Corporate mergers and acquisitions. If you’re the buyer, the risks can be significant. Enter M&A holdback escrows: the risk mitigation tool that allows you as the buyer to retrieve funds should problems arise during a purchase.
Now, J.P. Morgan has gathered data from more than 2,600 transactions from over the past three years to produce the 2023 M&A Holdback Escrow Study. From end to end, it offers you an analysis of:
- Trends and characteristics of M&A holdback escrows
- Behavioral differences between financial and strategic counterparties
- Insights into dispute resolution in the holdback escrow market
…due to market uncertainty, escrow continued to be heavily used by companies in need of extensive, flexible and low-cost claim coverage.
Are businesses like yours taking advantage of holdback escrows?
What were the target sectors for M&A? Based on our data, here’s what we discovered:
Image describes dominant mergers and acquisitions sectors.
The four dominate sectors for M and A were industrials, information technology, healthcare, and consumer.
The largest increase versus the prior year was in industrials at eight percent.
The largest decrease over the forty-two month period was in information technology at six percent.
Chart title: Target sectors
This is a horizontal bar chart with 4 rows for years 2019, 2020, 2021, and first half 2022.
2019 shows 33 percent industrials. 19 percent information technology. 14 percent consumer. 16 percent healthcare. 6 percent financials. 6 percent communication services. 4 percent materials. 3 percent energy.
2020 shows 33 percent industrials. 20 percent information technology. 11 percent consumer. 15 percent healthcare. 7 percent financials. 7 percent communication services. 4 percent materials. 2 percent energy.
2021 shows 29 percent industrials. 22 percent information technology. 16 percent consumer. 13 percent healthcare. 5 percent financials. 5 percent communication services. 6 percent materials. 3 percent energy.
First half 2022 shows 34 percent industrials. 17 percent information technology. 17 percent consumer. 14 percent healthcare. 2 percent financials. 9 percent communication services. 6 percent materials. 2 percent energy.
Explore the claim facts
Covenant breaches. Post-closing purchase price adjustments. Pension underfunding issues. Unpaid taxes. Environmental liabilities. These are just a few of the risks that can be alleviated with escrow claim coverage. And it’s particularly important for you as the buyer seeking to mitigate risk during acquisition.
28%: Deals with at least one claim (indemnity, purchase price adjustment or expense)
Chart title: Deals with claim (indemnity, adjustment or expense)
There are two pie charts. The chart on left has two slices showing none at 72 percent and at least one at 28 percent.
The chart on the right expands on the items that fall under at least one at 28 percent. There are 3 slices. PPA/EXP plus Indemnity at 3 percent, PPA/Exp Only at 12 percent, and Indemnity Only at 13 percent.
There is a note that these are rounded figures only.
69%: Claims received that were resolved in less than six months
84%: Resolved within 12 months - this resolution speed is faster on average than representations and warranties insurance1
Chart title: J.P. Morgan escrow services claim resolution time
There is one pie chart with 5 slices. 75 percent at less than 6 months. 10 percent at 6 to 12 months. 13 percent at 12 to 18 months. Zero percent at 12 to 24 months.
Contact our Escrow services professionals today for help with your M&A, debt capital markets financing, litigation and more.
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References
Source: Lowenstein Sandler LLP–R&W Insurance Claims Report 2023
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