Leakage in M&As

Locked Box in M&A: Because No One Likes Paying for a Pizza with Missing Slices


Imagine agreeing to buy a pizza based on a photo taken a month ago. You fix the full price today, but the delivery takes time. When the box finally arrives, you open it and find a slice missing. That missing slice? In M&A, we call that leakage.


In a locked box deal, the purchase price is fixed based on historical financials. From that date onward, the buyer owns the economic value of the business, even though legal ownership transfers later. To protect the buyer, the SPA includes a promise from the seller not to extract value during this interim period.


Leakage typically covers dividends, bonuses to the seller group, loan repayments or any value transfers not agreed in advance. Permitted leakage is the one slice everyone agreed the seller could have — maybe a regular salary or pre-approved transaction expense.


A closing date representation in the SPA might say: “The Seller undertakes that there has been no Leakage between the Locked Box Date and Completion, other than Permitted Leakage as set out in Schedule X.”


If leakage happens, the buyer gets a refund/ indemnity.


Locked box works well when the numbers are reliable, and both sides prefer certainty over surprises.

This blog is authored by Company Secretary Ronak Gupta. He is author of many blogs and runs many websites and youtube channels. His work is dedicated to corporate laws, legal, secretarial, professional services and also in strategy formulations for corporates. Mail him at: csronakgupta23@gmail.com or call at :9910226715

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