Locked Box vs Completion Accounts: How UK Buyers Fix the Final Price

The price in your heads of terms is almost never the amount that changes hands. A headline offer is usually an enterprise value, quoted "cash-free, debt-free" with a "normal" level of working capital. The figure the seller actually receives for the shares is the equity value, after cash, debt and working capital are adjusted for. The ICAEW's Corporate Finance Faculty puts it plainly: the final consideration "is often substantially different from the headline price" (ICAEW, Completion Mechanisms, Guideline 64).

There are two accepted ways to make those adjustments in a UK share purchase: completion accounts and a locked box. This guide explains how each works, where each goes wrong, and how buyers and their advisers choose between them.

First, the bridge: why the headline price moves

Start with the enterprise to equity value bridge. The ICAEW guideline's worked example takes a £500m enterprise value (£50m normalised EBITDA at a 10x multiple), adds £20m of cash, deducts £80m of debt and makes a £10m working capital adjustment, arriving at a £430m equity value (ICAEW). The same arithmetic applies to a £2m business.

Three items do most of the work:

• Cash. Free cash usually increases the price pound for pound. "Trapped" cash, such as till floats, rent deposits or cash held for customers, often doesn't (ICAEW).
• Debt and debt-like items. Bank loans, overdrafts, finance leases and accrued interest are widely accepted as debt. Items such as overdue tax, deferred consideration, related-party loans and invoice discounting are often argued over, because each pound treated as debt comes straight off the price (ICAEW).
• Normalised working capital. The buyer expects enough stock, debtors and creditors to run the business. If working capital at the relevant date is below the agreed "normal" level, the price drops, and if it's above, the price rises. The guideline calls setting the normal level "a highly subjective area" and suggests averaging over a reference period, often 12 months for a seasonal business (ICAEW).

Our guide on how to calculate enterprise value works through the bridge in both directions, and the free enterprise value calculator does the sums for you.

The completion mechanism decides one thing: on which date's balance sheet those adjustments are made, and who carries the risk until then.

How completion accounts work

With completion accounts, the parties agree an estimated price, the buyer pays it at completion, and the real figures are worked out afterwards. One party, usually the buyer because it now controls the company, draws up a balance sheet as at the completion date. The seller reviews it and can accept or dispute it. Any difference from the estimate is then paid one way or the other as a purchase price adjustment (EY).

What the buyer gets: a price based on what was actually in the business on the day it took over. If the seller ran down stock or collected debtors early, the adjustment catches it pound for pound.

What it costs: time, fees and arguments. The final price isn't known until weeks or months after completion. The ICAEW guideline cites Grant Thornton research finding that completion accounts are the leading cause of post-deal disputes, with one in ten resulting in an expert determination (ICAEW).

To keep disputes down, the sale and purchase agreement (SPA) should set out:

1. A hierarchy of accounting policies: specific policies first, then consistency with the last accounts, then UK GAAP.
2. Clear definitions of cash, debt, debt-like items and working capital, ideally with a worked example.
3. Review and dispute deadlines, with items not disputed in time deemed agreed.
4. An independent expert route for anything still in dispute, with costs usually split 50:50 unless the expert decides otherwise.

All four come from the ICAEW guideline (ICAEW).

How a locked box works

With a locked box, the adjustments are made on a balance sheet at a date before completion, the "locked box date". The price is fixed in the SPA and there's no true-up afterwards. Economic risk and reward pass to the buyer from the locked box date, not from completion (ICAEW). Gateley describes it as "essentially a fixed-price deal which is based on a historical set of accounts", where the buyer takes both the risk of a fall in value and the reward of an increase (Gateley).

Three terms matter:

• Leakage. No value may leave the business to the seller or connected people between the locked box date and completion: no dividends, unusual bonuses, management fees or waived debts. If leakage is found within an agreed period after completion, the seller pays it back (ICAEW).
• Permitted leakage. Payments both sides know about and agree in advance, such as the seller's normal salary, are carved out and priced in.
• Value accrual. Because the seller is still running the business for the buyer's benefit after the locked box date, sellers often ask to be paid for the profits earned in that gap. The most common basis, according to the Grant Thornton research cited by the ICAEW, is "cash profits": profit before depreciation and amortisation, after interest and corporation tax. An alternative is an agreed interest rate on the equity value (ICAEW).

What the buyer gets: certainty on price at signing, a quicker process and no post-completion accounts exercise. Locked boxes are popular in competitive sales for exactly that reason (ICAEW). CMS's 2025 European M&A Study, covering 582 deals the firm advised on in 2024, found that 60% of deals without a post-completion price adjustment used a locked box (Confilegal, reporting the CMS study; CMS European M&A Study 2025).

What it costs: your protection is only as good as the locked box balance sheet and the leakage clauses. If that balance sheet turns out to be wrong, the buyer's remedy is a warranty claim, which the ICAEW guideline notes is "arguably not as protective" as a pound-for-pound completion accounts adjustment (ICAEW).

Side by side

Which should you use?

There's no default answer, but the deal usually points one way.

Completion accounts tend to suit buyers when:

• the target's monthly management accounts are unreliable or it has no recent audited accounts;
• trading or working capital swings a lot, for example a seasonal or project-based business;
• the business is being carved out of a group, so there's no stand-alone balance sheet to lock;
• it's an asset purchase rather than a share purchase (see asset purchase vs share purchase);
• you have the finance capacity to prepare and review completion accounts after the deal.

A locked box tends to suit when:

• the target has recent, reliable accounts that you've been able to diligence properly;
• trading is stable, so the gap between the locked box date and completion holds few surprises;
• the sale is competitive and price certainty helps your bid stand out;
• both sides want a cleaner, faster completion with less post-deal accounting.

Two practical points on timing. The locked box date shouldn't be so close to completion that there's no time to review it, nor so far back that the risk of leakage and of profits drifting from the value accrual grows (ICAEW). And if you do use completion accounts, completing at a month end saves a lot of effort compared with drawing up accounts mid-month.

What buyers should check before signing

Whichever mechanism you pick, the money is in the definitions. Before you sign heads of terms or exclusivity:

• Agree an illustrative bridge early. The ICAEW guideline notes that even in off-market deals, sellers may be advised to ask the buyer for an illustrative enterprise to equity bridge before granting exclusivity, and its example shows a lower headline offer can still mean a higher equity value once adjustments are counted (ICAEW). Compare offers on equity value, not headline.
• Pin down the working capital target and reference period. For a growing business, a buyer will usually prefer a more recent reference period because it gives a higher target (ICAEW).
• List debt-like items in writing. Overdue HMRC liabilities, deferred consideration and related-party loans are classic arguments. Settle them before the lawyers draft.
• Diligence the balance sheet you're relying on. For a locked box that's the locked box accounts. For completion accounts it's the basis of the estimate. Our M&A due diligence checklist and quality of earnings guide cover what to test.
• Watch how it interacts with deferred payments. If part of the price is an earnout, its accounts need the same precise definitions (see what is an earnout).

How TrueValue helps

TrueValue reads a target's accounts, management accounts or CIM into income statement, balance sheet, cash flow and working capital figures, with each period labelled as filed, management-stated or projected, and models working capital and the funding structure alongside the valuation (TrueValue M&A valuation software). In the due diligence workspace, uploaded accounts are linked to the diligence items they evidence (TrueValue due diligence software).

Deal Team, £499 a month: Get 10 qualified off-market targets in your first 14 days, or your next month is free. TrueValue finds UK companies that match your buy box, analyses them from Companies House data and drafts outreach for you to approve. See Deal Team pricing

*This guide is general information, not legal or financial advice. Take advice from your own lawyer and accountant on any SPA.*