Purchase price and earn-out.

With the locked box mechanism the purchase price is determined on the basis of a fixed reference date before signing and is therefore certain from the outset. The seller is liable for ensuring that no value is extracted from the company between the reference date and closing, for example through distributions or unusual payments. This structure provides planning certainty but requires reliable figures as at the reference date.

With completion accounts the purchase price is only finally established after closing on the basis of completion-date accounts. This reflects the actual position at the time of handover but leaves room for disputes about valuation. We determine which mechanism suits your transaction and how accounting rules, deadlines and dispute resolution are anchored in the contract.

An earn-out links part of the purchase price to the future performance of the company, for example to revenue, earnings or the achievement of certain milestones. This allows a valuation gap between the expectations of buyer and seller to be bridged, without one side bearing the entire forecasting risk alone.

At the same time earn-outs are a frequent source of dispute. The points at issue are usually how the relevant figure is to be calculated, how far the buyer may steer the company during the earn-out period and whether certain measures unduly reduce the target values. We define the calculation basis, protective clauses and rights of participation precisely enough to keep room for interpretation as small as possible.

Future or contingent payments need security. Through an escrow or trust account part of the purchase price is deposited with a neutral body and only released once agreed conditions are met. This protects the buyer in the event of warranty breaches and gives the seller certainty about payment if the transaction proceeds as agreed.

In addition, bank guarantees, sureties or comfort letters can be used to secure later instalments and earn-out payments. Which form is suitable depends on creditworthiness, volume and term. We design the security instruments and align release conditions, deadlines and interest cleanly with the rest of the contract.

The chosen mechanism is anchored in the company purchase agreement. For the locked box an audited reference-date balance sheet forms the basis, supplemented by the leakage clauses. For completion accounts the contract sets out which figures are collected after closing, by which rules they are determined and by when the preparation must be available.

Which figures feed the price belongs defined precisely. These include the reference-date accounts, the working capital definition with an agreed target value as well as a net debt list that records which items count as debt and which as cash. We frame these definitions so that they remain verifiable and hold up in the event of a dispute.

Caution is warranted when the earn-out calculation remains unclear, when robust leakage protection is missing for the locked box or when no dispute resolution mechanism is agreed for completion accounts. Vague definitions of net debt and working capital also regularly lead to disputes about the final amount.

The sensible next step is close coordination of the legal and tax side, because the mechanism and the security affect the tax consequences. We discuss the price mechanism before you commit and align it with your tax adviser.