The locked-box mechanism secures the equity price against post-signing changes in the target's net debt or working capital by freezing the financial reference point at a historical date. The SPA defines exhaustively what constitutes permitted leakage (pre-agreed distributions) and prohibited leakage (any other value extraction) — the latter being recoverable from the seller on a euro-for-euro basis. For a detailed comparison with the completion accounts mechanism, see Hectelion's dedicated publication on price adjustment mechanisms in M&A transactions.

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Example: in a PE-to-PE transaction with a locked-box date of 31 December, the SPA defines permitted leakage of CHF 200,000 (an agreed management fee payable to the seller's group in January). All other value transfers — including a CHF 150,000 dividend paid by error in February — constitute prohibited leakage, triggering a contractual obligation to reimburse the buyer at closing.

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Hectelion structures locked-box mechanisms and negotiates leakage definitions to protect clients' economic interests from signing through closing.