A locked box, aside from being a claustrophobic's worst nightmare and an “SNL” punch line, can be a good way to settle postclosing adjustments of mergers and acquisitions, according to Alexander Schmitt of Norton Rose Fulbright in a recent post. He said the locked box trend has been picking up in the U.K. and EU. But what exactly does it mean?

“A locked box transaction at its most basic is a fixed-price deal,” Schmitt explains. It means that when the parties sign, the price is set and calculated based on a presigning date known as the reference date. Cash, debt and working capital are all set based on this date, which he says alleviates a debate over any adjustment process.

“From the reference date onwards—i.e., once the 'box is locked'—the buyer effectively takes on the economic risk of the target business,” says Schmitt. And to compensate sellers for opportunity cost, these types of transactions generally include an interest charge on the purchase price in the interim period.