Locked-Box vs Completion Accounts Explained | DealAcademy

Key takeaways

A deal price is agreed at signing but the company keeps trading until completion weeks or months later — so the price has to be pinned to a balance sheet date. There are only two ways to do it: a locked-box fixes equity value at a historical date before signing, and completion accounts fix it provisionally and true it up to the actual position at completion
Under a locked-box, the buyer owns the economics of the business from the locked-box date — so any cash the company generates in the gap accrues to the buyer, and the seller is barred from extracting value by a no-leakage covenant. To compensate the seller for the profits accruing to the buyer, deals often add an equity ticker: interest on the equity price from the locked-box date to completion
Completion accounts do the opposite — they measure actual net debt and working capital on the completion date and adjust the price pound-for-pound against agreed targets. It is more accurate and more buyer-friendly, but it reopens the EV-to-equity bridge after the deal is "done", which is where post-close disputes live
The choice is a risk allocation, not an accounting preference. Locked-box gives price certainty and favours the seller, which is why competitive European auctions run on it; completion accounts capture the true position and favour the buyer, which is why they survive where diligence cannot be trusted. In interviews the question is "which would you want, and why" — and the answer depends on which side of the table you are on

The Gap Between Signing and Completion Is Where the Money Hides

A deal does not sign and close in the same breath. The share purchase agreement is signed on one date, and completion — when the buyer pays and the shares change hands — follows weeks or months later, once regulatory clearances, financing and conditions are satisfied. A three-month gap on a mid-market buyout is unremarkable. In that gap the company keeps trading: it generates cash, draws down debt, builds and burns working capital. None of that was knowable when the price was agreed.

So a price agreed at signing cannot simply be handed over at completion as if nothing happened in between. It has to be anchored to a specific balance sheet — a moment in time at which net debt and working capital are measured, because those are the two items that convert an enterprise value into an equity cheque. The mechanism that does this anchoring is the most consequential clause in the SPA that no student has heard of, and there are exactly two species of it.

Both solve the same problem — pinning a price to a balance sheet — but they pin it to opposite ends of the gap, and that single difference decides who owns the cash in between.

Locked-Box: The Price Is Fixed at a Date That Has Already Happened

A locked-box fixes the equity price by reference to a balance sheet dated before signing — typically the last audited or management accounts, the "locked-box date". The parties agree a fixed equity value off that historical balance sheet, and that number does not move. There is no post-completion adjustment, no true-up, no completion accounts to draw up. The figure agreed at signing is the figure paid at completion.

The conceptual move that makes this work is that the buyer assumes the economic risk and reward of the business from the locked-box date, not from completion. The buyer is treated as if it had owned the company since that historical date. So the cash the business generates in the gap belongs, economically, to the buyer — it is already reflected in the fixed price. The seller runs the business in the interim but no longer owns its upside.

The phrase that matters: "economic risk and reward passes at the locked-box date" This single concept drives everything else in a locked-box deal. Because the buyer owns the economics from a past date, the seller must not strip value out of the box between that date and completion — hence the no-leakage covenant. And because the buyer's money is "in" the business from a past date while the seller still holds the shares, the seller often charges interest for the wait — hence the equity ticker. Both mechanisms exist only to make the historical-date fiction hold.

That fiction is clean and certain, but it has an obvious vulnerability: if the buyer owns the cash from the locked-box date, what stops the seller from quietly draining it before completion? That is precisely what the next clause is built to prevent.

No Leakage: The Covenant That Stops the Seller Emptying the Box

Because value accrues to the buyer from the locked-box date, the SPA bars the seller from taking value out of the company in the gap. Any such extraction is leakage, and the seller indemnifies the buyer for it pound-for-pound — a £2m dividend paid to the seller after the locked-box date is £2m off the price, recovered directly. Leakage is policed strictly because it is the only thing that can move a "fixed" price.

Leakage covers the routes value escapes to the seller: dividends and distributions, management or monitoring fees, related-party payments, the waiver of debts owed by the seller, transaction bonuses, and the seller's own deal costs pushed onto the target. Against this sits a defined list of permitted leakage — payments the parties agree are allowed, such as salaries in the ordinary course or pre-agreed amounts — and anything not on that list is a breach.

Insider tip The leakage definition is one of the most heavily negotiated schedules in a locked-box SPA, and it is asymmetric on purpose. The buyer wants leakage drawn as widely as possible and the permitted list kept short; the seller wants the reverse. A single ambiguous line — is the seller's deal advisory fee leakage or permitted? — can be worth seven figures, and it is settled in the SPA, not in diligence. This is why a locked-box does not remove legal work; it relocates it from a post-close adjustment into the front-end drafting.

The Equity Ticker: Interest on a Price That Is Already Earning for the Buyer

There is a timing imbalance built into a locked-box. The buyer owns the economics from the locked-box date, so the profits earned in the gap are the buyer's — yet the buyer does not pay until completion, and the seller still legally holds the shares in between. To square this, deals commonly add an equity ticker: an amount that accrues on the fixed equity price from the locked-box date to completion, paid on top at close.

The ticker usually takes one of two forms. Either a simple interest rate on the equity value — an agreed percentage per annum, which approximates the return the buyer is earning on profits it does not yet hold — or a profit-based ticker that hands the seller the actual earnings generated in the gap. The interest form is far more common because it is certain and needs no accounts to compute.

~£4m A simple ticker on a £200m equity price at roughly 8% per annum over a three-month gap (£200m × 8% × 3/12). On a single-quarter delay between locked-box and completion, the ticker alone moves the cheque by millions — which is why the rate and the gap length are negotiated, not assumed

Note what the ticker is not: it is not a true-up. The price is still fixed; the ticker is a defined, formulaic add-on agreed at signing. Everything about a locked-box is designed to keep the number knowable in advance — which is the entire point, and the opposite of how completion accounts work.

Completion Accounts: The Price Is Provisional Until the Real Balance Sheet Is Drawn

Completion accounts fix the price at the other end of the gap. At signing the parties agree an estimated equity price, the buyer pays that estimate at completion, and then — usually within 60 to 90 days — a completion balance sheet is drawn up as at the completion date. Actual net debt and actual working capital are measured on that date and compared with agreed targets, and the price is adjusted up or down for the difference. A true-up payment then flows between the parties to settle.

The adjustment is the EV-to-equity bridge recomputed with real numbers. Walk a single deal through it.

1. Estimated equity price at completion: £200.0m. Enterprise value of £350m less estimated net debt of £150m. The buyer pays this on the day, before anyone has the actual completion balance sheet.

2. Net-debt adjustment: −£8.0m. The completion accounts show actual net debt of £158m, not the £150m estimated — the company drew more debt or held less cash than assumed. Equity value falls pound-for-pound, so the buyer overpaid by £8m.

3. Working-capital adjustment: −£3.0m. Against a normalised working-capital target ("peg") of £20m, the business delivered only £17m. The £3m shortfall is a further deduction, because the buyer has to fund the gap back to normal.

4. Final equity price: £189.0m. The £200m estimate trues up to £189m, and the seller repays the buyer £11m after completion. The "agreed" price moved by 5.5% after the deal closed — which is exactly the uncertainty a locked-box exists to remove.

Completion accounts are more accurate because they price the business as it actually is on the day it changes hands. But that accuracy is bought with a post-close process — drafting, reviewing and frequently disputing a balance sheet after the parties have stopped being friendly — and the dispute is where the mechanism earns its reputation.

The Dispute Risk Is Structural, Not Accidental

Completion accounts reopen the bridge after signing, and the two inputs they reopen — net debt and working capital — are the two most judgement-laden numbers on the balance sheet. What counts as debt-like? Is a particular provision a creditor or a reserve? Was a receivable chased hard in the final week to flatter working capital against the peg? Each answer moves the price, and each side has a direct financial incentive to answer it in its own favour.

So the SPA hard-codes the rules of the contest in advance: a defined net-debt list, a specified accounting policy hierarchy for the completion accounts, a normalised working-capital peg built from a full cycle, and an independent-expert referral — usually an accounting firm acting as expert, not arbitrator — to settle items the parties cannot agree. The better drafted these are, the smaller the fight. The link to Quality of Earnings is direct: the same debt-like items a QoE reclassifies are the ones a completion-accounts dispute is fought over, only now with real money settling on the outcome.

Common mistake Believing a locked-box removes risk and completion accounts add it. Neither is true — they relocate the same risk. A locked-box front-loads it into diligence and drafting: with no true-up, a wrong number in the locked-box balance sheet is permanent, so the buyer must trust that balance sheet completely before signing. Completion accounts defer the risk into a post-close adjustment that can catch a wrong number but invites a dispute to do it. The risk does not disappear in either mechanism; it just changes its address.

Side by Side: The Same Problem, Opposite Trade-Offs

The two mechanisms line up cleanly across the dimensions that decide which one a deal uses.

Dimension	Locked-box	Completion accounts
When the price is fixed	At a historical date before signing — final at signing	Estimated at signing, trued up 60–90 days after completion
Who owns the gap-period cash	The buyer, from the locked-box date	The seller, until completion
Post-close adjustment	None — price certainty	Yes — net debt and working capital trued to actuals
Key protection	No-leakage covenant + permitted-leakage list	Defined net-debt list, WC peg, expert referral
Dispute risk	Low after signing — fight is in the drafting	High — the completion balance sheet is contestable
Seller compensation for the gap	Equity ticker (interest on the price)	Keeps the actual cash generated to completion
Where it dominates	Competitive European auctions, clean targets	US deals, carve-outs, messier or hard-to-diligence targets

The pattern in that last row is the whole story: a locked-box thrives in a hot auction with a clean, well-diligenced target, because the seller can demand certainty and the buyer can afford to trust the box. Completion accounts survive where the target is messy — a carve-out with no clean standalone balance sheet, a business whose working capital cannot be trusted without measuring it on the day.

Why Auctions Tilt to Locked-Box: It Stops the Buyer Chipping the Price

A seller running a competitive auction has a specific reason to prefer a locked-box beyond simple certainty: it removes the buyer's post-close lever. Under completion accounts, a buyer can agree a headline price to win the auction and then claw value back through aggressive completion-accounts positions — a wide net-debt definition, a hard reading of the working-capital peg. The seller, having signed, has limited ability to resist. A locked-box shuts that door, because there is no true-up to argue over.

That is why, in a seller's market, the mechanism is itself part of the bid. An offer at the same headline price is worth more to a seller on a locked-box basis than on completion accounts, because the locked-box price is the price. A buyer who insists on completion accounts in a tight auction is, in effect, bidding lower — and a sophisticated seller reads it exactly that way.

How This Is Tested: "Locked-Box or Completion Accounts — Which Do You Want?"

The question sits at the intersection of the EV-to-equity bridge, diligence and deal judgement, which is why it discriminates between candidates who have read about deals and those who understand them. The weak answer defines both mechanisms and stops. The strong answer takes the side the interviewer assigns and reasons from incentives.

Interview framing Asked which you would want as a buyer, do not answer "completion accounts" reflexively. Say it depends on the target: completion accounts if the balance sheet is hard to trust — a carve-out, weak management information, volatile working capital — because you want the true-up to catch what diligence cannot. A locked-box if the target is clean and the diligence is strong, because in a competitive process the price certainty wins the deal and you would rather lock a number you trust than reopen it post-close. Then close on the gap mechanics: under a locked-box you would scrutinise the no-leakage definition and negotiate the ticker rate; under completion accounts you would nail down the net-debt list and the working-capital peg, because that is where the price actually moves. Naming the ticker and the peg unprompted is what signals you have seen a real SPA, not just a glossary.

The Verdict: The Mechanism Is a Bet on Whether You Trust the Balance Sheet

Locked-box and completion accounts answer the same question — what price gets paid for a business that kept trading after the price was agreed — and they answer it by trusting opposite things. A locked-box trusts a historical balance sheet enough to make it final, and spends its effort policing the gap with a no-leakage covenant and a ticker. Completion accounts trust nothing until the business changes hands, measure the real position on the day, and accept a post-close dispute as the cost of accuracy.

For a student, the lesson is that "the price" in a deal is not one number agreed once. It is a number anchored to a balance sheet by a mechanism, and the choice of mechanism — historical and fixed, or real-time and adjustable — quietly allocates millions of pounds of gap-period value before the SPA is even signed. Knowing which mechanism a deal uses, and why, is knowing where the price can still move after the headline is agreed.

Careers: An Associate Lives in the Leakage Schedule and the Completion Balance Sheet

On a live buyout the pricing mechanism is not a lawyer's problem the deal team watches from a distance — it is a number the associate owns. On a locked-box deal that means tracking leakage between the locked-box date and completion and modelling the ticker into the equity bridge; on completion accounts it means building the estimated completion balance sheet, agreeing the net-debt and working-capital definitions, and then defending the firm's position when the completion accounts are drawn up months later. The mechanism feeds straight into the LBO model, because the equity cheque it produces is the equity the sponsor actually funds.

Anyone can recite that a locked-box fixes the price at a historical date and completion accounts true it up — that is a definition. The judgement is knowing what each one is for: that a locked-box is a seller's weapon in a hot auction because it denies the buyer a post-close lever, and that completion accounts are a buyer's insurance against a balance sheet it cannot trust. The mechanism is never neutral — it is a negotiated allocation of the value created in the gap, and reading it that way is what separates someone who has seen a deal from someone who has seen a glossary.

Take Your Preparation Further

Pricing mechanics sit on top of the bridge they adjust, so read this alongside the pieces it builds on. Start with the EV-to-Equity Bridge, since both mechanisms are just that bridge fixed at different dates, then Quality of Earnings, because the debt-like items a QoE reclassifies are the exact items a completion-accounts dispute is fought over. For where this sits in the deal, The M&A Process maps signing-to-completion, and How to Read a CIM covers the balance sheet a locked-box ultimately trusts. For where the equity cheque lands, the LBO model.

For the process map this mechanism plugs into, download our free M&A Process Cheat Sheet, and for the full set of PE interview questions and model answers — including how to reason about pricing mechanisms under pressure — see the PE Interview Masterclass.

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Locked-Box vs Completion Accounts: The Two Ways a Deal Price Gets Fixed — and Who Owns the Cash Until It Does