A New Investment Strategy Solves These Challenges
There has been little news around M&A escrows for decades. Hundreds of billions are invested annually into off-the-shelf products — money market deposit accounts and money market funds — that generally meet the criteria of the merger parties. That is changing. An industry in which investment options were never given much thought is being shaken up in ways that deal professionals must now consider.
Four objectives generally govern the investment of M&A escrows:
- principal protection;
- liquidity when needed under the acquisition agreement;
- low cost and burden of administration; and
- the best yield available, provided the above objectives are met.
New regulations, including Dodd-Frank and Basel III, designed to mitigate the systemic risks of the financial industry, will present new challenges. Traditional escrow options may no longer meet merger parties’ four investment criteria, and may become unavailable altogether. Banks are becoming much more selective about what money market deposits they take and/or are offering less attractive terms. Money market funds will be adversely affected by a “floating NAV” and rights for the fund to return less than the principal amount in some scenarios. This means investors will face a heightened risk of loss of principal and restrictions on redemption that could impact liquidity.
Responding to the evolving marketplace, SRS Acquiom, and AXA Equitable Life Insurance Company (AXA Equitable), one of the country’s top insurance companies, have created a new product designed specifically for M&A escrows. Based on a patented method, Escrow Shield Plus® offers a collateralized principal guarantee from an highly-rated financial institution, liquidity on demand when required to pay indemnification claims or for scheduled releases, the opportunity for higher yields, no fee options on many transactions, and the ease and simplicity in account administration provided by M&A professionals.1
1. Restrictions and limitation apply. Guarantees are based on claims paying ability of AXA Equitable. Liquidity limitations apply if early termination is requested. Crediting rate may change in limited defined circumstances. For details, see FAQ and prospectus.