Glossary 23 – Closing an M&A Transaction: Completion Account

Besides Locked Box mechanism, Completion Account is another common way employed in mergers and acquisitions (M&A) transactions. The Completion Accounts mechanism involves adjusting the purchase price (the amount to be paid to the vendor), which is provisional and agreed upon initially, based on the company’s actual financial performance up to the closing date. Such post-closing adjustments are made based on the actual accounts.

Specifically, Completion Account is a mechanism where, at Completion Date, the buyer initially agreed an estimated purchase price. This initial purchase price is paid to vendor, but this price is subject to change based on the drawing up of completion accounts at an agreed upon later date (typically up to 90 days post completion). The adjustments are made post-closing based on a reconciliation of the target company’s assets and liabilities against the agreed-upon values in order to accommodate changes that may occur during the closing process.

Completion Account mechanism provides the buyer with more protection, as the price reflects the company’s financial state at the time of transfer. This mechanism can be more suitable for complex transactions with significant uncertainties or where post-closing adjustments are anticipated. Although Completion Accounts offer flexibility and can accommodate adjustments, but it can delay the closing process (due to prolonged negotiations), increase the risk of dispute, and the final price remains uncertain until after closing. Completion Accounts mechanism is likely more appropriate in carve-out situations where a pro-forma balance sheet must be prepared.