Some of the main expected benefits of blockchain and smart contracts with respect to locking mechanisms are: This briefing describes how the locking mechanism works, the main benefits and potential pitfalls in using this mechanism, as well as some practical considerations to consider when using a box locking mechanism. In addition, a locked-box approach can make it easier for a seller to compare bids at an auction, as bidders are asked to submit a fixed price based on a series of blocked box date accounts provided by the seller in due diligence information. If the target group`s debts are repaid or refinanced once completed (as is often the case), the buyer has only a limited guarantee as to the amount of financing he will need. While the purchase price to be paid for the target group (i.e. the value of equity) is set, the amount required to repay/refinance the existing liabilities of the target group is not. If the debt has increased since the date of the locked box, the buyer still has to repay/refinance the increased amount once completed. This is more important for buyers who use leverage to finance the purchase, as it is more difficult for them to take into account their financing needs or financing costs. When calculating the value of the equity it is willing to pay, the buyer takes into account adjustments similar to those resulting from account accounts (in order to make a purchase on a debt-free/cash-free and/or standardized working capital basis). Debt-like items and the calculation of standardized working capital are the most discussed topics.
The fundamental differences are that a lock-in mechanism is a means of setting the purchase price that must be paid after the closing of a share sale by referring to the position of the target group on the balance sheet (i.e. net debt and operating capital) on a date agreed in the past (the “date of the blocked box”). The purchase price is actually set and the buyer excludes the profit/economic risk of the target group, the date of the locked box (not from completion). In addition to minimizing the leak from the validity date, the buyer will ensure that the target is in the same (or ideally better) condition as on the date of the locked box price. The locked box concept is an increasingly common way of dealing with the inherent uncertainties that predict the form of the balance sheet at closing, without resorting to a post-closing adjustment process.