When buying or selling a company, the purchase price will be a key consideration and there are a number of mechanisms which can be used to calculate this. In this insight we outline how this figure could be determined.
Two of the most common methods are completion accounts and locked box. The mechanism which is chosen depends on the preference of the parties, their bargaining power and the particular circumstances of the transaction. This insight summarises the two mechanisms and highlights the advantages and disadvantages to sellers and buyers if these mechanisms are adopted.
Which mechanism is adopted will be driven by various factors, including the relative bargaining strength of the parties. As a (very general) rule of thumb, buyers tend to prefer completion accounts and sellers prefer a locked box.