M&A and corporate transactions
Escrow and paying agency for M&A transactions
Independent fundholding and payment administration for acquisitions, holdbacks, earn-outs and multi-party distributions. We work with transaction counsel and advisers to implement the release mechanics documented in the transaction agreements.
Why escrow is used on UAE transactions
On a UAE share transfer, the documents are signed before the transfer takes effect on the register. The interval between the two is what the parties are managing, and it arises from the transfer process itself.
This is a different driver from the warranty and indemnity exposure that escrow addresses in other markets, and published GCC practice reflects it by grouping escrow with the purchase price mechanics. Insured transactions are covered in our note on warranty and indemnity insurance and where escrow still applies.
Where consideration is held by an independent party across that interval, neither side is required to move first, and release follows the mechanism the agreement specifies.
Escrow structures on a corporate transaction
Each structure below is implemented through the release mechanism written into the escrow agreement. Titanium acts on that mechanism and does not assess the underlying commercial position.
Purchase consideration
Funds held pending receipt of the authorised instructions or the documentary evidence specified in the escrow agreement.
Holdbacks
Agreed amounts retained for the period set out in the agreement and released under the contractual instruction mechanism.
Earn-outs
Deferred consideration held and released using agreed instructions or specified evidence, following the measurement process the parties have documented.
Indemnity and warranty reserves
Amounts retained for the applicable claim period, released or returned under the instruction mechanism in the agreement. Where a policy is also in place, how an escrow and a policy sit together is set out separately.
Completion adjustments
Amounts held while the parties complete the agreed calculation and instruction process for working capital, cash and debt adjustments.
Shareholder distributions
Payment administration for multiple recipients, including employee shareholders, subject to completed onboarding and valid distribution instructions.
Deposit arrangements
Pre-completion fundholding under documented refund and release mechanics.
Stages of a corporate mandate
On a multi-payee transaction, onboarding takes the longest of the stages. It can begin as soon as the payee list is known.
Instruction
Transaction structure, parties, jurisdictions, payee count, timetable and proposed release mechanics.
Scope and documentation
The escrow or paying agency agreement is settled with the transaction counsel. Release triggers, notice provisions and the authorised signatory list are agreed here.
Onboarding
KYC, beneficial ownership, sanctions screening and source of funds for the relevant parties. Enhanced due diligence is applied on a risk-assessed basis.
Funding
Funds are received into the designated client account arrangement, and receipt is confirmed to the parties on the agreed basis.
Release and reporting
Titanium acts on the release mechanism set out in the agreement. This may require valid instructions from authorised parties, or documentary evidence expressly specified in the agreement.
Where Titanium's authority stops
Titanium holds the amount and releases it on the mechanism written into the escrow agreement, which may require valid authorised instructions or documentary evidence expressly specified in that agreement.
It follows that an earn-out statement, a completion certificate or an expert determination has to be identified in the agreement as the trigger. Titanium acts on that document. It does not look behind it to test whether the underlying condition was in fact satisfied.
Worth settling before signing
Three points are worth closing out while the sale and purchase agreement is still open.
First, who signs a release instruction, and what happens if one of them is unavailable on the day. The signatory list should be named in the agreement, with provision for a signatory who is unavailable at completion.
Second, whether release is on instruction or on evidence. If the mechanism requires a document, the agreement should specify the document, not a standard of satisfaction. Titanium can check that a specified document has been produced. It cannot determine whether an obligation has been discharged.
Third, the payee population. A distribution to thirty employee shareholders across four jurisdictions requires onboarding for each recipient. Please identify the payee population at the outset, so onboarding can begin before the completion timetable tightens.
Titanium does not determine whether a performance milestone, condition precedent or warranty claim has been satisfied, and does not adjudicate disputes between the parties. It holds and releases funds under the applicable agreement, authorised instructions and any documentary requirements specified for the mandate.
Related
Written for this reader
Holdbacks, earn-outs and deferred consideration
Three structures that leave part of the price unpaid at completion, what each secures, and how to draft a release condition an agent can apply.
Read the articlePaying agency for multi-seller transactions
What is involved in distributing consideration to a large seller register. What a paying agent does, and what stays with the parties.
Read the articleBring us in at drafting stage
We can discuss the release mechanism while the agreement is still in draft.