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 2020, 2021, 2022, and first half 2023.
2020 shows 33 percent industrials. 20 percent information technology. 12 percent consumer. 14 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.
2022 shows 37 percent industrials. 17 percent information technology. 15 percent consumer. 12 percent healthcare. 3 percent financials. 7 percent communication services. 6 percent materials. 2 percent energy.
First half 2023 shows 45 percent industrials. 14 percent information technology. 12 percent consumer. 15 percent healthcare. 5 percent financials. 3 percent communication services. 7 percent materials.
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. 69 percent at less than 6 months. 15 percent at 6 to 12 months. 10 percent at 12 to 18 months. 1 percent at 18 to 24 months. 5 percent at greater than 24 months
Contact our Escrow services professionals today for help with your M&A, debt capital markets financing, litigation and more.
Experience faster, more streamlined engagement, tracking and management of escrow accounts with our Escrow Direct online platform.
References
Source: Lowenstein Sandler LLP–R&W Insurance Claims Report 2023
Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by JPMC and or its affiliates. This material does not constitute a commitment by any JPMC entity to extend or arrange credit or to provide any other products or services and JPMC reserves the right to withdraw at any time. All services are subject to applicable laws, regulations, and applicable approvals and notifications.
Notwithstanding anything to the contrary, the statements in this material are confidential and proprietary to JPMC and are not intended to be legally binding. Any products, services, terms or other matters described herein (other than in respect of confidentiality) are subject to, and superseded by, the terms of separate legally binding documentation and/or are subject to change without notice. J.P. Morgan is the marketing name for J.P. Morgan Payments business of JPMorgan Chase Bank, N.A. and its affiliates worldwide.
JPMorgan Chase Bank, N.A. Member FDIC. Deposits held in non-U.S. branches are not FDIC insured.
JPMorgan Chase Bank, N.A., organized under the laws of U.S.A. with limited liability.
