To understand the common price adjustment mechanisms in M&A transactions

In mergers and acquisitions (M&A) transactions, the purchase price of the target company is usually adjusted to reflect the actual financial position at the time of closing the transaction. A price adjustment mechanism is an important part of a share purchase or capital contribution, helping to ensure that the transaction value is in line with financial indicators such as working capital, cash and debt. This mechanism not only protects the interests of both the buyer and the seller but also minimizes the risk of financial fluctuations in the period from the signing of the contract to the completion of the transaction.

The deal between Fidelity National Information Services, Inc. (FIS) and Global Payments Inc. announced on April 17, 2025 is a prime example, with the enterprise value of the Issuer Solutions business reaching $13.5 billion and Worldpay reaching $24.25 billion[1]. This transaction uses the Completion Accounts mechanism – a price adjustment mechanism based on financial indicators at the time of closing the trade. This article will analyze in detail the price adjustment mechanism, including the purpose, process, challenges and lessons learned, based on the information of the FIS-Global Payments deal.

Regulations on the price adjustment mechanism

Purpose of the price adjustment mechanism

The price adjustment mechanism in M&A has the following main purposes:

(1) Reflect actual value. The initial purchase price is usually based on the target company's financial assumptions or historical data. The correction mechanism ensures that the final price reflects the actual financial position of the target company at the time of closing the trade.

(2) Protect the interests of the parties. The buyer is protected from overpaying if the target company has less cash or more debt than expected, while the seller is guaranteed to receive additional value if the financial indicators exceed the initial target recorded by the parties in the share purchase agreement.

(3) Minimize volatility risk. During the period between the signing of the contract for the sale and purchase of the target company and the closing of the transaction (which usually lasts several months and even several years), factors such as business activities, operating costs, or market fluctuations can change the financial position of the target company. The adjustment mechanism helps to minimize the impact of these fluctuations.

Common price adjustment mechanisms

To ensure the fairness and success of M&A transactions, buyers and sellers in deals often use one of two common bid price adjustment mechanisms:

Completion accounts

This is a traditional, popular mechanism in the US and the North American region. The completion account mechanism is a mechanism by which the preliminary purchase price is negotiated first, and then the final price is determined after the transaction is completed through a purchase price adjustment based on the completed account. This means that the target company's finances will be re-evaluated at the time of completion of the transaction to calculate the final price. The purchase price is adjusted based on the actual financial indicators at the time of closing the trade, compared to the pre-agreed target amounts. The advantage of the completion account mechanism is that it provides greater accuracy of the purchase price at the completion date, as it reflects the actual financial situation at that time. However, this mechanism carries a higher risk of dispute due to possible adjustments that may arise after the transaction, resulting in uncertainty about the final price until the account is completed. The process of this mechanism is also more complicated in implementation.

The implementation process of this mechanism includes the following steps:

• Prepare financial statements at the time of closing accounts.
• Calculation of working capital, cash and actual debt.
• Compare these figures with the agreed target, then adjust the purchase price according to the "dollar-for-dollar" principle.

Locked box mechanism

This is a common price correction mechanism in the UK and Europe, especially in transactions involving private equity funds. With this mechanism, the final purchase price is agreed from the beginning, based on the latest audited financial statements of the target company (usually at the "lock-in" date specified in the target company's purchase and sale contract). With this mechanism, there will not be any adjustments after the completion of the trade. This means that (i) the purchase price is fixed based on the financial position at a historical point in time (locked box date), usually a date close to the time of signing the contract; (ii) There is no price adjustment after closing the transaction, but the seller usually receives interest from the date of the locked box to the date of closing the transaction to offset the time value of the money; (iii) This method simplifies the process of closing a trade but requires strict control measures to ensure that the target company is maintained stably from the date of the locked box to the date of closing the trade.

However, in practice, this mechanism also has many potential risks such as a higher risk of value leakage for buyers if not properly protected. This occurs when there are values that are withdrawn from the target company between the lock-up date and the completion date without being adjusted in the purchase price

Key factors to choose between the two mechanisms[2]

To consider the choice between the two mechanisms, stakeholders often consider the following factors:

1. Complexity in execution: Simpler key boxes to complete a transaction
2. Risk of loss of value: Buyers have a higher risk in the lockbox mechanism if not properly protected.
3. Accuracy of the purchase price: The completion account provides greater accuracy at the date of completion of the transaction.
4. Certainty of the purchase price at completion: The lock box provides this certainty from the start.
5. Dispute risk: Higher with the completed account due to the potential adjustments that this mechanism allows.

Based on the above factors, usually the buyer will propose a discount mechanism for the buyer and seller to negotiate and come to a final decision on which discount mechanism to include in the target company's purchase and sale contract.

Source: FIS Global

Perspectives from FIS and Global Payments deals[3]

Trading overview

The deal between FIS and Global Payments is a cross-transaction, in which:

• FIS acquired a 100% stake in Total System Services LLC (TSYS), representing  the Issuer Solutions business, for an enterprise value of $13.5 billion.
• Global Payments bought FIS's stake in Worldpay, while also buying the remaining stake from GTCR and other parties, for an enterprise value of $24.25 billion.

Both trades use  the Completion Accounts mechanism, with the purchase price adjusted based on working capital, cash, and debt at the time of closing.

Price adjustment mechanism in a deal

According to the Transaction Agreement signed on April 17, 2025, the price adjustment mechanism is specified in detail in the Securities Purchase and Sale Agreement between the parties.

Initial purchase price

• Issuer Solutions' enterprise value was $13.5 billion, with ordinary adjustments based on TSYS' working capital, cash and debt at the time of closing.
• Similarly, Worldpay's enterprise value is $24.25 billion, with similar adjustments.

Financial indicators

• Working capital: Defined as "Purchased Entity Closing Working Capital" (working capital at the time of closing of TSYS's transaction), calculated in accordance with GAAP accounting standards. The target working capital level is determined to be $409,956,476. The purchase price is adjusted based on the difference between the actual working capital and this target.
• Cash: Defined as "Purchased Entity Closing Cash," including cash, bank deposits, and other liquid assets, except for outstanding checks and pending transfers.
• Debt: Defined as "Purchased Entity Closing Funded Debt," which includes loans, bonds, financial lease obligations, letters of credit, and other financial debts, along with accrued interest.

Adjustment process

• Pre-Closing Estimates: At  least 5 business days prior to the closing date, Global Payments and FIS provide preliminary financial statements (Purchased Entity Closing Statement and Washington Closing Statement), including estimates of working capital, cash, and debt.
• Determination after closing the trade: After closing the trade, the actual figures are determined through the final financial statements. If there is a discrepancy between the estimate and the actual figures, the purchase price is adjusted accordingly. For example, if TSYS's actual working capital is lower than the target, FIS will pay less; if higher, FIS will pay more.
• Dispute resolution: If the parties do not agree on the figures, an independent audit firm (such as BDO or Grant Thornton LLP) will be appointed to make the final decision, ensuring objectivity.
• Tax treatment: Price adjustments are considered purchase price adjustments for tax purposes, subject to applicable tax regulations.

Some challenges in the price adjustment mechanism

The price adjustment mechanism in this deal faces a number of challenges such as (1) Financial complexity. The determination of working capital, cash, and debt can be controversial, especially when TSYS's international subsidiaries (such as Total System Services de Mexico) apply different accounting standards. Financial volatility is another challenge. Because the period from signing the contract to closing the deal (which can last until April 2026 or longer with an extension) can significantly change the financial indicators. (2) Legal risks. Disagreements over calculation methods or financial statements can lead to legal disputes. Although the Transaction Agreement includes a dispute resolution mechanism, the process can be time-consuming and costly for the parties. This can delay the transaction indefinitely and easily lead to a broken transaction. In addition, the commitments and warranties regarding the accuracy of the financial statements may result in a claim if errors or fraud are discovered before and after the completion of the transaction. (3) Operational risks. Global Payments' pre-closing restructuring, which includes the transfer of assets and liabilities to TSYS, may affect the accuracy of financial statements, complicating the determination of price adjustments.

Some experiences when using the Completion Accounts mechanism

Based on the FIS-Global Payments deal and general M&A practices, we can draw lessons from the process of executing and controlling a large and complex M&A deal as follows:

Firstly, drafting clear contractual terms is very important

The contract should clearly define the definitions of working capital, cash and debt, as well as the calculation methodology (e.g., according to GAAP). This helps to minimize disputes over how to interpret the data.

Second, conduct thorough due diligence

The financial due diligence process must cover financial statements, contracts, and liabilities to identify potential factors that may affect price adjustments.

Third, the use of independent audits is necessary

Appointing an independent audit firm to resolve disputes helps ensure objectivity and fairness, especially in large-scale transactions.

Fourth, predict market fluctuations

Parties should consider adverse financial scenarios, such as fluctuations in interest rates or changes in business conditions, and come up with contingency provisions.

Fifth, effective time management

With the closing time of transactions can be extended, parties need to update their financial statements regularly to ensure accurate figures.

The price adjustment mechanism in M&A transactions, especially in share/stake purchase agreements, is an important tool to ensure that the transaction value reflects the actual financial position of the target company. The two main methods, Completion Accounts and Locked Box, offer different approaches to achieving this goal. It can be seen that in the context of the increasingly complex global financial industry, the price adjustment mechanism will continue to play a key role in ensuring the fairness and success of complex and high-value M&A deals.