Pricing Mechanisms: Locked Box vs Completion Accounts
By RONAN O'SULLIVAN & ROSS MCNAUGHTON
Originally appearing in PLC Magazine, Ronan OSullivan and Ross McNaughton of Paul Hastings (Europe) LLP and James Doe of PricewaterhouseCoopers LLP compare the two main pricing mechanisms used to determine the value of a target business.
One of the fundamental considerations when calculating the price of a target business in the context of private M&A relates to the agreed pricing mechanism in the sale and purchase agreement (SPA). The two mechanisms typically deployed are either completion accounts or a locked box. The choice as to which structure to use goes directly to the heart of how the equity price of the target is calculated and, to the unwary, can have a profound impact on the actual price paid or received.