What Are Completion Accounts?
Completion accounts are a pricing mechanism used in M&A transactions to determine the final purchase price by reference to the target company’s actual financial position at the date of completion (closing), a concept closely related to closing price adjustments in broader financial practice. Rather than fixing the price at signing, the parties agree on an enterprise value and then adjust it post-closing based on actual net debt, cash, and working capital as measured at the completion date.
This mechanism exists because there is almost always a gap — days, weeks, or months — between signing the purchase agreement and closing the transaction. During that interval, the target’s financial position changes: customers pay invoices, suppliers are paid, inventory moves, debt is drawn or repaid. Completion accounts ensure that the buyer receives the business with the financial position that was assumed in the pricing, and that any deviation is reflected in the final price.
The completion accounts mechanism is the dominant pricing approach in North American M&A and remains widely used across Asia Pacific, particularly in transactions involving private equity buyers who are accustomed to this framework.
How Completion Accounts Work
The Pricing Framework
The mechanics follow a structured sequence:
- Enterprise value agreement — buyer and seller agree on an enterprise value for the business, reflecting its operating value on a cash-free, debt-free basis with a normalised level of working capital
- Estimated completion statement — at closing, the parties use estimated figures for net debt, cash, and working capital to calculate a preliminary equity price
- Closing and payment — the buyer pays the estimated equity price and the transaction closes
- Actual completion accounts — within an agreed period after closing (typically 60-90 days), the buyer prepares a detailed balance sheet as at the completion date
- Review period — the seller reviews the buyer’s completion accounts and may raise objections (typically within 30-60 days)
- Dispute resolution — any unresolved disagreements are referred to an independent accounting firm for binding determination
- True-up payment — the difference between the estimated and actual equity price is settled by a payment from one party to the other
Key Adjustments
Three adjustments convert the agreed enterprise value into the final equity price:
Net debt adjustment — if the target has more debt at completion than assumed, the purchase price decreases; less debt means a price increase. Net debt typically includes interest-bearing borrowings, finance leases, and debt-like items (unfunded pension obligations, deferred consideration from prior acquisitions), less cash and cash equivalents.
Working capital adjustment — measured against the agreed working capital peg (or target). If actual working capital exceeds the peg, the buyer pays more. If it falls short, the price is reduced. This prevents the seller from extracting value by running down working capital before closing.
Cash adjustment — any cash on the balance sheet at completion is added to the purchase price (since enterprise value assumes a cash-free basis). The definition of “cash” and treatment of restricted cash or trapped cash in foreign subsidiaries is often heavily negotiated.
Accounting Policies
A critical — and frequently contentious — element is the accounting policies used to prepare the completion accounts. The purchase agreement should specify:
- Whether completion accounts follow the target’s historical accounting policies or a separately defined set of principles
- How specific items are treated (e.g., revenue recognition timing, provisioning methodology, inventory valuation)
- Whether IFRS, local GAAP, or a bespoke set of policies applies
Ambiguity in accounting policies is the single most common source of completion accounts disputes (Corporate Finance Institute). Well-advised parties invest significant time in defining these policies during SPA negotiations.
Completion Accounts in Practice
Common Points of Contention
Experienced practitioners know that completion accounts disputes are not exceptional — they are routine. The most common areas of disagreement include:
- Working capital classification — which items fall inside or outside the working capital definition (e.g., tax receivables, deferred revenue, intercompany balances)
- Provisions and accruals — subjective estimates that the buyer may seek to increase post-closing (increasing liabilities and reducing the purchase price)
- Cut-off adjustments — whether revenue and expenses are recorded in the correct period relative to the completion date
- Consistency of treatment — the buyer applying different judgement to accounting estimates than the seller applied historically
Protective Mechanisms
Several mechanisms help manage completion accounts risk:
| Mechanism | Purpose |
|---|---|
| Collar / de minimis | No adjustment within a small range around the target, preventing nuisance claims |
| Locked-box alternative | Eliminates completion accounts entirely by fixing price on a historical date |
| Escrow / retention | A portion of the purchase price held in escrow pending finalisation of completion accounts |
| Expert determination | Independent accountant resolves disputes, binding on both parties |
| Detailed accounting policies | Annexed to the SPA, specifying treatment of every material line item |
The Buyer-Seller Dynamic
Sellers generally prefer price certainty and may push for a locked-box mechanism to avoid the risk of post-closing adjustments (where the buyer controls the preparation of accounts and may have incentives to depress the final price). Buyers generally prefer completion accounts because they ensure the price reflects the actual financial position at handover, protecting against working capital manipulation or unexpected debt drawdowns between signing and closing.
The relative bargaining power of the parties, the length of the signing-to-closing gap, and the complexity of the target’s balance sheet all influence which mechanism is adopted — a dynamic explored in detail in the sell-side M&A process. In competitive auction processes, sellers often have sufficient leverage to insist on a locked-box; in bilateral negotiations or distressed situations, buyers typically secure completion accounts. For a broader view of how pricing mechanisms fit within deal execution, see our M&A process guide.
APAC Context
Completion accounts practices across Asia Pacific reflect the region’s diverse legal and accounting traditions. In Australia, completion accounts are standard in private M&A and typically follow Australian Accounting Standards (AASB/IFRS). Expert determination by an independent accounting firm is the norm for dispute resolution, and Australian courts have generally upheld the binding nature of expert determinations.
In Southeast Asia, multi-jurisdictional targets present particular challenges — a target with subsidiaries across Singapore, Thailand, and Vietnam may have different local GAAP requirements, different audit timelines, and different levels of financial reporting sophistication. The completion accounts preparation process must account for these differences, and the SPA should specify how consolidation adjustments and intercompany eliminations are handled.
Japanese transactions increasingly use completion accounts mechanisms for cross-border deals, though domestic transactions in Japan still frequently rely on fixed pricing with limited post-closing adjustments. The cultural preference for certainty and the desire to avoid post-closing confrontation influence this dynamic.
Platforms like Amafi support advisors in managing the financial complexity of cross-border Asia Pacific transactions, providing analytical tools to model completion accounts scenarios and track the signing-to-closing process.
Exploring M&A opportunities in Asia Pacific? Amafi helps navigate pricing mechanisms and deal structuring across the region’s diverse markets. Learn more.