Navigating the hybrid terrain: Combining Locked Box and Completion Accounts

In the world of deal structures, the debate between using Locked Box versus Completion Accounts is well-trodden. Yet we’re seeing the emergence of a hybrid approach which combines the certainty of Locked Box with the flexibility of Completion Accounts. This trend is bringing an interesting twist to traditional transaction completions.

Over the past 18 months, we’ve seen that deals are taking a bit longer to close. During this period, there's been a noticeable increase in the adoption of this hybrid mechanism. Whether this trend is merely correlational or has deeper causative roots remains to be seen, but the shift is undeniable.

At its core, this hybrid method offers a middle ground, combining the upfront certainty of a Locked Box - where the purchase price is fixed at a historical date - with the post-deal financial adjustments typical of Completion Accounts. This approach allows for a final adjustment or 'true-up' based on actual performance leading up to completion.

This approach doesn’t just simplify negotiations; it also makes them more efficient. By integrating elements of Completion Accounts into the Locked Box structure, both buyers and sellers can better manage transaction risks. The main trade-off? A bit more complexity in the legal drafting - something our corporate lawyers are more than equipped to handle.

While this hybrid approach is unlikely to become the standard, its benefits make it a valuable option for transactions requiring a nuanced strategy. It’s particularly useful in scenarios where flexibility is paramount to navigate the unique dynamics of a deal.

Curious about how this hybrid completion mechanism can be applied to your next deal? Interested in a deeper discussion on its implications for legal documentation? At Heligan we’re always ready to explore these topics further. Get in touch to learn how we’ve successfully leveraged this approach in recent transactions.