Escrow Services

Mergers & Acquisitions Escrow

J.P. Morgan’s escrow services help clients to mitigate risk in a wide range of M&A transactions. Our solutions can help reduce the risks faced by both the buyer and the seller. Our M&A experts are knowledgeable about best practices for post-claim provisions, and structure escrow agreements to help the deal close quickly and securely.

Escrow as risk mitigation tool:

Potential Risk Description Escrow Solution
Acquirer
Representations & Warranties The representations and/or warranties the seller had made are violated. If representations and warranties are not met, the buyer can claim against the portion of the purchase price placed in escrow.
Affirmative Covenants Affirmative covenants are not honored, such as a non-compete agreement. If the seller does not perform as agreed, a portion of the purchase price placed in escrow can be drawn against.
Key Employee Retention Key employees, whose value was part of the purchase price, leave once the business is sold. A sum of money or stock is placed in escrow and released over time to key employees if they remain with the successor company.
Advisory Fees A financially weak seller can't or won't pay advisory fees. Advisory fees are escrowed and delivered to the advisor on completion of its duties.
Seller
Good Faith Deposits The acquirer is unable or unwilling to purchase as initially agreed. The acquirer places a portion of the purchase price in escrow and the funds are disbursed to the seller if the buyer decides to terminate the deal.
Earn Out The purchase price at closing is not reflective of future earnings the seller expects. Earn-out premiums are placed in escrow by the acquirer and delivered to the seller if its performance meets pre-agreed criteria.
Representations & Warranties The representations and/or warranties the seller had made are violated. By utilizing an escrow, sellers may limit or cap their liability to the value of the escrow deposit.
Both Parties
Purchase Price Adjustment The exact value of the target is not known at the time of the acquisition close. Funds are placed in escrow and paid to the buyer (or seller) if the post-close valuation of the target is less (or more) than expected at closing.
Government Approval Government approval, which is required for sale in some countries and industries, is denied. Both purchase price and instruments of ownership are placed in escrow and either passed to counterparties on approval or returned to depositors on denial.
Taxes / Legal Fees Tax or legal consequences of the acquisition are uncertain at closing. A portion of the purchase price placed in escrow is paid out after tax or legal fees become known.
 
 

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