Escrow: Solutions for Multiple Market Fund Solutions, Financial Solutions, Corporate Solutions

In recent times, we have seen the challenges of new KYC regulation and an increased burden of account opening processes, and for many this has been the pain point which has put Escrow into the “too hard” bucket. Escrow is – and should still be – a product and service offering that remains a straightforward and welcome solution to a variety of market challenges.

Traditionally, Escrow has been a product most often associated with M&A transactions, however increasingly, many are realising that the product can be put to good use in a multitude of different scenarios.

We expect to see Escrow continue to grow in popularity, particularly in situations including:

• Supply Chain Disruption where there is a concern over the liquidity of a buyer. The buyer can be asked to fund an escrow account up to an agreed percentage of the purchase price, or the whole purchase price;
• Dispute Resolution where a party is either unable, or unwilling to meet their contractual obligations;
• Litigation or a court process where funds are required to be deposited and held by an independent third party;
• Corporate Restructurings where a scheme of arrangement, or similar requires funds to be held in escrow for the benefit of creditors; and
• M&A. The turmoil we have seen in the equity markets in recent months means that assets are now looking good value for money on a relative basis and for companies with strong liquidity and cashflow this creates opportunity for deal making.

AML and account opening processes are complex and differ vastly, both from country to country and from intermediary to intermediary. In addition, they depend on the client type and will be linked to the nature of their business, the reason they need the escrow and their domicile, both at an entity level and a parent level. These varied requirements can cause confusion and create frustration as there is no market standard across borders. Overlay this with the reality that KYC is required to be completed on both contracting parties, the origins of the funds and the ultimate beneficial owner (UBO) if different and it becomes easier to understand why some become overwhelmed.

The importance of an Escrow in the time of uncertainty

In the current environment, and with the challenges that COVID-19 has created globally, there are signs that Escrow is becoming an ever more flexible and relevant solution for a variety of situations. Offering tailored solutions to meet specific needs and ensure both parties have oversight and agreed access to funds, this is critical to both parties during any period of uncertainty.

Giles Dennison, Partner, Eversheds and Sutherland and Paul Wilden, Global Head of Capital Markets, Apex discuss current trends in the market.

Wilden comments: “Given the market today, we are seeing corporates looking to efficiently deploy surplus liquidity through acquisitions, expansion or new ventures, meanwhile, risk management is more challenging and burdensome than ever. Transaction risks are increasing when arriving in new markets and dealing with unfamiliar counterparties. However, these are often unnoticed in the pursuit for growth and opportunity.

As COVID-19 continues to interrupt the cadence of the economy, meticulous monitoring of cash flows and liquidity will be imperative to the safe passage of businesses until normal trading can resume. And only a limited number of professional services providers are fully equipped to support every aspect of these processes – Apex is one of them.”

Dennison adds: “Given that the coming months are likely to see a sharp increase in levels of distressed M&A, which by definition involves sellers who are under financial pressure, it is inevitable that buyers will be looking more carefully than ever at structures which can increase their confidence in receiving amounts for warranty claims and other post-completion seller payments.  In that context, alongside the now firmly established use of W&I insurance, it seems likely that buyers will also be contemplating more traditional protection mechanisms, including retentions and escrows, with escrows often being seen to provide a more palatable, neutral approach for sellers.”  

How Apex can help you?

We offer independent Escrow agency services to support a broad range of business requirements, along with a rapid turnaround in every type of situation.  Our Escrow offering supports both cash and assets Escrows via a standard form agreement.

• 3 – 5 day account opening subject to KYC checks
• The account is held as a client account with no co-mingling of funds/assets
• KYC is performed by a dedicated team with a strong Escrow background ensuring a quick and efficient process

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