The Price Is No Longer Just the Price: Earn-Outs, Locked Box, and Adjustments in an Uncertain Market
In an M&A transaction, price plays a central role. It is the headline of the deal and often the figure that summarizes the success or failure of a transaction. However, in today’s market, the price is rarely a fixed, definitive number.
Growing economic uncertainty, volatile results in certain sectors, and increasingly sophisticated buyers have transformed price into a genuine contractual risk-sharing mechanism. What was once resolved with a standard accounting adjustment is now tailored through enterprise value determination structures such as locked box, completion accounts, earn-outs, and increasingly refined hybrid formulas.
The outcome is clear: negotiating price successfully no longer means just agreeing on a number—it means structuring its determination, timing, and method of payment.
The Selective Return of Price Adjustment Mechanisms (PPAs)
For years, especially in private equity transactions, the locked box method became the dominant mechanism in Europe, driven by a clear incentive: price certainty from signing, less post-closing friction, and reduced dispute risk.
This trend remains, but with relevant nuances. The locked box was used in roughly 60% of European deals without post-closing adjustment, though PPA (Purchase Price Adjustment) mechanisms have regained prominence, now accounting for 48% of total deals. The current landscape reflects a more sophisticated coexistence of both models.
Trends in the Mid-Market
In the mid-market, the picture is particularly interesting. While the locked box remains the predominant valuation methodology, its use has declined compared to previous years. The main conclusion is that the smaller the deal, the greater the tolerance (and sometimes necessity) for post-closing adjustment methods. This is primarily due to three factors, which can sometimes converge simultaneously:
In this context, post-closing adjustment ceases to be an anomaly and becomes a buyer protection tool.
Variable Structures: Earn-Outs and Deferred Price as a Solution
Earn-outs have become the new normal in mid-market deals, reaching implementation in up to 25% of European transactions in 2024. The phenomenon is particularly noticeable in the mid-market, where earn-outs are considerably more common than in large deals.
Whether due to growth projections, uncertainty around EBITDA sustainability, or a business where people, technology, or intangible assets play a significant role, earn-outs help bridge the valuation gap between buyer and seller expectations.
Naturally, these structures carry risks. By their nature, they can generate post-closing tensions, whether due to poorly defined contractual metrics, the seller’s lack of control over management during the earn-out period, or strategic decisions by the buyer that materially impact value. Thus, an earn-out works only if it is designed with surgical precision.
Toward Hybrid Structures
The current mid-market is evolving toward customized pricing structures at the expense of standard solutions that work in larger transactions.
It is increasingly common to find locked box structures combined with cash and debt adjustments at closing, earn-outs paired with deferred payments, simplified working capital adjustments, and other variations. The clear objective is to contractually reflect a reality: price has ceased to be a result and has become a process.
The main lesson from the market is that the locked box is no longer automatic, adjustments selectively resurface, and earn-outs are the new normal. In such an environment, the difference between a good and a bad transaction lies in how price is structured, protected, and executed over time.
In short: “the price” is no longer just the price because it has become the legal expression of how the parties choose to manage uncertainty.
Marc Mercader -Baker Tilly
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Addleshaw Goddard (AG), the London-headquartered international law fir...
