Locked box (UK) is the European-flavored M&A price lock — value frozen at a past accounts date, with rules stopping the seller from draining cash before close.

How it works

Parties agree a locked-box date (often last audited accounts). Purchase price equals equity value at that date plus agreed adjustments. From locked-box date to closing, the business belongs economically to the buyer except permitted leakage (salaries, ordinary dividends per policy). Seller warranties cover leakage and sometimes interim underperformance.

Ticking fees may compensate sellers for delayed close. Contrast with completion accounts, where price moves with closing balance sheet.

Why it matters

• Founders: Leakage disputes are common — every dividend, related-party payment, and bonus needs clearance. Model net proceeds after leakage claims.
• Investors: Preferred holders care how locked-box price maps to waterfall vs earn-out alternatives.

Legal counsel on both sides drafts detailed permitted leakage schedules — including ordinary course salaries, pension contributions, and approved advisor fees. Anything outside the schedule requires buyer consent or price adjustment.

Disputes often center on management bonuses declared between locked-box date and close — negotiate bonus policy upfront.

Common mistake

Treating locked-box price as guaranteed cash at signing. Leakage breaches and escrow holdbacks can claw back proceeds.

Practical takeaway

In locked-box deals, operational discipline between sign and close matters as much as price. Founders should freeze unusual payments and run leakage checks with counsel weekly until the wire lands.

Related ideas

• Locked-Box
• Completion accounts and working capital peg
• Leakage covenant and warranties