Escrow in an M&A Transaction

By Tom Taulli

It's been a lot of work. You have spent a month negotiating terms, engaging in due diligence and structuring documents. Now, you and the seller have agreed to an M&A transaction.

But the process is not over (yes, these things seem to take forever). Next, you need to plan for the closing of the deal.

In many cases, the parties will use the services of an escrow company. Basically, the firm will smooth the process of transferring ownership of a business.

Interestingly enough, the escrow services can be done without even having an in-person meeting. In fact, it is often the case that the buyer and seller will use faxes, phone calls and emails to manage the closing process with the escrow company.

What are the services provided? They are fairly comprehensive:

UCC lien searches (to see if there are any outstanding liens on the assets being purchased) Preparation of documents such as the bill of sales and promissory notes. An account to hold down-payments and structured payouts. Wire transfers. Placement of new liens on the assets. Ensuring that taxes and other liabilities are current.

M&A escrow services are specialized. So, make sure you select a company that has experience in your type of deal. This means doing some research, asking for referrals and interviewing prospective candidates.

True, an attorney can handle an escrow. But, make sure the attorney is not representing the buyer or seller. This creates a conflict that could result in problems after the transaction is closed.

Who pays for the escrow fees? It is customary for the buyer and seller to split the fees.

Moreover, fees vary and, of course, are negotiable. The fee may be flat or based on a formula that includes factors like the size of the purchase and the complexity of the terms.

For smaller deals (say under $1 million), an escrow fee can range from $500 to $2,000. But, for these fees, you not only get streamlined services but also security in the transaction. In the end, an escrow is well worth the price.

MergerPlace is pleased to have the esteemed Mr. Tom Taulli as the managing editor of our MergerPlace M & A Advisor™ E-zine.

Tom Taulli is an expert in the M&A process. He is the author of the critically acclaimed The Complete M&A Handbook (Random House) as well as six other books written for publishers such as Bloomberg and McGraw-Hill. Tom also teaches M&A at the USC School of Business.

Tom has been quoted extensively in the press, including the Wall Street Journal, USA Today, Barron's, and The Los Angeles Times, and has provided commentary on CNBC, CNN, and Bloomberg TV, as well as appeared on a variety of top radio stations across the country.

Tom's books are available for purchase in our bookstore.

BACK to Tom Taulli archive