Maximising the value of escrow in a transaction
Article 3 minute read

Maximising the value of escrow in a transaction

02 November 2018

Whenever buyers and sellers engage in a transaction, escrow can help assure that before completion the agreement’s terms and obligations are fulfilled and that the buyer’s funds are available.

The key to any escrow arrangement is that the assets such as cash, securities, property (including intellectual property), contracts, or other collateral are held by a third party, and only released when certain conditions have been met with written instruction from the parties.

The basic function of escrow is quite simple and straightforward, although some business transactions can end up becoming quite complex. The ecosystem of escrow service providers includes banks, agents and lawyers. What is the best way to arrange an escrow?

TMF Group believes the best approach is to work with an independent, impartial and established escrow agent. The agent can provide escrow agreements under a wide range of governing laws and open and manage segregated escrow accounts to facilitate secure and efficient business transactions. TMF Group does not hold funds, but does have relationships with banks or can work with a customer’s preferred bank. By decoupling the escrow agency function from the deposit-holding institution, TMF Group is able to offer customers added value and service. For example, on higher value transactions escrow amounts can be considerable and TMF Group can approach multiple financial institutions to negotiate the best interest rate to be paid on the escrow deposit.

Under the Basel III standard “stress testing” requirements, banks must meet requirements on liquid asset holdings and funding stability. Short term, highly liquid flows of capital in and out of the institution are attractive because they carry a 0% risk rating and contribute to the bank’s overall stress test compliance. Banks welcome escrow balances with tenors beyond one month and those that can be defined as operating in nature. They are often willing to offer attractive interest rates to secure deposits which meet the Basel III requirements. Under Basel III, longer term deposits (over six months) must be included on a bank’s books and have a higher risk rating. Therefore, banks require a mix of short and long term deposits at various risk rankings to meet Basel III mandated capital requirements.

TMF Group is able to approach multiple banks and negotiate the best rates based on the structure of the escrow agreement, as well as provide secure control over assets throughout the life cycle of a critical transaction.

We understand that each escrow arrangement is time sensitive and that parties usually want bespoke conditions for the payment and release of escrow funds. Our specialists across 80+ jurisdictions will liaise with you and your advisors from first contact until successful completion of the escrow arrangement.

We support escrow requirements for a wide variety of transactions and services including mergers and acquisitions, asset sales/divestitures, real estate sale and leasebacks. 

Why work with us?

Choosing TMF Group’s escrow services provides many advantages:

  • Expertise: as one of the largest providers of financial transactions, we have a pool of talented staff with industry experience. We allow our clients to focus on their key strategic goals, rather than the day-to-day management
  • Flexibility: we provide a broad range of services for clients on escrow
  • Single point of contact: we can provide an experienced person to act as a single point of contact for you, and co-ordinate internally within TMF Group
  • Independence: TMF Group is not tied to any financial institution, law, tax or accounting firm. Our independence guarantees that we always put the interest of our clients first.

TMF Group is not a bank, but we have strong relationships with a number of financial institutions and can either make an introduction, or work with your preferred bank in support of your escrow transaction.

What sets our Escrow services apart?

Our governance and compliance knowledge, paired with our deep understanding of the capital markets and adjacent, financial, transactions. Combine this with our ability to support, often complex, transactions from A to Z, and we’re able to offer a comprehensive and unrivalled service across our global network.

Interested in our escrow services or have questions? Please fill in our make an enquiry form with details of your request and we will get in touch to provide more details.

Categories
Written by

Paul Wilden

Head of Capital Markets Services
Paul

Insights and updates delivered to your inbox.

Sign up now