Locked Box vs Completion Accounts for UK Sellers
Locked box vs completion accounts: how each fixes the price in a UK business sale, how leakage and the working capital peg work, and which suits a seller.
Locked box vs completion accounts: the short answer
A locked box fixes the equity price at signing from a balance sheet drawn up at an earlier date, and protects the buyer with a promise that no value leaks out to the seller in between. Completion accounts set a provisional price at completion and then true it up, pound for pound, once a balance sheet at the completion date has been drawn up and agreed. A locked box gives the seller certainty and a clean exit; completion accounts give the buyer the business it actually receives, at the cost of a post-completion adjustment and the disputes that can come with it.
Both mechanisms appear in the sale and purchase agreement (SPA), and both start from the same headline: an enterprise value, adjusted for cash, debt and a normal level of working capital, to reach the equity value paid for the shares. They differ on the date the balance sheet is struck, who carries the risk until completion, and whether the price can move afterwards.
Locked box vs completion accounts at a glance
| Criterion | Locked box | Completion accounts |
|---|---|---|
| Price certainty | Fixed at signing; known to the pound before completion | Provisional at completion; final weeks or months later |
| Balance sheet used | Historical "locked box accounts" at an agreed date before signing | A balance sheet drawn up at the completion date itself |
| Economic risk between accounts date and completion | Passes to the buyer at the locked box date | Stays with the seller until completion |
| Leakage protection | Seller covenants no leakage; pound-for-pound repayment of anything prohibited | Not needed: cash leaving the business reduces the completion price |
| Post-completion adjustment | None, other than leakage claims | True-up for cash, debt, debt-like items and working capital against the peg |
| Cost and time | Diligence effort before signing; little after completion | Accounts, review and possible expert determination after completion |
| Dispute risk | Low on price; narrow scope (leakage) | Higher: definitions, accounting policies and the peg are all contestable |
| Who it tends to favour | The seller: certainty, control and a clean break | The buyer: it pays for the balance sheet it actually receives |
| Typical use | PE sellers, competitive auctions, stable businesses with reliable accounts | Carve-outs, volatile or seasonal working capital, long gaps to completion, weaker financial records |
The choice is a trade between certainty and accuracy. A locked box moves the risk to the buyer early and rewards a seller whose accounts can bear scrutiny. Completion accounts keep the risk with the seller until the day of sale and settle the price on actual figures, so the seller's exposure runs past completion.
This page is general information on SPA price mechanics in UK private company sales. It is not legal, financial or tax advice. The terms of any sale are set by the SPA your solicitor negotiates, with your corporate finance adviser and accountant.
How a locked box works
A locked box mechanism prices the shares from a balance sheet at an agreed date before signing, the locked box date. That balance sheet is usually the latest audited year-end accounts, or a set of management accounts prepared for the sale and reviewed by the buyer's accountants. The buyer diligences those figures, agrees the equity price from them, and from the locked box date onwards the profits, cash and risk of the business belong economically to the buyer, even though the seller still owns and runs it until completion.
Because the price cannot move after signing, the buyer needs protection against the seller taking value out in the interim. That protection is the leakage covenant.
Permitted and prohibited leakage
Leakage is any transfer of value from the target to the seller or the seller's connected persons after the locked box date. The SPA lists what is prohibited and what is permitted.
- Prohibited leakage typically covers dividends and other distributions, returns of capital, management fees or bonuses paid to the seller outside the ordinary course, waivers of amounts the seller owes the company, transaction costs (such as the seller's adviser fees) borne by the company, and any tax arising on these.
- Permitted leakage is agreed in advance and priced in: salaries and pension contributions at existing contractual rates, arm's-length trading with connected businesses, and any named item such as a pre-completion dividend that the buyer has already deducted from the price.
Prohibited leakage is repaid pound for pound, usually without the financial limits that apply to warranty claims, but only for a claim period that is often short (six to twelve months after completion is common).
The ticker
Because the buyer receives the profits earned after the locked box date, the seller often negotiates a ticker: a daily amount, or an interest rate on the equity price, that runs from the locked box date (sometimes from signing) to completion. The ticker is negotiated, not automatic. It is usually justified by reference to the cash the business generates each day, and a buyer will resist one where the gap to completion is short.
Worked example: a locked box sale
An owner sells 100% of a UK engineering services company. The locked box date is 31 March 2026, the SPA is signed on 15 May 2026 and completion takes place on 30 June 2026.
Locked box price build-up
| Step | £ |
|---|---|
| Enterprise value agreed (6.0 × normalised EBITDA of £2,000,000) | 12,000,000 |
| Less net debt in the locked box accounts (bank loan £2,000,000 less cash £1,500,000) | (500,000) |
| Equity value at the locked box date | 11,500,000 |
| Less permitted leakage priced in: agreed pre-completion dividend to the owner | (400,000) |
| Equity price fixed in the SPA | 11,100,000 |
| Plus ticker: £2,500 a day for 91 days (1 April to 30 June) | 227,500 |
| Paid at completion | 11,327,500 |
| Less prohibited leakage found after completion and repaid by the seller | (75,000) |
| Net consideration for the shares | 11,252,500 |
In the first month after completion, the buyer's finance team found a £60,000 bonus paid in May to the owner's relative, who was not on the permitted list, and £15,000 of the owner's personal legal fees settled by the company. Both were prohibited leakage, so the owner repaid £75,000. Adding the £400,000 dividend received before completion, the owner's total proceeds were £11,652,500 (£11,252,500 plus £400,000).
How completion accounts work
Under completion accounts, the parties agree an enterprise value on a cash-free, debt-free basis, assuming the business is handed over with a normal level of working capital. At completion the buyer pays an estimated price, built from the seller's estimates of cash, debt and working capital on the day. A balance sheet at the completion date is then drawn up and the price is trued up to the actual figures.
From enterprise value to the final price
The final equity price is the enterprise value, plus cash, less financial debt and debt-like items (unpaid corporation tax for pre-completion periods, deferred consideration on earlier acquisitions, pension deficits), plus or minus the difference between actual working capital and the working capital peg. The SPA defines each of these terms, and the definitions are where the money is.
The true-up and disputes
The buyer usually prepares the completion accounts, because it controls the books after completion, within a set period (commonly 60 to 120 days). The seller then has a review period to raise objections. Disagreements that the parties cannot settle go to an independent accountant acting as an expert, not an arbitrator, whose decision is final and binding on the disputed items, save for manifest error. To secure any repayment, the buyer often holds back part of the price in a retention or an escrow account.
The accounting policies used matter as much as the figures. SPAs usually set a hierarchy: specific policies written into the SPA first, then policies consistent with the last audited accounts, then the applicable framework (FRS 102 for most UK private companies). A seller who leaves the specific policies blank lets the buyer argue every judgement afresh.
Worked example: a completion accounts sale
The same business, sold this time on completion accounts with an enterprise value of £12,000,000 and a working capital peg of £1,800,000. The buyer pays the estimated price at completion, less a £500,000 escrow.
Completion accounts true-up
| Line | Estimate at completion (£) | Completion accounts (£) | Difference (£) |
|---|---|---|---|
| Enterprise value | 12,000,000 | 12,000,000 | 0 |
| Plus cash | 1,200,000 | 1,150,000 | (50,000) |
| Less bank debt | (2,000,000) | (2,000,000) | 0 |
| Less debt-like items: corporation tax owed for pre-completion periods | 0 | (100,000) | (100,000) |
| Working capital adjustment: actual £1,650,000 against the £1,800,000 peg | 0 | (150,000) | (150,000) |
| Equity price | 11,200,000 | 10,900,000 | (300,000) |
The seller received £10,700,000 at completion (the £11,200,000 estimate less the £500,000 escrow). After the true-up, £300,000 of the escrow was released to the buyer and £200,000 to the seller, so the seller's total was £10,900,000, the final equity price.
Two of the three adjustments in this example turned on definitions as much as on trading. Whether pre-completion corporation tax counts as debt, and what sits inside working capital, are decided by the SPA's definitions. A seller who agrees the headline price and leaves the definitions to the end of the negotiation has left part of the price open.
Setting the working capital peg
The peg is the level of working capital (broadly trade receivables, stock and prepayments, less trade payables and accruals) that the business needs to trade normally. Under completion accounts, every pound above or below the peg at completion moves the price. Under a locked box there is no true-up, but the buyer still compares working capital in the locked box accounts with its normal level and will adjust the price it offers if the box looks thin. For definitions of the related terms, see the glossary entries for the net working capital target and the completion mechanism, and the FAQ on why working capital matters in M&A.
The usual starting point is the average of month-end working capital over the trailing 12 months, normalised for one-off items: a bulk stock purchase ahead of a price rise, a debtor in dispute, a supplier paid early. Seasonality is where a flat average goes wrong.
Month-end working capital for a seasonal business (£m)
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Average |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1.5 | 1.5 | 1.6 | 1.7 | 1.8 | 1.9 | 2.1 | 2.2 | 2.1 | 1.9 | 1.7 | 1.6 | 1.8 |
The twelve month-ends total £21.6m, an average of £1.8m. With a flat peg of £1.8m, completion at the end of August, when the business always carries £2.2m, adds £400,000 to the price for working capital that is simply the seasonal norm. Completion at the end of January, when £1.5m is normal, takes £300,000 off. Neither adjustment reflects value; both reflect the calendar. A month-specific peg, set at the normal level for the month in which completion falls, removes the distortion. A seasonal build in working capital is usually funded from cash or an overdraft, so test the peg alongside the cash and debt definitions, not on its own.
A seller expecting to complete in late January, at the seasonal low, should argue for a month-specific peg of about £1.5m. Under the flat £1.8m average, the same business delivered in the same condition would lose £300,000 at the true-up.
Where intangible value moves the price between signing and completion
Neither mechanism re-prices intangible value. Both adjust balance sheet items: cash, debt and working capital. Yet in many UK SMEs the larger part of the enterprise value rests on intangible assets that never appear on the balance sheet: customer relationships, the people who hold them, the technology and the brand. When that value changes between the accounts date and completion, it moves the price through other routes: warranties, conditions, earn-outs and price reductions negotiated after diligence findings.
- Customer churn. Under a locked box, the buyer carries the economic risk from the locked box date, so the loss of a major customer after that date is its problem unless the SPA says otherwise. Buyers respond with warranties on the customer base, a no-material-adverse-change condition, or a request to move the locked box date later. Under completion accounts, losing a customer barely touches working capital, so the enterprise value stands. The buyer's protection comes from diligence before signing, which is where an unexplained concentration of revenue becomes a price discussion.
- Key-person departures. A resignation between signing and completion is not a balance sheet item under either mechanism. Buyers manage key person risk through conditions (signed service agreements for named people), ordinary-course covenants and, often, an earn-out that keeps the owner involved.
- Capitalised development costs. Where a company capitalises development spend (under FRS 102 Section 18 or IAS 38), reported EBITDA is higher than it would be if the costs were expensed. A buyer's diligence may reverse the capitalisation in its view of normalised EBITDA, which cuts the enterprise value at the multiple, not just the balance sheet. In completion accounts, capitalised development usually sits outside working capital and net debt, so it does not move a cash, debt and working capital true-up. It matters where the SPA adjusts the price on net assets instead, and then the accounting policy hierarchy decides whether the buyer can change the capitalisation judgement in the completion balance sheet.
- Deferred revenue. For subscription and support businesses, deferred revenue is cash received for service still to be delivered. Buyers often argue it is debt-like, to be deducted from the price pound for pound; sellers argue it is ordinary working capital already reflected in the peg. Under a locked box, the level at the locked box date is part of the agreed price. Under completion accounts, the definitions decide who bears a pre-completion surge in annual prepayments.
Normalised EBITDA and the quality of the locked box accounts
A locked box only works if the buyer trusts the locked box accounts, because there is no later reconciliation. That trust comes from audited figures, a clean bridge from reported to normalised EBITDA, and a quality of earnings review that explains each adjustment. A seller with reliable, well-evidenced figures can usually secure a locked box; a seller whose earnings rely on unexplained add-backs or aggressive capitalisation will find buyers asking for completion accounts, a retention, or a lower multiple.
The price mechanism protects the balance sheet. The intangible value behind the multiple is protected by evidence: documented customer contracts and renewal history, named key people under contract, and capitalisation decisions that hold up in diligence. A seller who has that evidence before going to market negotiates the mechanism from strength.
UK practice and how US deals differ
In UK and wider European mid-market deals, the locked box is common, especially where the seller is a private equity fund that wants a fixed price to distribute to investors and no post-completion exposure, and in competitive auctions where the seller wants bids that can be compared on a single number. Completion accounts remain standard where the target has no standalone balance sheet history (carve-outs from a larger group), where working capital is volatile or seasonal, where completion is a long way off because of regulatory clearances, or where the financial records are not robust enough to price from. The CMS European M&A Study 2024, covering deals CMS advised on in 2023, found a purchase price adjustment in 44% of European deals and, among deals without one, a locked box in 56%. The UK figures were 52% and 45%, so in that UK sample a price adjustment was more common than a locked box. Check the latest edition for current figures.
US practice differs. Most US private deals use a closing-date purchase price adjustment, the equivalent of completion accounts, with adjustments for closing cash, indebtedness, transaction expenses and net working capital against a target, and the locked box is less common outside cross-border deals with European sellers. US SPAs (usually called stock or membership interest purchase agreements) also lean more heavily on representations and warranties insurance and an escrow for the adjustment. A UK seller selling to a US buyer should expect a request for a closing-date adjustment and decide early whether to resist it.
Which mechanism suits your sale
A locked box tends to suit you when
- Your accounts are audited or reviewed, and the latest balance sheet is recent
- Working capital is stable through the year
- You are running a competitive process and want comparable bids
- You want a clean break and no post-completion exposure beyond warranties
- Signing and completion are close together
Completion accounts tend to suit the deal when
- The business is being carved out of a group with no standalone balance sheet
- Working capital is seasonal or volatile
- Completion is months away, for example pending regulatory approval
- Financial records are not strong enough for a buyer to price from
- You expect cash or working capital to build before completion and want paying for it
Our view: a seller with reliable, recent accounts and a stable business should usually start the negotiation from a locked box, and expect to concede a ticker cap, a tight permitted leakage list and a reasonable claim period in return. Where the facts point to completion accounts, the seller's effort should go into the definitions, the peg and the accounting policies, because those decide the final figure.
What a seller should do
- Decide your preferred mechanism before heads of terms. Reopening it after exclusivity costs negotiating capital. The business sale process sets out when each document is agreed.
- Get the accounts to a standard a buyer can price from. A recent audit or a reviewed set of management accounts makes a locked box possible.
- Prepare the bridge from reported to normalised EBITDA, with evidence for every add-back and every capitalisation judgement.
- Model the peg monthly. Know your seasonal pattern and propose a month-specific peg if completion falls at a low point.
- List permitted leakage in full, including salaries, pension contributions, connected-party trading and any pre-completion dividend.
- Stop discretionary payments to yourself and connected persons from the locked box date, unless they are on the permitted list.
- Negotiate the definitions of cash, debt, debt-like items and working capital alongside the price, not after it, including where deferred revenue sits.
- Write the specific accounting policies into the SPA if you accept completion accounts.
- Evidence the intangible assets behind the multiple: customer contracts and renewal history, key people under contract, technology ownership. The data room for selling a business guide covers what a buyer expects to find.
- Ask your tax adviser how the final structure of payments is taxed. Deferred, contingent and adjusted consideration interact with CGT and BADR; the share sale vs asset sale guide explains the structures.
For the terms that run after completion, including earn-outs, retentions and the warranty claims period, see earn-outs, warranties and life after the sale. For how buyers set the multiple in the first place, see what is my business worth to a buyer. For the buyer's side of the same choice, see structuring an acquisition.
FAQ
What is the main difference between a locked box and completion accounts?
The date the balance sheet is struck. A locked box fixes the equity price at signing from historical accounts and protects the buyer with a no-leakage covenant, so the price does not change after completion. Completion accounts draw up a balance sheet at the completion date and adjust the price afterwards for actual cash, debt and working capital against the peg.
Is a locked box better for the seller?
Usually, if the seller's accounts are reliable. It gives price certainty at signing, a clean break at completion and a narrow scope for post-completion claims, limited to leakage. The trade-offs are that the economic risk passes to the buyer early, so buyers diligence the locked box accounts hard, and that any value taken out of the business after the locked box date must be on the permitted list.
What counts as leakage in a locked box deal?
Leakage is any transfer of value from the company to the seller or the seller's connected persons after the locked box date: dividends, returns of capital, bonuses or fees outside the ordinary course, waived debts, and transaction costs the company pays on the seller's behalf. Items agreed in advance as permitted leakage, such as salaries at existing rates, are not recoverable. Prohibited leakage is repaid pound for pound within the claim period the SPA sets.
How is a working capital peg set?
The peg is normally the average month-end working capital over the trailing 12 months, normalised for one-off items, using the same definitions the SPA applies at completion. For a seasonal business, a month-specific peg (the normal level for the month in which completion falls) avoids an adjustment that reflects the calendar rather than value. See the working capital peg glossary entry for the definition.
How long do completion accounts take, and what happens if we disagree?
The buyer typically prepares them within 60 to 120 days of completion, after which the seller has a set review period to object. Unresolved items go to an independent accountant acting as an expert, whose decision on those items is binding. Part of the price is often held in a retention or escrow until the figures are final. For overall sale timelines, see how long it takes to sell a business.
Next step: protect the price you negotiate
The price mechanism settles the balance sheet. The multiple applied to your earnings rests on the intangible assets a buyer is paying for, and on the evidence behind them. Opagio does not prepare completion accounts or SPAs; that work belongs to your corporate finance adviser, accountant and solicitor. What Opagio for exit-ready businesses provides is the Opagio Value Drivers Register™: the named intangible assets in your business, with the evidence behind each, so that diligence questions about customers, people and technology are answered before a buyer turns them into a warranty, a retention or a price reduction. For how buyers adjust earnings, see what normalised EBITDA is and why buyers adjust it, and for the full owner's guide, the sell your business hub.
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