Completion Accounts vs Locked Box: Which Price Mechanism Suits Your Sale?

Agreeing a headline price is not the same as agreeing what lands in your bank account. Between the two sits the price mechanism — completion accounts or locked box — and it determines how much you actually receive, when you receive it, and how likely you are to end up in a dispute about it. It is one of the most consequential terms in a sale agreement, and one of the least understood by owners going to market for the first time.

Why the price mechanism matters

Most Australian private deals are struck on an enterprise value — a price for the business itself, assumed to be delivered with no surplus cash and no debt, and with a normal level of working capital. Reality rarely obliges. Cash moves, debt is drawn and repaid, and working capital swings between the day you shake hands and the day the deal completes.

The price mechanism is how the sale agreement deals with that movement. Two approaches dominate Australian private M&A: completion accounts, where the price is trued up after completion against an actual balance sheet, and locked box, where the price is fixed by reference to an earlier balance sheet and protected by promises about what does not leave the business in the meantime.

How completion accounts work

Under a completion accounts mechanism, the parties agree the enterprise value up front but leave the final price open. A balance sheet is prepared as at the completion date, and the price is adjusted against it — typically for cash, debt and working capital measured against an agreed target.

The process usually runs in three steps:

1. An estimate is prepared shortly before completion, and cash changes hands on that basis.
2. The final completion accounts are prepared after completion, within a timeframe set by the agreement.
3. A true-up payment flows in whichever direction the final numbers require, unless the accounts are disputed.

The appeal for a buyer is accuracy: they pay for the business as it actually was on the day they took it. The cost is complexity, a longer tail, and a genuine risk of argument — because the true-up depends on accounting judgments that both sides have a financial reason to see differently.

How locked box works

A locked box works from the other direction. The parties pick a historical balance sheet — the reference accounts, as at the locked box date — and fix the equity price from it. There is no post-completion true-up. Economically, the buyer is treated as owning the business from the locked box date onwards, even though completion happens later.

That only works if the box is genuinely locked. The buyer’s protection is not an adjustment — it is a set of undertakings that value has not left the business for the seller’s benefit since the locked box date.

What counts as leakage

Leakage is value moving out of the target to the seller or seller-related parties after the locked box date. Typical examples a buyer will want captured and indemnified:

• Dividends or distributions — cash leaving the target for the seller’s benefit.
• Management fees to the seller group — value extraction unless ordinary course and expressly permitted.
• Related party payments above market rates — value transferred to seller-related parties.
• Transaction costs paid by the target — the seller’s costs of sale pushed onto the buyer.
• Sale bonuses paid by the target — the economic cost of the sale reducing buyer value.
• Debt forgiveness or asset transfers to the seller — assets or value removed from the target.

Permitted leakage

Not every payment is prohibited. Agreed dividends, ordinary salary, rent, management fees and specific transaction cost reimbursements can be carved out as permitted leakage — but the carve-outs must be specific, disclosed and, wherever possible, quantified. Sellers who leave this vague invite an argument they will usually lose.

The two mechanisms compared

The trade-off runs along a handful of axes, and where you land on each depends on the business rather than on any general rule.

Price certainty

Locked box gives higher certainty at signing — the price is usually fixed and known. With completion accounts, the final number is not known until the accounts are agreed, which may be weeks or months after completion.

Accuracy and buyer protection

Completion accounts are more accurate at completion, because an actual balance sheet is measured and the adjustment captures cash, debt and working capital movements directly. A locked box price is based on earlier accounts, so the buyer’s protection depends instead on the quality of due diligence, the warranties, the conduct-of-business covenants and the leakage indemnity.

Dispute risk and timing

Completion accounts carry higher dispute risk, because accounting judgments can be contested and the true-up drags the process on well past completion. Locked box removes the price calculation as a source of argument — though leakage claims can still be made after completion, so it is not dispute-free.

Who tends to prefer which

Sellers often favour locked box: the price is fixed, the exit is clean, and there is no post-completion accounts process to manage. Buyers often favour completion accounts where trading or working capital is volatile. But the preference reverses often enough to be worth testing — locked box can suit a buyer well in a competitive auction, or where diligence access has been strong and the leakage controls are tight.

Which mechanism suits your sale?

There is no universal answer. Completion accounts are often more accurate but more complex. Locked box is often cleaner and more certain, but it requires real confidence in the reference accounts and in the leakage protections.

As a starting point, completion accounts tend to suit volatile businesses, carve-outs from a larger group, businesses with weaker accounting records, and deals with a long gap between signing and completion. Locked box tends to suit stable businesses with reliable, well-prepared accounts and a diligence process that has given the buyer proper access.

Which is to say: the quality of your accounts is itself a negotiating asset. A seller who wants the certainty of a locked box needs reference accounts a buyer will accept without discount.

Questions to ask before you sign

Whichever mechanism the agreement uses, these are the points to press your advisors on before the document is final.