Lock or Not?

I have spent a good chunk of my dealmaking career chasing transactions in Europe and the UK and have noticed some significant differences to how things are done here in the US. My observations are obviously based on my own experience, but also on many conversations with colleagues in and around the M&A world. One of those divergences shall be the topic of today’s post: structuring the purchase price.

In particular, I’m interested in hearing the community’s thoughts on closing accounts vs. locked box structures. My experience has been that closing accounts represent the vast majority of transactions done in the US and that locked box mechanisms are seen as somewhat esoteric. In contrast, deals in the EU and UK tend to default to locked box, unless there are specific reasons to create closing accounts. I’m well aware that every deal has its unique considerations and needs to be tailored to accommodate both the buyer and seller, but at a high enough level regional differences and preferences become visible.

I’m wondering why that is. My bias is generally towards action and simplicity, which is why I favor the locked box approach whenever applicable. There are certainly fiction points in the negotiations (different ones compared to closing accounts), but overall, I find there are fewer quagmires that have the potential to delay or derail a transaction. Further, given the hot M&A climate through which we are all sweating, convincing sellers to withhold adequate chunks of the purchase price until true-ups are done and risking potentially contentious post-closing arguments over differing methodologies etc. are delicate and difficult tasks.

TL;DR: Why do you choose closing accounts vs. locked box? Is the difference in approach for US vs. EU/UK dealmakers real?

#m&a #deal-making #gettingtechnical