Issues with the Completion Accounts Mechanism
- 01:23
The pros and cons of using completion accounts to complete an M&A transaction.
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So, let's have a look at the issues surrounding completion accounts. Firstly is the cash flows can be uncertain. This means that, at the true up, you're gonna have to pay more than you expected, or sometimes less than you expected, and that can be a big issue for some buyers. Also, the buyer is in control of the true up accounts, because the actual economic interest is handed over at completion, and it's only after that point, that the completion accounts are actually prepared, and therefore, it affects the true up. This needs quite a detailed level of documentation in the sale and purchase agreement. So, it'll be a very detailed conversion between the enterprise value, or the cash-free and debt-free price to the equity purchase price. Bids with fixed funding, IEE, private equity firms don't like this, because they'll line up all the financing within transaction and they may need more funding at the true up date, or potentially less funding, so they raise too much capital. And lastly, you've got to also prepare a whole new set of accounts at completion, and that means, if completion isn't at a quarter-end or year-end, it's a kind of wasted exercise once you have done it, because it's no good for anything else other than these adjustments in the sale and purchase agreement. So also, potentially, will be more expensive.