What are the key considerations when evaluating the trade-offs between a locked-box mechanism and a completion accounts mechanism in an M&A transaction, and how would you advise a client to choose between the two?
An advanced M&A Advisory question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
When evaluating the trade-offs between a locked-box mechanism and a completion accounts mechanism, I would consider the level of complexity in the target's financials, the risk of leakage or unexpected changes in working capital, and the negotiating power of the parties. A locked-box mechanism provides certainty but may require more rigorous pre-signing due diligence, while a completion accounts mechanism provides flexibility but may lead to post-closing disputes.
WHAT INTERVIEWERS LISTEN FOR
- ✓Locked-box vs completion accounts mechanisms
- ✓Complexity of target's financials
- ✓Risk of leakage or unexpected changes
COMMON MISTAKES
- ✗Failing to consider target's financial complexity
- ✗Ignoring risk of post-closing disputes
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