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Too often, corporate treasury professionals are brought to the table late in merger and acquisition (M&A) transactions. While parties to the deal are focused on tense negotiations, the treasurer may remain mostly off the radar. Then he or she may finally be brought into the loop near the end of the discussions, at which point the treasury team has insufficient time for planning the post-merger transition.

However, one key area in which treasury can plan adequately in advance and from a distance is M&A escrows. Typically relegated to the back burner in the midst of a transaction, escrows have increasingly become a point of focus among treasurers given new regulatory changes and emerging investment options.

M&A escrow accounts are formed to hold a portion of the agreed-upon purchase price in escrow as protection against certain potential losses. For example, if the selling company misrepresents some fact about its business, or if it fails to perform a required task prior to closing, the buyer could regain any losses by making a claim against the escrow account rather than filing a lawsuit against the acquired company’s former shareholders. The duration of a typical M&A escrow is 12 to 24 months. In some cases, that term is extended if indemnification claims are made under the merger or acquisition agreement.

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