Closing mechanism - effects on model
Hi,
a friend of mine was asked about pros and cons on locked box vs closing accounts and also if it had any effects on the model.
My thoughts were as for locked box, you wouldn't even need to break down the year of the transaction into pre-/post-closing since you would be entitled to all earnings since the locked-box date, which would be the last annual report (of course it could be a quarterly in case of a public company but let's assume it was a smaller one). Only for IRR calculations you would have to take into account the closing date but not for your financial statements. Also, you would most likely include an interest on the purchase price from locked-box date to closing.
With respect to closing accounts, on the other hand, you would break down your financial statements into pre-/post closing periods within the year of the transaction, and you would only be entitled to the post-closing earnings.
Any thoughts? Anything I'm missing?
Thanks