Locked Box Mechanism (M&A Glossary)

Summary

A purchase price calculation mechanism agreed on in advance based off the historical financial statements and working capital. Rather than having one or more purchase price adjustments following a merger’s signing, the locked box mechanism allows a recent balance sheet to determine the consideration and enables the economic interest of the target to transfer to the buyer immediately thereupon, taking away the risk of the seller pulling out cash from the target during the gap period between signing and closing.