News From the Locked Box

GERMAN M&A AND PRIVATE EQUITY NEWS - 4TH QUARTER 2010

In German share deals, two types of purchase-price clauses predominate: on the one hand, the adjustment of a base purchase price by the net debt of the target company and variations in its working capital as of the closing; on the other hand, the calculation of the purchase price on the basis of the latest audited balance sheet of the target company and interest payments on such purchase price for the period between the balance-sheet date and the closing ("locked box"). In recent times, a combination of both mechanisms has been used as an alternative: the calculation of the purchase price as of an effective date between the date of the last audited financial statements and the closing and interest payments for the period between such effective date and the closing. This article briefly discusses the established mechanisms and then explains the new alternative.