Average Escrow Holds 9% of Underlying M&A Purchase Price, Finds JP Morgan Research

JP Morgan Treasury Services, a provider of cash management, trade finance, treasury solutions and escrow services, has released its 2012 Merger and Acquisition (M&A) Holdback Escrow Report. The annual report, now in its fourth year, details the importance of escrow accounts used as a tool for risk mitigation and asset protection in M&A transactions.

The major trend since the 2010 study is the upward shift in the transaction size of M&A deals using holdback escrows. This shift has increased the value of corresponding escrow deposits, as seen in the analysis of escrow deposit size within the report. For the 2012 study, 33% of terminated deals had at least one claim. Other key findings in the 2012 report include:

  • On average, buyers were able to recover 59% of their initial claim amount.
  • The average escrow holds 9% of the underlying M&A purchase price.
  • The average underlying M&A transaction size for deals involving financial buyers is more than twice as large as the average for deals with strategic buyers.
  • Escrows involving financial buyers were more concentrated in the 13 to 18 month range (55%) than those involving strategic buyers (42%).

“As advisors continue to seek ways to protect their clients in a volatile market, the 2012 holdback analysis will help provide a broad look at what are considered market terms,” said Nick Scarabino, managing director and global head of JP Morgan escrow services sales. “The support we’ve received from the M&A legal and advisory community over the years has been invaluable in shaping and refining this report, which is based upon JP Morgan proprietary data.”

The 2012 M&A Holdback report reviewed a sample of active JP Morgan escrow transactions with publically available acquisition information that originated in the US in 2011, and terminated deals covering a slightly broader time period.

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