Lock Box System In Working Capital Management

The locked box date with key deal metrics working capital net debt etc being determined from independently verified financials.

Lock box system in working capital management.

A locked box mechanism is a means of fixing the purchase price payable on completion of a share sale by reference to the target group s balance sheet position ie its net debt and working capital at an agreed point in the past the locked box date effectively the purchase price is fixed at and the buyer takes the economic benefit risk of the target group from the locked box date not. Usually involves a company s customers remitting amounts to a bank account close to the customers in order for the company to have collected funds sooner. Under this method the purchase price is determined based on a date that precedes the closing date. Lockbox banking is a service provided by banks to companies for the receipt of payment from customers.

The bank opens the incoming mail deposits all received funds in the company s bank account and scans the payments and any remittance information. This is often a very sensitive part in the negotiation of a private m a deal. A closing date balance sheet is not. If there is too large a time lapse between the last audited accounts and proposed closing date the seller and buyer may agree on a more recent management accounts balance sheet to lock.

The locked box working capital mechanism will also be discussed at the m a conference at wharton san francisco. While it is. A lockbox is a bank operated mailing address to which a company directs its customers to send their payments. Deal metrics working capital net debt etc being determined from independently verified financials.

The locked box mechanism entails that the purchase price payable on the transaction s closing date closing is agreed and fixed at the date of. For the seller a locked box approach is difficult to apply without an anchored balance sheet and the seller can always lose out should the interest profit charge be set too low. If there is too large a time lapse between the last audited accounts and proposed closing date the seller and buyer may agree on a more recent management accounts balance sheet to lock. Most acquisitions of private companies include a working capital adjustment.

The scanned images are posted to a secure website where the company s accounting staff can access the images to apply payments to. When a locked box mechanism is appropriate. For example a company with its headquarters in the midwest might have a bank account in new york for its east coast customers to mail in amounts owed.