The road to the closing of a merger or acquisition (M&A) transaction passes through many complex phases. It frequently requires setting milestones that must be satisfied along the way in order to proceed to the next phase. The buyer needs to perform due diligence, which may entail inspections, records search, regulatory approvals or other time consuming steps. At the same time, the seller wants to know that the buyer has the required financial capacity and will diligently move forward and close the deal. By using Comerica Bank’s Special Corporate Financial Services Division’s (SCFS) merger and acquisition services with our unique consolidated sub-accounting routines, key elements of this process may be tracked and funds management may occur as the process moves toward the closing.

M&A transactions usually involve a change of business ownership and the number of business owners, the transfer of business assets, and the need to verify that the nature, quality and utility of what’s being acquired on paper is actually what gets delivered at closing time, or beyond. SCFS has been efficiently and successfully providing useful supporting escrow and exchange agent services for these situations for over 10 years. Here are a few of the key services we provide to help take the bumps out of the road to a successful merger or acquisition:

Unifying Escrow Document

Based on the post-closing purchase price adjustments and seller indemnity obligation terms of the controlling, underlying, buy-sell, merger or acquisition agreement, SCFS constructs a tailored escrow agreement that clearly spells out what must be accomplished, and assigns the duties of SCFS as escrow holder. All directly involved parties sign this escrow agreement. By design, it is a simple, clear and concise document that focuses strictly on what must occur before and after the close, and how escrow funds or stock are received, held, invested and disbursed.

Stock Redemption/Stock Issuance for Cash or Stock

SCFS handles the exchange of ownership documents (usually shares of stock or warrants, but could be partnership interests or other forms of ownership) in exchange for cash, stock or other assets. SCFS serves as the neutral exchange agent for the cash or shares of stock as they are collected. SCFS places the documents into safekeeping pending receipt of all the shares. Conversely, SCFS can hold pre-deposited, redemption cash at favorable interest rates, and disburse the cash upon the receipt of specified shares.

General Representations and Warranties

During the negotiation stage between a buyer and seller, certain seller claims about the specifications, value and utility of assets being sold may occur. Testing before and/or demonstrated value after the close must be performed in order to trigger payment for these assets. SCFS’ expertise and specialized escrow and depository control services can be used to handle post-closing cash based reserves, revenue holdbacks and other earn-out situations. SCFS can design formulated partial disbursement programs to match other terms of earn-outs, as warranted value is proven over time.

In some cases, it is necessary to satisfy indemnifications required by sellers. SCFS has a number of document based, pre-funded reserve arrangements that can help in this area.

Key Management Retention Package Funds Management

SCFS’ services are valuable in handling human resources situations. Retaining the services of key personnel of the acquired company may require the posting of cash incentives, a retention bonus, etc. SCFS’s escrows can help facilitate the payment of severance packages or other “deposited cash-for-comfort” situations.

Divestitures

Sometimes, a buyer will not want to retain all of the entities or assets acquired. The buyer may in turn need to find a buyer or assemble groups of potential buyers in order to dispose of such assets. SCFS can combine its Merger and Acquisition Services with its other services (Subscription Escrows, Capital Pool Escrows, etc.) to facilitate the assembly of such qualified buyer groups. Simultaneous or back-to-back closings can be structured in some or most situations.

Specialized Accounting and Sub-Accounting

SCFS uses a sophisticated, proprietary accounting system and methodology that efficiently and economically separately accounts for funds and provides fund balance reporting. This process can track a large number of accounts and sub-accounts up to 5 layers deep. Because what it tracks does not have to be cash, it is possible for SCFS to track the receipt of other types of items. It permits the selective disbursement of funds as various elements of transactions are satisfied. And, upon request, Comerica Bank handles all the 1099 tax reporting related to the escrow too.

If your needs include a qualified, independent intermediary, please remember to call on Comerica Bank’s Special Corporate Financial Services Division. Our experienced team of professional escrow bankers is ready to demonstrate our capabilities and will do our utmost to satisfy your escrow needs.