Completion accounts are a method which may be used to confirm and/or adjust the purchase price, post completion when buying or selling the shares in a company. It may be something that the parties may consider if, for instance, the historic financials (e.g., year end accounts) are prepared to a date which is some way in the past. Completion accounts can be a way of determining a more exact price for the purchaser to pay and the seller(s) to receive.

This adjustment will be based on how the numbers in the completion accounts compare against target numbers agreed between the parties prior completion. It is important to produce the completion accounts as soon as possible following the completion date, as it ensures that all transactions prior to completion are considered, and momentum post completion is maintained.

Depending on whether the divergence between the actual figures (as shown in the completion accounts) and the target figures set, is a positive number then the sellers may be eligible to receive additional consideration but, if the actual figures are lower then the sellers may need to repay some of the consideration already received.

Completion accounts can include a profit and loss statement, a balance sheet, a net assets statement or a valuation of a specific asset. The form of the completion accounts will be agreed beforehand in the main transactional document – the “SPA” (sale and purchase agreement). The seller’s accountants or the buyer’s accountants may prepare the completion accounts and typically there is then a timetable set out in the SPA as to providing draft completion accounts and the receiving party agreeing them as final.

The SPA typically also includes which party should bear the cost of preparing the completion accounts and how to resolve any disputes should they arise. A mechanism will normally be included for the completion accounts to be settled by an independent accountant if the buyer and seller(s) cannot agree on the content of the completion accounts.

‘Locked Box’

One alternative to the completion accounts process, is the ‘Locked Box’ method of valuing a target company.

This method allows the parties to the agreement to negotiate a fixed purchase price by reference to an agreed value of the target company as at a date in the recent past – such as the end of its last accounting period.

Unlike completion accounts, no adjustment to the agreed purchase price can be made after the completion date, but the seller normally gives the purchaser protection against any unpermitted cash flows or ‘leakage’ (e.g., dividends and bonuses) between the ‘locked box’ date and the completion date which (if paid) would otherwise reduce the value of the target company.

If you or your business require information regarding anything in this blog or generally about your business or any other corporate matter, please call Sarah Ward, head of our corporate team, on 07889 589596 or e-mail Sarah at sward@georgegreen.co.uk for advice and assistance.