Home » Insights » Not all purchase prices are the same
Anyone thinking about selling their company is primarily interested in one question first and foremost: What will I get for my company?
However, if an agreement is reached, this does not necessarily mean that the agreed sum will be paid:The hard-negotiated purchase price is usually based on the latest available and reliable information on the company (often the last annual financial statements). However, a lot has happened since then and the target property can change considerably over the months of the sales and negotiation process: Customers may jump ship, significant new business may be won or a warranty claim may limit financial performance.
So who is entitled to the profits, losses or risks that occur until the final transfer?
In sales law, this point in time is known as the “transfer of risk” and it is precisely this point in time that should be consciously agreed in addition to the purchase price when purchasing a company.
Two different methods have become established in the practice of corporate transactions:
“Transfer of risk” at the end of the process
“Transfer of risk” at the time of the purchase price agreement
 Under competition and antitrust law, approval from the competent authorities is required in certain cases. The transfer may not be completed before this.
Whether a purchase price adjustment mechanism (closing accounts) is more advantageous for the buyer or the seller depends heavily on the individual circumstances. In a booming market or with a company that is growing rapidly, a seller could benefit from the later, automatic adjustment. Conversely, in an uncertain market or for a company whose performance is deteriorating regardless of the market, the seller would have to accept a discount.
However, there are advantages to fixed price agreements (locked box), which in our view are crucial for both parties to consider:
The percentage of locked box agreements increased significantly once again in Europe in 2022. The proportion is particularly high in the German-speaking countries (DACH) at 79%.
In addition, the acceptance of locked box benefits is increasing for medium-sized transactions up to EUR 100 million or where private equity companies are involved.
Source: CMS European M&A Study 2023
This is a very simplified representation of the possible constellations and influencing factors in complex transaction processes.
In each individual case, a considerable amount of assessment and definition work is required. In order to protect your interests, it makes sense to involve experienced M&A advisors and lawyers. They use their practical knowledge to implement suitable transaction structures and contractual arrangements in solutions that work for you. “It doesn’t always have to be us, but we can do it…. “.
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