The price of a target company is at the heart of any transaction and can be based on a number of factors including net asset value, a multiple of earnings, revenue and/or comparative prices for similar companies. Furthermore, a purchase price is usually based on the target company's balance sheet as at a date shortly before the execution of the acquisition agreement. Purchase price adjustments are mainly used by parties to:

(i) underpin or verify the assumptions on which the purchase price was based;

(ii) bridge the gap between the respective valuations of sellers and buyers; and

(iii) allocate amongst the parties any increase or decrease in the value of the target company from the date on which the acquisition agreement is signed until completion of the acquisition.