At signing, the parties agree an enterprise value and the calculation formula. At closing, the buyer pays a provisional purchase price based on estimated figures. Afterwards, usually the buyer prepares closing accounts within an agreed period. Deviations in net financial debt and net working capital lead to an additional payment or a repayment.
For sellers, this means the purchase price is only fixed months after closing. Because the buyer then controls the accounting, it can influence judgement calls, for example on provisions or write-downs. The advantage for the seller: profits up to closing belong to the seller economically.
The purchase agreement sets out the accounting principles, the deadlines and a procedure for disputes. A decision by an independent auditor acting as expert determiner is common. Part of the purchase price is often held back in an escrow account until the settlement is final.
Example
Hypothetical example: The provisional purchase price of €9.0 million is based on estimated net financial debt of €2.0 million. The closing accounts show €2.3 million of debt, but working capital that is €0.1 million higher. The final purchase price is €8.8 million, and the seller refunds €0.2 million.
Closing accounts vs. locked box
| Feature | Closing accounts | Locked box |
|---|---|---|
| Earnings up to closing belong to | Seller | Buyer (possibly ticker) |
| Effort after closing | High | Low |
| Typical with | Strategic buyers, uncertain figures | Financial investors, audited accounts |