The same deal priced both ways, reduced to one line: what the business earns between box and completion against the ticker and the definitions the buyer wins.
On identical commercial terms, completion accounts pay the seller the cash the business generates between the locked box date and completion, less whatever the buyer wins when it prepares the final accounts; a locked box pays a ticker instead and settles every definition before signing. On an illustrative €100.0 million deal with a 90-day gap, €4.5 million of cash generated, a 5.0 per cent ticker and €1.2 million of post-completion adjustments, completion accounts pay the seller €2.46 million more. Let the buyer win more than €3.66 million of adjustments, or the quarter generate less than €2.04 million, and the locked box wins.
Worked in full in Closing the Deal by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Both mechanisms start from the same enterprise value and the same normal level of working capital. They differ in two things only. The first is who owns the period between the reference balance sheet and completion: in a locked box the economics pass to the buyer at the box date and the seller is compensated by a ticker; in completion accounts the seller keeps the business until completion and is paid for what it generates through lower net debt and higher working capital. The second is when the definitions are argued: before signing in a locked box, after completion in completion accounts, on accounts the buyer prepares. Put the two in one line and the choice becomes arithmetic:
Completion accounts − locked box = cash generated in the gap − ticker − expected post-completion adjustments against the seller.
| Input | Value |
|---|---|
| Enterprise value agreed | 100.0 |
| Normal working capital (the peg) | 20.0 |
| Net debt at the box date, 31 December | 30.0 |
| Working capital at the box date | 18.5 |
| Days from box date to completion | 90 |
| Ticker rate offered, a year | 5.0% |
| Cash generated in the gap, before working capital | 4.5 |
| Of which absorbed by a seasonal working capital build | 2.5 |
| Expected adjustments the buyer wins in the final accounts | 1.2 |
Locked box price: EV − net debt at the box + (box working capital − peg) = 100.0 − 30.0 + (18.5 − 20.0) = 68.5.
Ticker: 68.5 × 5.0% × 90 ÷ 365 = 0.84, or about €9,384 a day. Locked box total: 69.34.
Balance sheet at completion: net debt 30.0 − 4.5 + 2.5 = 28.0; working capital 18.5 + 2.5 = 21.0.
Completion accounts price, estimated: 100.0 − 28.0 + (21.0 − 20.0) = 73.0. After the buyer's adjustments: 73.0 − 1.2 = 71.8.
Difference: 71.8 − 69.34 = 2.46 in favour of completion accounts; check: 4.5 − 0.84 − 1.2 = 2.46.
In Excel: =CashGenerated-EquityLB*Rate*Days/365-Adjustments.
The seasonal build matters less than it looks. Net debt falls by only 2.0 because 2.5 went into receivables and stock, but completion accounts credit that build through working capital, 1.0 above the peg instead of 1.5 below it. The seller is paid the full 4.5 either way. Under the locked box the same 4.5 belongs to the buyer, and the ticker returns 18.8 per cent of it: the business produces about €50,000 a day against a ticker of €9,384.
On these inputs completion accounts are worth €2.46 million more to the seller. Three break-evens tell you how robust that is:
| Cash generated in the gap | Adjustments 0.0 | 1.2 | 2.5 | 4.0 |
|---|---|---|---|---|
| -2.0 | -2.84 | -4.04 | -5.34 | -6.84 |
| 0.0 | -0.84 | -2.04 | -3.34 | -4.84 |
| 2.0 | 1.16 | -0.04 | -1.34 | -2.84 |
| 4.5 | 3.66 | 2.46 | 1.16 | -0.34 |
| 6.0 | 5.16 | 3.96 | 2.66 | 1.16 |
The grid is the honest answer to the question. A business that burns cash between the box and completion, a turnaround or a loss-making season, should be sold on a locked box: the buyer carries the burn and the seller still collects the ticker. A business that generates strongly should prefer completion accounts, unless the definitions are loose enough for the buyer to take back more than the quarter earns. That last column is not hypothetical. In the book's own case the locked box comes out €6.56 million ahead for the seller, and €11.90 million of the gap is simply when the debt-like items get settled: before signing, while the seller can still walk away, or after completion, on the buyer's accounts.
Comparing the two mechanisms on the headline price. Both start at €100.0 million, so the comparison looks neutral, and the seller picks on familiarity or on the adviser's preference. The real comparison is the three-line formula above, and its biggest term is usually the one nobody models: the adjustments the preparer of the completion accounts will win. Put a number on it from the definitions in the draft, item by item, before choosing. The full bridge of the items that end up in that number is in how a completion accounts price adjustment is calculated, and the ticker side in how to calculate a locked box ticker.
Completion accounts minus locked box = cash generated in the gap − ticker − adjustments the buyer wins. Here 4.5 − 0.84 − 1.2 = €2.46 million for completion accounts, reversed by €3.66 million of adjustments or a gap that generates under €2.04 million. The two mechanisms on identical terms, with the split of the difference between its causes, are in the free workbook for this case.
Because the price is fixed at signing and every definition, debt-like items included, is argued while the seller can still walk away. In completion accounts the buyer prepares the final accounts after completion. If the buyer would win 4.0 million of adjustments on a deal whose gap generates 4.5 million, the locked box pays the seller 0.34 million more despite a ticker of only 0.84 million.
The rate at which the ticker equals the cash generated in the gap less the adjustments the seller would lose in completion accounts. With 4.5 million generated, 1.2 million of adjustments, a 68.5 million locked box price and 90 days, that is 19.5 per cent a year, far above any rate a buyer offers, which is why the ticker should be negotiated as a cash amount.
Under completion accounts with a fixed peg, a seasonal build is credited through the working capital adjustment, so the seller is paid for cash that went into stock and receivables. Here net debt falls only 2.0 because 2.5 went into working capital, but the seller still receives the full 4.5. Under a locked box the box date's working capital is what counts.
This article is one calculation from Closing the Deal. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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