Purchase Price Mechanism

A purchase price mechanism is the contractual rule for how the final purchase price is determined and adjusted. Common variants are the locked box with a fixed reference date and completion accounts with adjustment after closing. It ensures that both sides know how the final price is calculated. The decisive difference lies in allocating the risk of the period between a reference date and completion.

Under a locked box the price is fixed on past accounts, the economic result of the interim period belongs to the buyer, and the seller undertakes to allow no value to leak out of the business. Interest on the purchase price for that period is often agreed. Under completion accounts the price is adjusted after completion using accounts as at the completion date, comparing net debt and working capital against agreed reference levels. The choice follows interests: sellers prefer the price certainty of a locked box, buyers the accuracy of an adjustment, particularly where working capital fluctuates strongly or interim figures are not robust.

Whichever variant applies, the price is decided not by the mechanism itself but by the definitions of cash, financial debt, debt-like items and normalised working capital, which should therefore be settled as early and as precisely as possible. In Europe the locked box is widespread in sales by financial investors, because it provides certainty about the proceeds.