity at times, it was managed with great care and my colleagues and I enjoyed working together with the Rockworth team throughout. I would have no hesitation in using Rockworth for future transactions and would recommend them very highly to others.
    Martin Lucas
    MD, Kittiwake Developments Ltd
  • I would like to thank you and the team for the major contribution you made to the sale of Cromptons Healthcare. It turned out to be a very complicated deal and I have to say I was staggered by the commitment and effort that was required from us all. I was impressed by both the professionalism and the support that Rockworth provided, which proved to be absolutely essential to me. I had not fully appreciated beforehand just how necessary that support would be.
    Martin Calhoun
    Owner, Cromptons Healthcare Ltd
  • Lawrence, many thanks to you and the members of the Rockworth team for achieving such a great result. It is the best possible outcome we could have achieved, both for ourselves as shareholders, and for our staff, ensuring not just the continuation of the company but positioning it for further growth. We were very pleasantly surprised at the range of potential acquirers that you introduced us to - we had no idea initially of the types of acquirer that you would manage to find from outside our direct industry.
    David Black
    Managing Director, Young Black IS Ltd
  • Rockworth was the ideal guide and partner in our search for a buyer for our company. Their process, insight and people skills were the perfect antidote for our inexperience and were a major factor in achieving the smooth path to our desired outcome. From the start their approach suited our needs as a privately owned company with limited resources to run the business and undertake a transaction. They were invaluable in helping us understand what was needed and what we might reasonably expect. I cannot recommend them highly enough.
    Tim Champion
    Managing Director, H.Squared Electronics Limited
  • From initial preparatory work and advice through the deal process and to final completion, we found your work to be invaluable. I was particularly impressed with the careful and thorough management of the due diligence process: the consistency and detail-oriented manner in which this work was carried out was much appreciated and ensured that the deal completed smoothly, even accounting for the different languages and countries involved.
    Fabio Antoniazzi
    Founder, La Credenza Ltd
  • As a family-owned business, it was extremely important to us that we had an advisor who took care and paid attention to the detail of our business. Lawrence and his team demonstrated real commitment to the deal, both in researching appropriate potential acquirers and following this through in a diligent and extremely supportive manner. I know that without Lawrence and his team we wouldn’t have achieved the successful outcome that we did.
    Rachel Bush
    Owner, Bush & Company Rehabilitation Ltd

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