Consideration adjustments (completion accounts, locked box and earn-outs)—share and asset purchases
Consideration adjustments (completion accounts, locked box and earn-outs)—share and asset purchases

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Consideration adjustments (completion accounts, locked box and earn-outs)—share and asset purchases
  • Consideration
  • Fixed price
  • Completion accounts
  • Locked Box
  • Earn-out

Consideration

Consideration may be paid in many ways, and it may also be adjusted post-completion as a means of reflecting true value for a buyer.

From the seller's point of view, the most advantageous method would be for the buyer to pay the purchase price in full on completion and in cash, without any subsequent adjustment. Whether this is feasible and/or desirable for the buyer depends on the amount of cash it has at its disposal and whether it is confident that the price it agrees to pay on completion reflects the true value of shares or assets it will acquire. If not, the buyer will look to include a right to subsequently adjust the consideration or defer at least some of the payment to a later date.

In short, the consideration payable by a buyer for the shares or assets it is acquiring may be:

  1. a fixed price

  2. a price determined by reference to a specific value proposition which may be adjusted following completion through the preparation of completion accounts or under specific warranty claims, or

  3. deferred and paid at a later date, either by instalments or by payments that are calculated by reference to an 'earn-out' (where the price is based on the future earnings of the target)

Fixed price

If the consideration is fixed, the buyer may