Closing accounts versus locked box: different purchase price mechanisms in an equity transaction

An important, if not the most important, part of a stock transaction is determining (and, of course, paying) the purchase price. At first glance, this seems a simple matter: the seller sells and delivers the shares and the buyer pays a purchase price for them. In reality, however, it turns out to be a lot more complex, especially in transactions involving Anglo-Saxon parties. There, it is the rule rather than the exception that adjustment of the purchase price takes place after the transfer. This is also known as the closing accounts mechanism. Another important purchase price mechanism is the locked box mechanism, where the purchase price is already fixed prior to the transfer. Adjustment of the purchase price is not possible afterwards.

We are also seeing more and more Anglo-Saxon buyers in the retail sector. As a seller, you should therefore consider carefully which purchase price mechanism is most favorable for you. This can make a big difference when it comes to the amount of the purchase price. Although the locked box mechanism is considered to be "buyer friendly", in my experience there can be important reasons for sellers to agree to a purchase price mechanism whereby the purchase price is adjusted afterwards (closing accounts mechanism). For example, the advantages of this mechanism include:

1. positive results until the time of share transfer are in favor of the seller;
2. The financial due diligence (Due Diligence) process is usually smoother; and
3. there is flexibility: the closing accounts mechanism is applicable to all types of transactions, while the locked box mechanism works less well in carve-outs, for example. In this regard, it can sometimes be recalcitrant to properly isolate the financial situation of the company to be carved out.