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News & Announcements

Thinking Ahead — Negotiating Completion Accounts for success

Dalma Capital

19 March 2023

By Zachary Cefaratti

In a completion accounts closing mechanism, the final purchase price is determined based on the target company’s financial position at closing, with adjustments made for working capital, net debt, and other relevant financial items. For sellers, there are several terms you can negotiate to ensure a more favorable outcome.

When negotiating the SPA, it is important to anticipate issues that my come later in completion accounts. Here are some important considerations for sellers:

Pre-agreed adjustments: 

To reduce the risk of disputes over adjustments, negotiate and agree upon specific adjustments and calculation methodologies before signing the Sale and Purchase Agreement (SPA). This includes defining key terms, setting parameters for the adjustments, and agreeing on accounting principles to be applied.

Materiality thresholds:

Establish materiality thresholds for adjustments, so that only adjustments above a certain amount will be considered. This prevents minor discrepancies from causing delays or disputes in the completion accounts process.

Caps and floors:

Set caps and floors on potential adjustments to limit the extent to which the final purchase price can deviate from the initially agreed price. Caps protect the seller from excessive downward adjustments, while floors protect the buyer from excessive upward adjustments.

Dispute resolution mechanism:

Agree on a clear and efficient dispute resolution mechanism to handle any disagreements that may arise during the completion accounts process. This might involve engaging an independent expert or accountant to make a final determination on disputed items, with their decision being binding on both parties.

Pro-forma working capital target:

To ensure a smooth closing process, negotiate a pro-forma working capital target based on historical averages or industry benchmarks. This helps avoid disputes over working capital requirements and ensures that the target company is adequately capitalized at closing.

Escrow account:

Consider using an escrow account to hold a portion of the purchase price until the completion accounts process is finalized. This ensures that funds are available to cover any potential adjustments, while also providing an incentive for the buyer to complete the process promptly.

Net debt calculation:

Clearly define how net debt will be calculated, including which items should be considered as debt, cash, or excluded from the calculation. This helps prevent disputes over the net debt adjustment and ensures a fair outcome for both parties.


Establish clear timelines for each stage of the completion accounts process, from the preparation of the closing balance sheet to the resolution of any disputes. This helps ensure a timely and efficient closing process and reduces the risk of deal fatigue.

More Tips on Pre-agreed adjustments

Define key terms:

Clearly define terms that are crucial to the completion accounts process, such as working capital, net debt, and other financial items. This ensures both parties have a shared understanding of the terms and prevents potential disputes arising from differing interpretations.

Set parameters for adjustments:

Establish parameters for adjustments, such as the methodology for calculating working capital, net debt, and other financial items. This may involve determining which balance sheet items will be included or excluded, setting the basis for valuation, and agreeing on any relevant exchange rates or interest rates to be applied.

Allocation of specific items Agree on how specific items will be allocated in the completion accounts, such as contingent liabilities, tax provisions, or provisions for employee-related expenses. This helps ensure a fair allocation of these items between the buyer and seller and minimizes the risk of disputes.

Normalization adjustments:

Determine whether any normalization adjustments will be made to the completion accounts, such as adjustments for non-recurring items, extraordinary expenses, or management bonuses. Agree on the criteria for identifying these adjustments and the methodology for calculating their impact.

Example calculations:

It can be helpful to include example calculations in the SPA to illustrate how the agreed-upon methodologies will be applied in practice. This provides both parties with a clear understanding of how the completion accounts will be prepared and can serve as a reference point in case of disputes. This is particularly important when it seems there are potentially discrepancies in understanding on either side. It is also crucial as an advisor to ensure the client has a full understanding.

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