Pricing mechanisms
Austria
US strategic buyers most commonly use a "completion accounts" price adjustment mechanism. This means that the company is valued on a "cash free, debt free" basis using estimates of financial benchmarks (such as net assets and/or working capital), with the price paid at completion then "trued up" after completion when actual performance as at completion has been determined. Some of the purchase price is often retained by the buyer (in "escrow" or as a "holdback") in case it needs to be applied to the true-up process.
By contrast, Austrian law deals, especially in an auction scenario, tend to use a "locked-box" mechanism and US strategic buyers that have not done Austrian M&A before are unlikely to be familiar with the approach. In this case, the "cash-free, debt-free" price is agreed using historic accounts, with the purchase price hard-wired into the acquisition documents. That price is then only adjusted downwards if there is "leakage" (i.e., the transfer of value from the target to the sellers in the period between the date of those historic accounts and completion). Leakage includes things like dividends, gifts, the payment of transaction costs/bonuses, and the waiver of debts owed by the sellers to the target. If there is leakage, the sellers receiving that value are required to compensate the buyer for it on a euro-for-euro basis.
Economically, locked-box mechanics work to transfer the risk and reward of the target business from the date of the locked-box accounts. As a result, where targets are profitable, you might see buyers being asked to pay interest (a "ticking fee") on the purchase price between the date of the locked-box accounts and completion to compensate sellers for forfeiting those profits. This can be a significant amount where the gap between signing and completion is longer, which is increasingly the case given the tougher and more complicated regulatory regimes.
The locked-box approach requires less negotiation and, assuming there is no leakage, means the purchase price does not need to be adjusted after completion, which gives sellers greater price certainty and ease in comparing bids. It is therefore seen as more favourable to sellers. Sellers can improve the chances of persuading a US buyer to accept this approach by having a set of high-quality (ideally audited) accounts ready to go and by ensuring there is enough time in the process for the buyer to get comfortable with them.
US PE houses tend to be more comfortable with locked-box mechanisms than their strategic counterparts, partly because of the volume of cross-border deals they do, but also because the fixed price nature of a locked-box mechanism gives them certainty as to the amount required to be drawn down from their limited partners.
Czech Republic
US strategic buyers most commonly use a "completion accounts" price adjustment mechanism. This means that the company is valued on a "cash free, debt free" basis using estimates of financial benchmarks (such as net assets and/or working capital), with the price paid at completion then "trued up" after completion when actual performance as at completion has been determined. Some of the purchase price is often retained by the buyer (in "escrow" or as a "holdback") in case it needs to be applied to the true-up process.
By contrast, Czech law deals, especially in an auction scenario, tend to use a "locked-box" mechanism and US strategic buyers that have not done Czech M&A before are unlikely to be familiar with the approach. In this case, the "cash-free, debt-free" price is agreed using historic accounts, with the purchase price hard-wired into the acquisition documents. That price is then only adjusted downwards if there is "leakage" (i.e., the transfer of value from the target to the sellers in the period between the date of those historic accounts and completion). Leakage includes things like dividends, gifts, the payment of transaction costs/bonuses, and the waiver of debts owed by the sellers to the target. If there is leakage, the sellers receiving that value are required to compensate the buyer for it on a euro-for-euro basis.
Economically, locked-box mechanics work to transfer the risk and reward of the target business from the date of the locked-box accounts. As a result, where targets are profitable, you might see buyers being asked to pay interest (a "ticking fee") on the purchase price between the date of the locked-box accounts and completion to compensate sellers for forfeiting those profits. This can be a significant amount where the gap between signing and completion is longer, which is increasingly the case given the tougher and more complicated regulatory regimes.
The locked-box approach requires less negotiation and, assuming there is no leakage, means the purchase price does not need to be adjusted after completion, which gives sellers greater price certainty and ease in comparing bids. It is therefore seen as more favourable to sellers. Sellers can improve the chances of persuading a US buyer to accept this approach by having a set of high-quality (ideally audited) accounts ready to go and by ensuring there is enough time in the process for the buyer to get comfortable with them.
US PE houses tend to be more comfortable with locked-box mechanisms than their strategic counterparts, partly because of the volume of cross-border deals they do, but also because the fixed price nature of a locked-box mechanism gives them certainty as to the amount required to be drawn down from their limited partners.
Poland
US strategic buyers most commonly use a "completion accounts" price adjustment mechanism. This means that the company is valued on a "cash free, debt free" basis using estimates of financial benchmarks (such as net assets and/or working capital), with the price paid at completion then "trued up" after completion when actual performance as at completion has been determined. Some of the purchase price is often retained by the buyer (in "escrow" or as a "holdback") in case it needs to be applied to the true-up process.
By contrast, Polish law deals, especially in an auction scenario, tend to use a "locked-box" mechanism and US strategic buyers that have not done Polish M&A before are unlikely to be familiar with the approach. In this case, the "cash-free, debt-free" price is agreed using historic accounts, with the purchase price hard-wired into the acquisition documents. That price is then only adjusted downwards if there is "leakage" (i.e., the transfer of value from the target to the sellers in the period between the date of those historic accounts and completion). Leakage includes things like dividends, gifts, the payment of transaction costs/bonuses, and the waiver of debts owed by the sellers to the target. If there is leakage, the sellers receiving that value are required to compensate the buyer for it on a euro-for-euro basis.
Economically, locked-box mechanics work to transfer the risk and reward of the target business from the date of the locked-box accounts. As a result, where targets are profitable, you might see buyers being asked to pay interest (a "ticking fee") on the purchase price between the date of the locked-box accounts and completion to compensate sellers for forfeiting those profits. This can be a significant amount where the gap between signing and completion is longer, which is increasingly the case given the tougher and more complicated regulatory regimes.
The locked-box approach requires less negotiation and, assuming there is no leakage, means the purchase price does not need to be adjusted after completion, which gives sellers greater price certainty and ease in comparing bids. It is therefore seen as more favourable to sellers. Sellers can improve the chances of persuading a US buyer to accept this approach by having a set of high-quality (ideally audited) accounts ready to go and by ensuring there is enough time in the process for the buyer to get comfortable with them.
US PE houses tend to be more comfortable with locked-box mechanisms than their strategic counterparts, partly because of the volume of cross-border deals they do, but also because the fixed price nature of a locked-box mechanism gives them certainty as to the amount required to be drawn down from their limited partners.
Hungary
US strategic buyers most commonly use a "completion accounts" price adjustment mechanism. This means that the company is valued on a "cash free, debt free" basis using estimates of financial benchmarks (such as net assets and/or working capital), with the price paid at completion then "trued up" after completion when actual performance as at completion has been determined. Some of the purchase price is often retained by the buyer (in "escrow" or as a "holdback") in case it needs to be applied to the true-up process. As such, US strategic buyers are often less familiar with locked-box pricing mechanisms, which are more commonly used in M&A transactions across the CEE region.
In Hungarian M&A practice, both completion accounts and locked-box purchase price adjustment mechanisms are commonly recognised. However, the locked-box approach remains the preferred method in a significant number of transactions, particularly where pricing certainty and deal simplicity are prioritised.
Under a locked-box mechanism, the "cash-free, debt-free" purchase price is fixed based on historical financial statements as of a pre-agreed locked-box date, and this price is then hard-wired into the transaction documents. Crucially, no post-closing price adjustment takes place, except in respect of any "leakage", meaning the extraction of value from the target to the sellers (or their affiliates) between the locked-box date and completion.
Typical examples of unpermitted leakage include dividends, gifts, management fees or bonuses, or the waiver of receivables owed by the sellers to the target. Conversely, permitted leakage refers to pre-agreed and disclosed payments, such as regular salaries, intercompany charges, or other routine items explicitly listed in the share purchase agreement, and such items do not give rise to any purchase price adjustment.
Where unpermitted leakage has occurred, the sellers are required to compensate the buyer on a euro-for-euro basis, thereby preserving the integrity of the locked-box pricing structure.
Economically, locked-box mechanics work to transfer the risk and reward of the target business from the date of the locked-box accounts. As a result, where targets are profitable, you might see buyers being asked to pay interest (a "ticking fee") on the purchase price between the date of the locked-box accounts and completion to compensate sellers for forfeiting those profits. This can be a significant amount where the gap between signing and completion is longer, which is increasingly the case given the tougher and more complicated regulatory regimes.
The locked-box approach requires less negotiation and, assuming there is no leakage, means the purchase price does not need to be adjusted after completion, which gives sellers greater price certainty and ease in comparing bids. It is therefore seen as more favourable to sellers. Sellers can improve the chances of persuading a US buyer to accept this approach by having a set of high-quality (ideally audited) accounts ready to go and by ensuring there is enough time in the process for the buyer to get comfortable with them.
US PE houses tend to be more comfortable with locked-box mechanisms than their strategic counterparts, partly because of the volume of cross-border deals they do, but also because the fixed price nature of a locked-box mechanism gives them certainty as to the amount required to be drawn down from their limited partners.
Slovakia
US strategic buyers most commonly use a "completion accounts" price adjustment mechanism. This means that the company is valued on a "cash free, debt free" basis using estimates of financial benchmarks (such as net assets and/or working capital), with the price paid at completion then "trued up" after completion when actual performance as at completion has been determined. Some of the purchase price is often retained by the buyer (in "escrow" or as a "holdback") in case it needs to be applied to the true-up process.
By contrast, Slovak law deals, especially in an auction scenario, tend to use a "locked-box" mechanism and US strategic buyers that have not done Slovak M&A before are unlikely to be familiar with the approach. In this case, the "cash-free, debt-free" price is agreed using historic accounts, with the purchase price hard-wired into the acquisition documents. That price is then only adjusted downwards if there is "leakage" (i.e., the transfer of value from the target to the sellers in the period between the date of those historic accounts and completion). Leakage includes things like dividends, gifts, the payment of transaction costs/bonuses, and the waiver of debts owed by the sellers to the target. If there is leakage, the sellers receiving that value are required to compensate the buyer for it on a euro-for-euro basis.
Economically, locked-box mechanics work to transfer the risk and reward of the target business from the date of the locked-box accounts. As a result, where targets are profitable, you might see buyers being asked to pay interest (a "ticking fee") on the purchase price between the date of the locked-box accounts and completion to compensate sellers for forfeiting those profits. This can be a significant amount where the gap between signing and completion is longer, which is increasingly the case given the tougher and more complicated regulatory regimes.
The locked-box approach requires less negotiation and, assuming there is no leakage, means the purchase price does not need to be adjusted after completion, which gives sellers greater price certainty and ease in comparing bids. It is therefore seen as more favourable to sellers. Sellers can improve the chances of persuading a US buyer to accept this approach by having a set of high-quality (ideally audited) accounts ready to go and by ensuring there is enough time in the process for the buyer to get comfortable with them.
US PE houses tend to be more comfortable with locked-box mechanisms than their strategic counterparts, partly because of the volume of cross-border deals they do, but also because the fixed price nature of a locked-box mechanism gives them certainty as to the amount required to be drawn down from their limited partners.
In Slovakia, the simpler locked-box pricing mechanism is generally preferred in M&A transactions. The essence of this structure is that the parties agree on a specific reference date (the “locked-box date”), as of which the relevant financial parameters of the target company are determined, and the purchase price is fixed. From that point onwards, the purchase price is no longer adjusted to reflect subsequent developments in the business.
In practice, this means that if the target company performs better than expected after the locked-box date but before closing, the upside belongs to the buyer; conversely, if the company underperforms, the buyer still bears the economic downside.
One key risk is that, although the economics are transferred as of the locked-box date, the target remains under the seller’s control until completion. Any deterioration in value in this period is therefore borne by the buyer. While buyers usually accept the business risk, they do not accept the risk of value being deliberately extracted by the seller. To address this, deals typically include a no-leakage covenant prohibiting any transfer of value out of the target to the seller (such as dividends, extraordinary management bonuses, related-party transactions, or other payments in favour of the seller).
At the same time, the documents usually carve out categories of permitted leakage — such as payments under existing contracts between the target and the seller or its affiliates, provided these are on arm’s length terms.