M&A Escrow Agreements: Negotiation & Drafting Strategies

Description

Escrow accounts are frequently used in private M&A transactions to hold back a portion of the sale proceeds until the terms of the acquisition agreement are met. Increased regulatory scrutiny of financial institutions, including escalating restrictions and capitalization requirements for bank balance sheets, will have a significant impact on how and, potentially, where escrows are managed in the future.

Holdback escrows have benefits for both buyers and sellers—they protect buyers against false representations and warranties and limit the sellers’ liability to the portion of the escrow funds that are earmarked for damages.

Deal parties establishing an escrow account must negotiate an escrow agreement with an escrow agent outlining the account’s terms and conditions and the agent’s duties and expectations. Key terms of the escrow agreement include scope, representations and warranties, and management of the escrow funds. The escrow agreement must be strategically negotiated and drafted to avoid conflicting with provisions of the acquisition agreement.

Listen as our authoritative panel explains considerations for negotiating and drafting escrow agreements in M&A transactions and tactics for avoiding pitfalls when working with escrow agents.