Glossary · Valuation and finance
Locked box
Also called locked box mechanism
Definition
In a locked box deal, the price is fixed on the basis of a balance sheet at a past date, and the seller promises that no value leaks out of the company after that date. There is no adjustment after closing, which gives both sides price certainty. It is common in European deals and private equity exits.
Related terms
Completion accounts Accounts drawn up at closing to adjust the price for the actual cash, debt and working capital on that day. Net working capital Current assets minus current liabilities: the cash tied up in running the business day to day. Earn-out Part of the price that is only paid later if the business hits agreed targets after the sale. EBITDA Earnings before interest, tax, depreciation and amortisation: the profit figure most deals are priced on. Escrow Money held back from the price by a third party, released later if no claims are made. Leveraged buyout An acquisition paid for largely with borrowed money, secured on the target company itself. Quality of earnings An accountant's report on how much of a company's profit is real, recurring and likely to last.