medium · Private Credit & Debt fund-structures-returns-economics
In a 'Locked-Box' transaction mechanism, a buyer agrees to a purchase price of $150 million based on a balance sheet dated six months prior to the expected closing.
If the company generates $10 million in cash flow and pays a $2 million dividend to the seller during that six-month gap, how is the final price at closing affected?
- The price is adjusted via a working capital audit performed on the day of closing.
- The price remains exactly $150 million regardless of any payments.
- The price is reduced by $2 million to account for 'leakage'.
- The price is increased by $10 million to reflect the cash generated.
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