The decision to use either a locked-box or completion accounts structure in a merger or acquisition determines how the purchase price is calculated and later adjusted. Both approaches are common, yet they carry distinct financial risks, timelines, and outcomes for the parties involved.
How Each Mechanism Works
The locked-box method sets the price based on a fixed financial snapshot of the target company—usually its most recent audited accounts or a custom balance sheet prepared shortly before the deal date. Adjustments to the price are uncommon unless there is proof of improper value extraction, such as payments made to related parties or executives. Under this structure, the buyer assumes all financial risks from the balance date forward, meaning any changes in cash reserves, debt levels, or working capital between the snapshot and closing do not affect the final price.
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By contrast, completion accounts rely on a provisional purchase price at closing, which is later adjusted according to the company’s actual financial position on that exact day. If the business holds more cash, less debt, or stronger working capital than anticipated, the buyer pays an additional amount. Conversely, if conditions deteriorate, such as higher debt or reduced working capital, the seller may need to refund part of the purchase price. This approach ensures the final cost aligns directly with the company’s financial state at closing.
Key Trade-Offs for Buyers and Sellers
A locked-box deal provides sellers with immediate price certainty, simplifies negotiations, and minimizes the risk of future disputes, particularly when sellers remain involved after the transaction, such as through continued employment or minority ownership stakes. It also eliminates the need for prolonged post-closing audits, accelerating the overall process. However, buyers must accept all financial risks from the balance date, necessitating thorough due diligence before finalizing the agreement. This requirement can slow down competitive bidding scenarios, where sellers may prefer locked-box to encourage multiple offers.
Completion accounts offer a more accurate final price but require precise definitions of cash, debt, and working capital in the agreement. Disagreements over these terms can lead to later disputes, often resolved through arbitration. Buyers tend to favor this method when they seek protection against last-minute financial surprises, such as undisclosed debt or a decline in working capital between signing and closing.
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The choice between the two often reflects the relative bargaining power of the parties. In strong market conditions, sellers may opt for locked-box to simplify the process and attract more offers. Meanwhile, buyers in weaker negotiating positions may push for completion accounts to reduce exposure to pre-closing financial risks.
Usage in Colombia and Global Trends
According to the Deal Points Colombia 2025 report, completion accounts were the most common structure in 2024, used in 54% of merger and acquisition transactions. In comparison, locked-box accounted for just 9%, while hybrid models represented 5%. The remaining 32% of deals did not employ either method. This preference for completion accounts suggests that Colombian buyers prioritize financial precision over speed, though locked-box remains an option in highly competitive sales environments.
