Completion Accounts: How the Final Purchase Price Is Calculated After Signing

The 30-Second Definition

Completion Accounts is a deal pricing mechanism in which the final purchase price is not fixed at signing but is calculated after completion, based on a balance sheet prepared as at the actual completion date. The buyer and seller agree a headline enterprise value at the Letter of Intent stage, but the equity consideration — the cash the seller receives — is adjusted upward or downward after completion to reflect the actual cash, debt, and working capital position of the business on the day ownership transferred. Unlike the Locked Box mechanism, where the price is fixed at a historical balance sheet date and no post-completion adjustment is made, Completion Accounts introduce a structured renegotiation of the final economics after the seller has lost all negotiating leverage and is legally committed to the transaction.

Why Completion Accounts Are the Most Disputed Aspect of Mid-Market M&A

In a Completion Accounts deal, the seller agrees to a headline price based on an estimated balance sheet position. The actual price is determined by a set of accounting calculations performed after the transaction completes. The gap between the estimated position agreed at LOI and the actual position established in the Completion Accounts — and the dispute resolution process for bridging that gap — is where a significant proportion of mid-market M&A litigation originates.

The fundamental problem is that the Completion Accounts are prepared by the buyer's accountants, using accounting policies defined in the SPA, applied to a balance sheet that the seller no longer controls. Every judgement call in the preparation of those accounts — the treatment of accruals, the valuation of stock, the classification of receivables, the recognition of provisions — has a direct impact on the final purchase price. Buyers and their advisors have a financial incentive to apply those judgements conservatively, because a lower Completion Accounts value reduces the equity consideration owed to the seller. Sellers and their advisors have an equal incentive to challenge conservative judgements, because every pound recovered in the Completion Accounts process is a pound of additional consideration.

Understanding this dynamic — and building protections against it into the SPA before signing — is the most important Completion Accounts discipline available to a seller.

How the Process Works

The Completion Accounts process follows a defined contractual timeline that is agreed in the SPA before signing. The typical sequence for a mid-market UK transaction runs as follows.

Within thirty to sixty days of completion, the buyer prepares a draft set of Completion Accounts and delivers them to the seller with a calculation of the proposed purchase price adjustment. The draft accounts are prepared in accordance with the accounting policies and definitions specified in the SPA — typically the same policies applied in the company's most recent statutory accounts, sometimes with specific modifications agreed between the parties.

Within a defined review period — typically twenty to thirty business days — the seller and their accountants review the draft Completion Accounts and issue a notice of disagreement identifying any items they dispute. The notice must be specific: a general objection to the draft accounts is not sufficient. The seller must identify each disputed item, state the basis for the dispute, and quantify the adjustment they are seeking.

Items not disputed in the seller's notice of disagreement are deemed agreed and cannot subsequently be challenged. This cut-off mechanism is important: a seller who fails to identify a disputed item within the review period loses the right to contest it, regardless of how material it is to the final price.

Following the exchange of dispute notices, the parties have a further defined period — typically twenty business days — to attempt to resolve the disputes by negotiation between their respective accountants. Items resolved by agreement are incorporated into the final Completion Accounts. Items that remain unresolved are referred to an independent expert — typically a senior partner at a Big Four or mid-tier accounting firm agreed by both parties — whose determination is binding on both sides.

The Most Commonly Disputed Line Items

Completion Accounts disputes concentrate in five areas where accounting judgement has the greatest impact on the balance sheet values and where the SPA definitions leave the most room for interpretation.

Working Capital adjustments are the most frequent source of dispute. The Net Working Capital Peg — as covered in the NWC Peg entry — establishes the benchmark level of working capital the seller must leave in the business. If actual working capital on completion day falls below the peg, the buyer deducts the shortfall from the consideration. Disputes arise over the classification of specific items as current assets or current liabilities, the timing of payments made in the period immediately before completion, and the treatment of items that straddle the completion date.

Debt and Debt-Like Item classification is the second major dispute area. The SPA's definition of debt determines what is deducted from enterprise value to arrive at equity consideration. Buyers seek broad definitions that capture finance leases, deferred revenue, contingent liabilities, and other balance sheet items as debt-like. Sellers seek narrow definitions that restrict the debt deduction to bank borrowings and formal financial instruments. The definitions agreed in the SPA at signing are binding — but their application to specific balance sheet items generates significant post-completion dispute.

Cash Classification disputes arise over whether specific items on the balance sheet constitute cash for the purposes of the DFCF adjustment. Restricted cash — deposits held as security for leases or regulatory requirements — is frequently disputed. Overseas cash held in subsidiaries subject to withholding tax on repatriation may be treated at a discount. Cash equivalents and short-term investments may or may not meet the SPA's definition of cash depending on their liquidity and the specific drafting of the definition.

Accruals and Provisions are the area where accounting judgement has the greatest discretionary impact on the Completion Accounts value. A buyer's accountants preparing the Completion Accounts will apply conservative accruals and provisions — for warranty claims, bad debts, stock obsolescence, and onerous contracts — that reduce the net asset value of the business on the completion date balance sheet. The seller's accountants will challenge provisions that are not supported by specific evidence and accruals that are inconsistent with the accounting policies applied in the historical statutory accounts.

Revenue Cut-Off is a specific issue for businesses with subscription, retainer, or milestone-based revenue. The question of whether revenue earned in the period immediately before completion has been correctly recognised — neither recognised too early (overstating assets) nor deferred too late (understating assets) — is a direct application of the Revenue Recognition principles covered elsewhere in the dictionary, applied to the completion date balance sheet.

Negotiating Completion Accounts Protections Into the SPA

The seller's protection against an adverse Completion Accounts outcome is not primarily negotiated during the Completion Accounts process — it is negotiated in the SPA before signing. The specific protections that reduce exposure to post-completion price reductions include precise and narrow definitions of cash, debt, and working capital that leave minimal room for buyer interpretation; explicit accounting policies that mirror the company's historic statutory account policies without modification; a short timeline for the preparation and dispute resolution process, limiting the period during which the buyer's accountants can build their conservative position; a requirement for the buyer to provide detailed workings supporting every line item in the draft Completion Accounts, enabling the seller's advisors to identify and challenge adjustments efficiently; and an escrow or retention mechanism that holds a portion of the consideration — typically the estimated maximum adjustment amount — pending final resolution of the Completion Accounts, rather than requiring the seller to pursue the buyer for a cash payment after the fact.

The alternative to these protections is to negotiate a Locked Box structure from the outset — fixing the price at a historical balance sheet date and eliminating the Completion Accounts process entirely. For a seller with clean, audited management accounts and a well-organised Virtual Data Room, the Locked Box is almost always the preferable structure. The Completion Accounts process exists because buyers want it, not because sellers need it.

This entry is for general information only and does not constitute legal, financial, or tax advice. Founders should take specific professional advice before acting on any of the points covered here.