There is substantial risk when businesses exchange large sums of money or property. With mergers and acquisitions, these risks are heightened. Not only must a business consider the loss of time and money, but damage to their reputation if a publicized merger or acquisition does not transpire smoothly. Business escrow services are the preferred method for mitigating risk in large, complex, and lengthy transactions – especially mergers and acquisitions.
Business Escrow Reduces Risk in Mergers and Acquisitions
Business escrow services are vital to merger and acquisition transactions because they help reduce risk in the following ways:
Escrow Protects Both Parties from Non-performance
Parties using escrow for a business transaction must deposit collateral with the escrow agent – a neutral third party that holds assets securely. The escrow agent releases these assets to their intended recipient only when the contract terms are met.
If the terms of the contract are not met, the assets are disbursed according to the escrow agreement. This could include returning assets to their original owner or to the counterparty to compensate for lost time and effort. When non-performance penalties are included in the escrow agreement, it creates a sense of urgency for the parties involved and helps ensure the transaction takes place as planned.
Escrow Ensures the Funds for A Transaction Are Available When Needed
In a large business transaction, there is the risk that one party will not be able to fulfill their side of the bargain. Escrow reduces this risk because the escrow agent holds the necessary funds securely. While the assets are in escrow, a business cannot co-mingle them with general purpose funds or spend them for other purposes. Additionally, the escrow agent ensures that the funds are available when needed and safe from external factors such as bank failure.
Escrow Guarantees Payments Are Made on Time
In a merger or acquisition, there are often many payments that must be made to ensure the contract terms are upheld. These could include paying rent, deposits, taxes, and other expenses. The escrow agent can facilitate these payments and ensure they are made according to the correct schedule.
As an impartial third party, the escrow agent ensures that contract terms are met without a conflict of interest toward either party in a transaction. With escrow, businesses can enter a merger or acquisition with confidence that the terms of their contract are enforced by a neutral party.
Fintech Has Improved Business Escrow
Advanced financial technology – also known as fintech – has greatly improved the business escrow process. In addition to the risk reduction benefits previously detailed, firms that choose a fintech-powered business escrow service can also receive the highest level of safety – government insurance.
Government Insurance for All Escrow Funds
Government insurance through the FDIC or NCUA provides the ultimate protection against bank failure, but this insurance is typically limited to $250k per account ownership category at each insured financial institution. Often, mergers and acquisitions require much more cash than the traditional limit. With fintech-enhanced escrow, businesses can receive protection for all their escrow funds – even those above the $250k limit.
Business Escrow from ADM
At the American Deposit Management Co. [ADM], we offer business escrow services that harness our proprietary fintech. Our escrow services provide access to full FDIC / NCUA insurance. We accomplish this by spreading escrow cash across our nationwide network of financial institutions that compete for deposits.
With ADM, businesses receive reduced transactional risk, enhanced safety, and a host of other benefits such as automated payments. We provide all this alongside top-notch service. Our team is our secret sauce, and you will understand that when you work with us.
To learn more, contact us.