Locking The Box: An Emerging Tool To Avoid Post-Closing Negotiations

In Canada, private M&A transactions have long followed a familiar structure: the parties settle on a "cash free, debt free" price, which then must be adjusted post-closing to account for the target's actual cash, debt and working capital (or other measures such as net assets) in an effort to reach the true "equity value" of the business. Calculating and settling these post-closing adjustments to the purchase price can frequently take many months and is one of the main causes of acrimony between buyers and sellers.

In light of these frustrations, it is perhaps unsurprising that one recent trend that has been gaining momentum—particularly in the UK and EU—is the use of "locked box" pricing to generate greater deal certainty.