Locked box mechanisms in Belgian M&A: how to secure price and avoid disputes

The locked box mechanism is widely used in M&A deals. It sounds simple: fix the purchase price before closing based on a balance sheet at a specific date, often 31 December. No post-closing price adjustments, no surprises. But simplicity can be deceptive. If you do not structure it properly, you risk disputes, leakage, and unnecessary friction.

What is a locked box and why is it used?

A locked box sets the purchase price using a validated financial snapshot. From that date until closing, the seller cannot extract value from the company except for what is expressly permitted in the contract. This approach gives both parties certainty and avoids complex post-closing adjustments.

Why do entrepreneurs and investors like it?

• Price certainty: No endless debates about working capital or net debt after closing.
• Speed: Eliminates lengthy post-closing reconciliations.
• Transparency: Buyers know exactly what they are paying, sellers know what they will receive.

In Belgium and across Europe, locked box mechanisms have become the norm for mid-market deals because they reduce complexity and accelerate execution.

The catch: leakage

Between the locked box date and closing, you must monitor all outgoing flows to the seller. Here is what matters:

• Leakage: Prohibited payments such as dividends or management fees. These must be reimbursed.
• Permitted leakage: Payments expressly allowed in the contract, for example a specific dividend agreed upfront.

If these categories are unclear, disputes are inevitable. Buyers will argue that certain payments were unauthorised, sellers will claim they were permitted. The result? Delays, tension, and sometimes litigation.

Key safeguards for a strong locked box

To protect your deal:

• Define leakage categories clearly in the SPA: List prohibited and permitted payments explicitly.
• Include automatic reimbursement for any unauthorised leakage: This avoids negotiation later.
• Require detailed financial reporting until closing: Monthly reports and confirmations keep everyone aligned.

A well-structured locked box means a protected price, fewer frictions, and a smoother transaction.

Advantages and disadvantages compared to completion accounts

Locked box is not the only mechanism. Completion accounts adjust the price after closing based on actual working capital and net debt.

• Advantages of locked box: Certainty, simplicity, and faster closing.
• Disadvantages: Buyers take on more risk if financial performance changes significantly after the locked box date.

In volatile sectors or deals with long closing timelines, completion accounts may still be preferable. At dups, we help entrepreneurs choose the right mechanism based on deal dynamics and risk appetite.

Common mistakes entrepreneurs make

• Vague definitions of leakage: Leads to disputes and price reductions.
• No monitoring between locked box date and closing: Buyers lose confidence, sellers lose leverage.
• Ignoring the working capital level: with a locked box there is no adjustment after closing, so the normal level has to be agreed before the price is fixed.

These mistakes cost time and credibility. At dups, we anticipate these risks and draft clauses that protect your interests.

Belgian market specifics

In the mandates we run in Belgium, locked box mechanisms are standard in mid-market transactions, especially for deals between €5 million and €50 million. Locked box dates are usually year-end or quarter-end, and exclusivity periods run 6 to 8 weeks. Buyers expect robust definitions of leakage and clear reporting obligations. Our experience with Belgian investors and European funds means we know these norms and use them to structure deals that close smoothly.

The dups approach

At dups the financial and the legal work sit in one team, so whoever builds the numbers negotiates the clause that depends on them. We take a limited number of full mandates a year, from strategy to closing, chosen by an investment committee. Specialist Support covers one piece instead.

On a sale it is usually the normalisation of the figures, the information memorandum or the warranty package.