TRW & Co · M&A and private capital
Locked Box or Completion Accounts? Choosing a Price Mechanism
The locked box vs completion accounts choice decides when a UK deal price is fixed and who carries trading risk until completion. A locked box fixes the price at signing and protects the buyer against leakage; completion accounts adjust the price afterwards for actual cash, debt and working capital. This guide compares both and sets out the key drafting points.
Key pointEach mechanism creates its own dispute: locked boxes produce arguments over leakage, completion accounts over accounting judgements. A complete permitted leakage list or a clear accounting hierarchy with a worked example prevents most of them.
At a glance
Locked box fixes price
The equity price is agreed at signing using a historical balance sheet, and economic risk and reward pass to the buyer from the locked box date.
Leakage is the key protection
Sellers promise that no value leaves the target for their benefit before completion, with pound-for-pound recovery for leakage not on the permitted list.
Completion accounts adjust later
An estimated price is paid at completion and trued up once accounts show the actual cash, debt and working capital at the completion date.
Expert, not arbitrator
Completion accounts disputes usually go to an independent accountant acting as expert, whose decision is binding except for manifest error or fraud.
Timing drives the choice
Long gaps between signing and completion, such as waiting for regulatory clearance, increase the trading risk a buyer accepts under a locked box.
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Locked box vs completion accounts: the short answer
The locked box vs completion accounts question is about when the price of a company is finally fixed. Under a locked box, the price is agreed before signing by reference to a historical balance sheet, and the seller promises that no value will leave the business between that date and completion. Under completion accounts, an estimated price is paid at completion and then adjusted once accounts are drawn up showing the target's actual cash, debt and working capital on the completion date.
Locked boxes give certainty and a simpler completion, and are favoured by sellers, especially private equity funds. Completion accounts give the buyer more precision, and suit businesses with volatile balance sheets, carve-outs or long gaps between signing and completion. Each mechanism moves risk differently and creates different kinds of dispute.
This guide explains how each mechanism works, how leakage and value accrual are dealt with, where disputes arise, and the drafting points that matter to buyers and sellers in UK deals.
How completion accounts work
Most UK deals are priced on a cash-free, debt-free basis with a normalised level of working capital. The enterprise value is agreed, then adjusted for cash, debt and any difference between actual and target working capital to arrive at the equity price paid for the shares.
With completion accounts, those adjustments are measured at completion. The seller usually provides an estimate shortly before completion, and the buyer pays an estimated price, sometimes with part held in escrow. After completion, one party, usually the buyer because it now controls the books, prepares draft completion accounts within an agreed period. The other party reviews them, raises objections, and any unresolved items go to an independent accountant acting as expert. The final figures then produce a balancing payment in one direction or the other.
The accounting hierarchy
The heart of a completion accounts clause is the hierarchy of accounting principles. Typically it puts specific policies first, then the policies used in the target's last statutory accounts, and only then the applicable accounting standards, such as FRS 102 issued by the Financial Reporting Council. Statutory accounts must give a true and fair view under section 393 of the Companies Act 2006, but the completion accounts are a contractual document, and the contract decides how judgement areas are resolved.
Specific policies should cover the items most likely to cause disputes: provisions, accruals, stock valuation, bad debt, deferred income, and what counts as cash and debt. A worked example of the completion statement, using the target's latest numbers, removes much of the ambiguity.
How a locked box works
A locked box fixes the equity price at signing by reference to a balance sheet at a date before signing, the locked box date. The buyer diligences that balance sheet and prices on the basis that economic risk and reward pass to it from the locked box date. There is no post-completion adjustment.
Leakage and permitted leakage
The buyer's key protection is the leakage covenant. The seller promises that, between the locked box date and completion, no value has left or will leave the target for the benefit of the seller or its connected persons. Leakage typically includes dividends and other distributions, payments to the seller or its affiliates, waivers of amounts owed by them, management and monitoring fees, transaction bonuses and the target's payment of the seller's deal costs.
Dividends deserve particular attention: under section 830 of the Companies Act 2006 a company may only make a distribution out of profits available for the purpose. Any distribution in the locked box period is normally leakage unless agreed as permitted.
Permitted leakage is a defined list of payments the buyer has accepted and priced in, such as salaries to seller-appointed directors on existing terms or an agreed dividend. Anything outside the list is recoverable pound for pound, usually within a short period after completion, and usually without the caps that apply to warranty claims.
Value accrual and the ticker
Because the buyer takes the economic benefit from the locked box date, sellers argue they should be compensated for profits generated before completion. The usual solution is a ticker: a daily amount added to the price from the locked box date until completion, reflecting expected cash generation or an agreed return on equity. Buyers resist tickers, or seek to limit them to a shorter period or to profits actually earned.
Locked box vs completion accounts compared
The table summarises how each mechanism allocates risk. Neither is inherently better; the locked box vs completion accounts decision depends on the target, the parties and the timetable.
| Feature | Locked box | Completion accounts |
|---|---|---|
| When price is fixed | At signing, by reference to a historical balance sheet | After completion, once accounts are agreed or determined |
| Economic risk passes | From the locked box date | At completion |
| Buyer's main protection | Leakage covenant and indemnity; warranties on locked box accounts | Adjustment for actual cash, debt and working capital |
| Seller's main benefit | Price certainty; clean exit; value accrual through a ticker | Benefit of any improvement in working capital or cash |
| Typical dispute | Whether a payment was leakage or permitted leakage | Accounting judgements in the completion accounts |
| Post-completion workload | Light; leakage review | Heavy; preparation, review and possible expert determination |
| Best suited to | Stable businesses with reliable recent accounts and a short gap to completion | Volatile balance sheets, carve-outs, long gaps to completion |
Choosing between the two
Sellers, particularly private equity vendors, generally prefer a locked box in competitive auctions. It allows bidders to compare fixed prices, lets the fund distribute proceeds without waiting for an adjustment, and avoids post-completion accounting disputes.
Buyers lean towards completion accounts where the target lacks recent audited or reliable management accounts, where the business is being carved out of a larger group, where working capital swings seasonally, or where completion is delayed by regulatory clearance. A long gap, for example while waiting for clearance under the National Security and Investment Act, exposes a locked box buyer to trading risk it cannot measure at signing.
The locked box vs completion accounts answer also depends on control. In a locked box, the buyer relies on interim period covenants to stop the seller running the business for its own benefit. In completion accounts, the buyer controls preparation of the accounts after completion and can apply the hierarchy to its advantage, so sellers need strong review and access rights. Hybrid structures, such as a locked box with a limited working capital true-up, are possible but import some of the complexity of both.
Run the numbers before arguing the principle. Model the price under both mechanisms using the latest management accounts and a realistic completion date. The locked box vs completion accounts debate often resolves itself once both sides see how much value, and how much risk, actually turns on the choice.
A completion accounts timetable step by step
Where completion accounts are used, the post-completion process should be mapped and agreed in detail. A typical sequence is set out below; locked box deals replace most of these steps with a leakage review.
- Estimate before completion. The seller delivers estimated cash, debt and working capital figures a few business days before completion, often subject to buyer comment.
- Pay the estimated price. The buyer pays the estimated equity price at completion, with any escrow or retention agreed for adjustments.
- Prepare draft accounts. The preparing party delivers draft completion accounts within the agreed period, in line with the accounting hierarchy.
- Review with access. The reviewing party has a fixed period, with access to books, staff and working papers, to accept or serve a dispute notice.
- Negotiate. The parties try to agree disputed items within a short negotiation window.
- Expert determination. Unresolved items are referred to an independent accountant acting as expert, not arbitrator, whose decision is final and binding save for manifest error or fraud.
- Balancing payment. The final price is calculated and the difference paid, usually with interest, from the escrow or between the parties.
Because the expert acts as an expert and not an arbitrator, the Arbitration Act 1996 framework does not apply, and court challenges are generally limited to cases where the expert departed from the instructions in the agreement. The scope of the reference therefore needs precise drafting.
Drafting points for both sides
For buyers
- In a locked box, obtain warranties on the locked box accounts, a broad leakage definition, a narrow permitted leakage list, and a leakage indemnity that runs from the seller receiving the benefit.
- Negotiate interim covenants that stop unusual transactions before completion, and seek information rights.
- In completion accounts, control preparation, insist on a clear accounting hierarchy and worked example, and secure an escrow for downward adjustments.
For sellers
- In a locked box, limit leakage to payments to the seller group, keep the claim period short, and secure a ticker if completion may be delayed.
- Make permitted leakage comprehensive: every expected salary, fee and dividend should be listed.
- In completion accounts, secure full access rights, a meaningful review period and a narrow expert reference, and resist one-sided policies that favour the buyer.
The price mechanism also interacts with the warranties and indemnities package. Locked box accounts warranties carry the weight that completion accounts would otherwise bear, and warranty and indemnity insurance does not cover price adjustments or leakage.
An illustrative scenario
This scenario is illustrative only; the parties are generic.
A private equity fund sells a UK distribution business. It proposes a locked box with a locked box date at the last financial year end, about four months before expected signing. The buyer's financial diligence shows stable working capital and reliable accounts, so the buyer accepts, subject to a broad leakage covenant and warranties on the locked box accounts.
The seller asks for a ticker reflecting expected daily cash generation. The buyer agrees to a ticker from signing, not from the locked box date, and only if completion has not happened by a set date, because merger control filings may delay completion. Permitted leakage includes the directors' salaries on current terms and the fund's agreed monitoring fee up to signing.
After completion, the buyer finds that the target paid a bonus to a director appointed by the fund, which was not on the permitted leakage list. The buyer notifies a leakage claim within the agreed period and recovers the amount pound for pound. The rest of the price is final, and no accounting dispute arises.
Risks and common mistakes
Most problems in the locked box vs completion accounts area come from drafting that fails to anticipate how the business will actually run between signing and completion.
Using a stale locked box date
A locked box only works if the buyer can rely on the balance sheet at the locked box date. If that date is many months before signing, or the accounts are unaudited management accounts, the buyer takes more risk than it can price. Buyers should insist on a recent, reliable balance sheet and warranties on it, and should be cautious where trading or working capital has moved materially since the date. Where no reliable balance sheet exists, completion accounts may be the better choice.
An incomplete permitted leakage list
Sellers sometimes forget recurring payments, such as fees to a parent, intra-group recharges or agreed bonuses, and find them classed as leakage after completion. Buyers sometimes accept vague permitted leakage descriptions that let significant value out. Both sides should list every expected payment by amount and recipient, and the definitions of leakage and permitted leakage should be tested against the target's actual payments in the locked box period.
Ambiguous accounting policies in completion accounts
Completion accounts disputes typically arise where the hierarchy is unclear or specific policies are missing. If the agreement does not say whether the last accounts' policies or general accounting standards prevail, each side will argue for the version that favours it. A clear hierarchy, specific policies for judgement areas and a worked example based on real figures reduce the scope for dispute and the cost of any expert determination.
Poorly drafted expert determination clauses
An expert determination clause must say who appoints the expert, what the expert decides, which documents they see, whether they give reasons, and who pays. Uncertainty about whether a disputed item is within the expert's remit can lead to court proceedings over jurisdiction before the accounting point is even addressed. The clause should cover only accounting questions and leave legal questions, such as the meaning of the agreement, to the courts.
Cross-border points and next steps
International buyers, including groups from Bangladesh, the Gulf and Asia, often know completion accounts from their home markets and may be unfamiliar with UK locked box practice. Currency is another factor: where the price is fixed in sterling at signing and funded in another currency, hedging should match the mechanism. Foreign buyers should also check the interaction with any regulatory approvals that could delay completion.
Before settling the locked box vs completion accounts decision, check:
- the quality and date of the target's most recent balance sheet;
- the likely gap between signing and completion, including any regulatory clearances;
- volatility of cash and working capital, including seasonality;
- whether a ticker, escrow or retention is needed;
- how the mechanism interacts with warranties, insurance and tax structuring;
- who will prepare and review any completion accounts, and how disputes are resolved.
TRW & Co's mergers and acquisitions team negotiates price mechanisms for buyers and sellers and works alongside financial advisers and accountants. Our guide to the UK M&A process explains where the decision fits. Our London office is authorised and regulated by the Solicitors Regulation Authority. Contact us to discuss your transaction.
Frequently asked questions
01What is leakage in a locked box deal?
Leakage is value passing out of the target to the seller or its connected persons between the locked box date and completion. It typically includes dividends, payments to the seller group, waivers of debts owed by them, management fees, transaction bonuses and the seller's deal costs borne by the target. Leakage not listed as permitted leakage is recoverable from the seller pound for pound, usually within a short period after completion and outside the warranty caps.
02What is a ticker in a locked box deal?
A ticker is a daily amount added to the price from the locked box date, or another agreed date, until completion. It compensates the seller for profits generated after the locked box date, which the buyer receives because economic benefit passes from that date. Tickers are usually based on expected cash generation or an agreed return. Buyers often try to start them later or cap their duration, especially where completion may be delayed.
03Who prepares the completion accounts?
The agreement decides. Most commonly the buyer prepares them, because it controls the target and its finance team after completion. The seller then has a review period with access to books, records and staff to raise objections. Sellers sometimes negotiate to prepare them instead, particularly where they continue to provide finance services under a transitional arrangement. Whichever party prepares them, the other needs clear access and dispute rights.
04How are completion accounts disputes resolved?
Usually through negotiation followed by expert determination. If the parties cannot agree disputed items within a set period, they refer them to an independent accountant acting as an expert, not as an arbitrator. The expert's decision is typically final and binding except for manifest error or fraud. Because the Arbitration Act 1996 does not apply, challenges are limited, so the clause should define the expert's remit precisely and leave questions of contract interpretation to the courts.
05Can warranty and indemnity insurance cover leakage or price adjustments?
No. W&I policies generally exclude purchase price adjustments, including completion accounts true-ups, and leakage claims under a locked box. Those risks stay with the parties under the contract. Warranties given on the locked box accounts or on the last accounts may be insured, subject to the policy terms, which is one reason buyers focus on those warranties when a locked box is used.
06Is a locked box always better for the seller?
Not always. A locked box gives price certainty and a clean exit, but the seller loses any improvement in working capital after the locked box date unless it negotiates a ticker, and it carries the leakage covenant. If the business is improving rapidly or completion is likely to be delayed, completion accounts may produce a higher final price. The right answer depends on the business, the timetable and the bargaining position.
Sources and official materials
- Companies Act 2006, section 830 — Distributions only out of profits available
- Companies Act 2006, section 393 — Accounts to give a true and fair view
- Arbitration Act 1996 — Arbitral framework that does not apply to expert determination
- Prepare and file annual accounts (GOV.UK) — Statutory accounts for private limited companies
- Financial Reporting Council — UK accounting standards including FRS 102
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.