When a company is sold the buyer and the seller
have often taken into consideration calculated risks, however both
parties always need comfort and cover to overcome potential uncertainties
revealed in the due diligence process such as dismissal of key staff,
financial underperformance after take over, environmental limitations,
lease on premises renewal, or any other threats to the success of
the company to be acquired.
The escrow solution is to set up an escrow
agreement and retain a part or the entire purchase price, which is
deposited with a first class bank in order to provide maximum security
for both buyer and seller until the deal is sealed.
Such an Escrow arrangement can be used in many cases and, for example;
to secure performance bonds, advance payments in commercial transactions,
distribution of funds, part investment and ownership structures.
An Escrow Agent has the skills and the expertise of such transaction
and can clearly demonstrate the benefits of an escrow agreement.
Chelton Capital Limited has the experience and the capacity to be
proactive and execute its mandate at short notice.
Example
A German company has targeted a manufacturing
company in France leader on its market which could perfectly
fit with the development strategy. The buyer and seller have
agreed a sale price and have signed a Memorandum of Understanding
to start the due diligence process. At this stage the seller
wants an advance payment of 10% of the sale price to be paid
by the buyer in order to demonstrate its real intentions. The
parties also agreed that the remaining 90% of the sale price
will be paid subject to the due diligence process. Therefore,
when Chelton is mandated as Escrow agent, it will open a specific
bank account for this particular transaction to receive the 10%
deposit.
When the due diligence process is over and
both parties are in accordance the buyer ill settle the remaining
90% of the sale price into the Escrow account. The seller will
provide Chelton with the exchange transaction documentation and
confirm to the Escrow that the transaction is clear.
At this
stage both parties should confirm via release letter that the
transaction is complete. Chelton Capital will then release the
funds in escrow. In the case of a dispute, the Escrow agent shall
not release the funds until the buyer and the seller have settled
the dispute. The main advantage is for the buyer to be sure that
the funds will be returned if the transaction collapse and for
the seller that it will receive the full purchase price.
