To lock or not to lock – An introduction to the Locked Box closing mechanism

Traditionally deals have been closed across the Globe, using a Closing Accounts pricing mechanism under which, parties to the transaction agree a ‘cash free, debt free’ price (“Enterprise Value”) which is then adjusted post-Closing for the actual Cash, Debt and Working Capital (or some other measure, e.g., Net Assets) in the Target business as at the Closing Date.

However, as the market continues to evolve, Buyers and Sellers are looking for ways to reduce the often lengthy process of preparing, reviewing and potentially disputing these final price adjustments derived from the Closing Accounts. And as a result, we are increasingly seeing more deals being completed under a Locked Box pricing mechanism.