J.P. Morgan releases annual M&A Holdback Escrow Report
Sep 14, 2012
J.P. Morgan Treasury Services recently released its 2012 M&A Holdback Escrow Report. The annual report, now in its fourth year, details the importance of escrow accounts used as a tool for risk mitigation and asset protection in M&A transactions.
The major trend since the 2010 study is the upward shift in the transaction size of M&A deals utilizing holdback escrows*. This shift has increased the value of corresponding escrow deposits, as seen in the analysis of escrow deposit size within the report. For the 2012 study, 33% of terminated deals had at least one claim.
Other key findings in the 2012 report include:
- On average, buyers were able to recover 59% of their initial claim amount
- The average escrow holds 9% of the underlying M&A purchase price
- The average underlying M&A transaction size for deals involving financial buyers is more than twice as large as the average for deals with strategic buyers
- Escrows involving financial buyers were more concentrated in the 13 to 18 month range (55%) than those involving strategic buyers (42%)
*With a holdback escrow, a percentage of the purchase price of an M&A deal is placed in an escrow account and held until the terms of the escrow agreement have been met. The agreement enables the buyer to retrieve funds for purchase price adjustments and make claims against the account in the event that the seller fails to satisfy certain representations and warranties of the purchase agreement.