Completion Accounts

Completion accounts (the UK and international term for what US practitioners typically call "closing date accounts" or the "closing balance sheet") is the post-closing mechanism that adjusts the purchase price based on the actual financial position of the business on the closing date, compared to a reference point agreed at signing. The mechanism ensures the buyer receives the business with the agreed financial position — neither more nor less value than what was negotiated.

How completion accounts work: The purchase price is typically set assuming the business will be delivered with a "target" level of net working capital, net debt, and other agreed metrics. After closing, the seller prepares completion accounts (a balance sheet as of the closing date) using the accounting policies specified in the purchase agreement. The buyer reviews these accounts and proposes adjustments. The parties negotiate any differences; unresolved disputes go to an independent accountant for binding determination. The final purchase price is then adjusted up or down based on how actual closing figures compare to the targets.

Locked box vs. completion accounts: The primary alternative to completion accounts is the "locked box" mechanism, more common in European PE transactions. Under a locked box, the purchase price is fixed based on a historical balance sheet (the "locked box date"), and no post-closing adjustment occurs. Instead, the seller's obligations to not "leak" value from the business between the locked box date and closing provide the buyer's protection. Completion accounts are more buyer-friendly (economic risk stays with seller until close); locked box is more seller-friendly (certainty of price, no post-close adjustment risk).

Common adjustment items: The most frequently adjusted items in completion accounts include: working capital (accounts receivable, inventory, accounts payable — ensuring the business arrives with appropriate liquidity); net debt (outstanding debt and debt-like items that are paid off at close, plus any excess cash retained by the business); and specific items negotiated deal-by-deal (deferred revenue treatment, accrued liabilities, earnouts, pension deficits).

Accounting policy disputes: Completion accounts adjustments generate significant litigation because both parties have incentives to argue for accounting treatments that move the adjustment in their favor. The purchase agreement must specify accounting policies in exhaustive detail — GAAP vs. IFRS, specific revenue recognition policies, inventory valuation methods — to minimize dispute surface area.