Escrow Services

Mergers & Acquisitions Escrow

J.P. Morgan’s escrow services help to mitigate risk in a wide range of M&A transactions. Our solutions reduce the risks faced by both the buyer and the seller, and our M&A experts structure the escrow to enable the deal to close quickly and securely.

BENEFITS TO THE BUYER BENEFITS TO THE SELLER

Increases bidder acquisition announcement returns and market capitalization

By leading to more positive market reaction to the announcement of a deal, use of escrow was found to increase the Buyer's post-announcement returns by ~ 2% and their market cap by ~ $1.20 for every dollar deposit into escrow.

Decreases the time to close by approximately 50%

By lowering a bidders' due diligence responsibilities, it was found that the use of escrow reduces the average time-to-completion by > 20 days.

Protects the buyer against false representations and warranties and / or the dishonoring of covenants by the seller

Among transactions in which representations and warranties survived closing, 83% were supported by a holdback escrow as it mitigates buyer risk.

Minimizes the risk of post-closing target devaluation

Holdback escrows often support the retention of key employees who are pivotal to the future success of the business.

Increases valuation of private targets

By reducing bidder acquisition-related transaction risk and bidder costs, the use of escrow results in an increase in sales price of ~ 6.6%.

Decreases the time to close by approximately 50%

By lowering a bidders’ due diligence responsibilities, it was found that the use of escrow reduces the average time-to-completion by > 20 days.

Limits joint and several liability

When there are multiple shareholders of the Selling company, escrows provide for Seller security by clearly outlining liability and claims processes in the escrow agreement.

Provides protection in the form of “caps”

Seller liability is often limited in amount to the value of the escrow deposit earmarked for damages (i.e. “cap”) and also in time by the life of the escrow.

Reduces immediate tax burden

The contingent portion of the purchase price (the escrow amount) may be tax deferred, thereby reducing the seller’s immediate tax burden.

SOURCE: Litov, Lubomir, 2014. The Use of Escrow Contacts in Acquisition Agreements. Wharton Financial Institutions Center

 
 

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