Locked box vs completion accounts in M&A: how each mechanism works, the SPA leakage clause, equity bridge impact, worked example and which structure to choose.
The choice between a locked box mechanism and a completion accounts mechanism is one of the most important structural decisions in any M&A transaction. As a TS analyst you will work on deals with both structures — and you must be able to explain the differences fluently in an interview, including the SPA mechanics, the leakage clause, the impact on the equity bridge and how each structure changes your work plan.
A locked box fixes the price at signing on a historical reference balance sheet (the "locked box date") — there is no post-closing price adjustment, but the seller must not extract value from the business between the locked box date and closing beyond agreed "permitted leakage". A completion accounts mechanism sets a provisional price at signing and adjusts it after closing based on the actual net debt and net working capital at the closing date. Locked box dominates European PE-backed processes (price certainty for the seller); completion accounts remain common in the US and corporate-to-corporate deals (fairness for the buyer).
Under completion accounts, the deal price is determined at signing using an estimated balance sheet (often the last available management accounts). After closing, a completion balance sheet is prepared, and the price is adjusted based on the actual values of:
Under a locked box deal, the economic transfer date is set at a historical "locked box date" — typically the last audited year-end balance sheet. The price is fixed at signing on that reference balance sheet, and the buyer is economically exposed from the locked box date, not from closing.
Between the locked box date and closing, the seller must not extract value from the business beyond agreed "permitted leakage". Typical leakage / permitted leakage categories:
| Item | Treatment |
|---|---|
| Normal salaries, bonuses, board fees | Permitted (paid in the ordinary course) |
| Routine professional fees (audit, statutory legal) | Permitted |
| Dividends to seller-shareholders | Leakage (unless pre-agreed in SPA) |
| Repayment of shareholder loans | Leakage (typically prohibited) |
| Management bonuses triggered by the deal | Leakage (transaction bonuses) |
| Connected-party transactions outside market terms | Leakage |
| Tax distributions to seller's tax group | Permitted in some structures |
| Discharge of guarantees / warranties for seller's benefit | Leakage |
Leakage is reimbursed €-for-€ by the seller at closing — there is no de minimis (usually). The FDD team typically runs a "leakage walk" from locked box date to closing as part of the buy-side due diligence.
Consider a target with the following snapshot at the locked box date (31 December 2025), closing on 30 June 2026:
| Item | At locked box (31-Dec-25) | At closing (30-Jun-26) |
|---|---|---|
| Headline EV | €100m | €100m |
| Net debt | €20m | €23m (build-up of capex financing) |
| NWC | €8m | €11m (revenue growth → receivables grew) |
| Target NWC | €8m | €8m |
Under locked box:
Under completion accounts:
In this example, the two structures converge economically. In a deal where the operations deteriorate (covid, customer loss), the buyer fares much better under completion accounts — that's the trade-off.
| Factor | Favours locked box | Favours completion accounts |
|---|---|---|
| Process type | Competitive auction (PE sell-side) | Bilateral / corporate-to-corporate |
| Target stability | Predictable, profitable | Volatile, turnaround, carve-out |
| FDD coverage | Recent audited locked box date | No clean reference balance sheet |
| Time to closing | Short (< 3 months) | Long (> 6 months, regulatory approvals) |
| Buyer type | Strategic, can absorb risk | Risk-averse, financial buyer |
| Seller type | PE, certainty of proceeds | Corporate willing to share risk |
Under locked box:
Under completion accounts:
A few mistakes that get juniors marked down in TS interviews:
A locked box is an SPA structure where the deal price is fixed at signing on a historical reference balance sheet (the "locked box date") with no post-closing adjustment. The buyer's economic exposure starts at the locked box date, and the seller compensates the buyer for any "leakage" of value extracted from the business between the locked box date and closing.
Under completion accounts, a provisional price is agreed at signing, and the price is adjusted post-closing based on the actual net debt and net working capital at the closing date vs. the agreed targets. The adjustment can take 30–90 days, with a dispute mechanism in the SPA if buyer and seller disagree.
In Europe, locked box dominates PE-backed M&A — it offers price certainty in competitive auctions. Completion accounts remain common in the US and in corporate-to-corporate transactions where the buyer wants to adjust for operational risk between signing and closing.
Permitted leakage is the list of value transfers the seller is allowed to make between the locked box date and closing without triggering a clawback at closing. Typically: ordinary-course salaries, statutory professional fees, certain tax distributions. Dividends, shareholder loan repayments and transaction bonuses are usually prohibited unless explicitly permitted in the SPA.
The locked box ticker is an interest rate (typically 3–7% per annum) applied to the equity price between the locked box date and closing. It compensates the seller for the time value of money — the seller is economically "out" of the business from the locked box date but does not receive cash until closing.
Yes, but rarely. Hybrid structures exist for specific items (e.g. a locked box for the operating business with a completion accounts true-up for a specific working capital line). Most deals choose one structure outright.
Under locked box, FDD focuses on the historical balance sheet (the locked box date) and a forward-looking leakage walk. Under completion accounts, FDD focuses on forward-looking NWC and net debt definitions, with the TS team often re-engaged post-closing to review the completion accounts.
The full mechanism — locked box vs completion accounts, leakage clauses, NWC peg construction, debt-like items, SPA negotiation tactics — is covered with real SPA extracts in our Transaction Services Interview Programme.
The Transaction Services Interview Programme (€119.99, one-time) covers completion accounts and locked box mechanics in detail, with SPA extracts and worked examples. Enrol today.
Hundreds of candidates prepared their interviews with this programme. Those who landed the role have one thing in common: they worked the cases before walking into the room.
