Buying a company is in itself a complex and often multidisciplinary process. When it comes to the purchase price, different questions and opposing positions arise again. While the seller tends to propose optimistic prices, the buyer does not want to buy “a pig in a poke” and pay too much.
Basically, there are 3 approaches to the purchase price, which will be discussed in more detail below: Locked-Box, Closing Accounts and Earn-out.
Locked box (“fixed price”)
This variant provides for a fixed fixed price. If a fixed price is agreed, changes in the company’s assets between conclusion and execution of the purchase agreement are not taken into account in terms of the price. The agreement of a fixed price is rather seller-friendly, because the seller then already has certainty in principle at the conclusion of the contract as to how high his sales proceeds will be. For the seller, this is usually more disadvantageous, because he does not (yet) know whether it reflects actual value.
Closing accounts (price adjustment)
In the closing accounts variant, the calculated purchase price is adjusted on the closing date of the sale according to predetermined rules. This is usually a net debt adjustment, where the price is adjusted to the balance of interest-bearing liabilities and cash and cash equivalents of the company.
Earn-out
In an earn-out, the purchase price is made dependent on the success of the company to be acquired after the takeover. In this case, the price can change upwards or downwards depending, for example, on profit, sales or other earnings figures. This gives the buyer the security of knowing that he is not paying too much for the company in the event of a decline in sales.
