Completion Accounts

The contractual framework in an M&A transaction that determines how the final purchase price is calculated and adjusted to reflect the financial position of the target at closing. The two principal mechanisms are completion accounts (which adjust the price post-closing based on actual financial metrics at the completion date) and locked box (which fixes the price based on a historical balance sheet date with no post-closing adjustment).

A mechanism in M&A transactions that adjusts the purchase price based on the difference between actual working capital at closing and a pre-agreed target level. Net working capital adjustments ensure the buyer receives the agreed level of operating liquidity and are a standard feature of enterprise value to equity value bridge calculations.

A pricing mechanism in M&A transactions where the purchase price is fixed based on a set of accounts prepared at a specified date prior to completion, with value leakage protections to ensure no value is extracted from the target between the locked box date and closing. Locked box mechanisms provide price certainty and avoid the disputes often associated with completion accounts adjustments.

A target level of net working capital agreed between buyer and seller in an acquisition, used as the basis for post-closing purchase price adjustments. The working capital peg ensures the buyer receives a business with a normalised level of operating liquidity, with adjustments made if actual working capital at closing is above or below the agreed amount.

The agreed level of working capital that the target business should have at the completion of an M&A transaction, established during negotiations and used as a benchmark for purchase price adjustments under a completion accounts mechanism. The target is typically set at the average net working capital over a 12-month trailing period, normalised for seasonality and non-recurring items.

A detailed financial analysis, typically prepared by an accounting firm on behalf of a buyer or lender, that assesses the sustainability, accuracy, and adjustability of a target company's reported earnings. A QoE report examines revenue recognition policies, non-recurring items, related-party transactions, working capital normalisation, pro forma adjustments, and the bridge from reported EBITDA to adjusted EBITDA.

An acquisition in which a significant proportion of the purchase price is funded by debt, using the target company's assets and cash flows as collateral. LBOs are a common private equity strategy for acquiring mature, cash-generative businesses.

Financial statements that present historical or projected financial information adjusted to reflect a specific transaction, event, or set of assumptions as if it had already occurred. In M&A, pro forma financials combine the acquirer's and target's results, incorporate purchase price allocation adjustments, and eliminate intercompany transactions to show the post-combination financial position.