Sponsored: Need for Speed – Checklist for Escrow Setup to Avoid M&A Closing Delays

By Tim Cook, corporate trust national sales manager, UMB Bank

Alternative asset managers’ merger and acquisition deals are picking up pace this year, as major players in the industry look to expand. When a business transaction nears close, the last thing any involved party wants is a delay in the process. One of the final elements of a deal is escrow, so how can escrow agents be ready for escrow account setup and make sure the process runs smoothly and efficiently? Agents should consider working from an existing template for each escrow type, i.e., having the proper information and documents for domestic or foreign entities on hand and expediting the entire process.

Escrow is often one of the last things to come up in a business transaction. Setting aside indemnity money or litigation funds is the kind of topic that can spring last minute – and delay a merger or buy-sell transaction at the 11th hour.

If you want the closing process to stay pain free, use the checklist below to help avoid unpleasant surprises. Keep in mind that escrow account setup can happen quickly.

Escrow account setup can happen in as little as a day—but it pays to be ready.

As escrow agent, our first step is to create an escrow agreement, usually working from an existing template based on the escrow type. Then, we carry out our responsibility to know the parties involved. Like other bank services, escrow arrangements are subject to “know your customer” standards and other rules under the Patriot Act and Bank Secrecy Act, which means we must establish minimum standards for verifying customer identities.

To fulfill requirements under these rules, be ready with the following information and documents:

• Current W-9 form (W-8 for foreign entities);
• Business description;
• Copy of stamped formation documents (or, for U.S. entities, a current state-issued certificate of good standing);
• Certification of Beneficial Owners; and
• Copies of individuals’ government-issued IDs and other individual-specific information, both for owners and designated representatives to the escrow agreement.

When the other party is a foreign entity

Similar information is needed for a foreign party, though it may be possible to initiate the agreement while receipt of a W-8 form is still pending. (However, a W-8 is required before funds can be disbursed to the foreign party, including any foreign beneficiaries.)

Foreign entities also need to disclose any business with senior political figures and say whether they offer any financial-transfer services such as check-cashing or currency exchanges. A short list of requirements also applies to beneficial owners and any foreign individual serving as representative of the agreement.

Speed and safekeeping

To protect your interest, the process should be expedited quickly, including with thorough review by legal counsel. Once that’s complete, your escrow agent can accept and hold funds in safekeeping in accordance with the agreement. Often the next step is timely disbursements of escrow funds to the seller, typically via wire (or SWIFT payments for international transactions).

You’ve worked hard to shepherd your transaction to the finish line. Now, as you prepare for closing, help keep things moving smoothly by arranging escrow in advance. As you consider an escrow provider, look for nimble account administration, responsive teams, and dedicated communication processes. In-house legal counsel and customer service are also important considerations when assessing your escrow agent’s capabilities.

In addition, an escrow agent with a comprehensive scope of services can positively impact your experience by reducing your administrative workload and providing a single point of contact as your escrow is onboarded and administered.

Tim Cook is the corporate trust national sales manager at UMB Bank.

UMB is a nationally recognized and ranked provider of bond trustee and agency services to the corporate and municipal marketplaces. Learn how UMB can support your organization’s trust and escrow needs, or contact us to be connected with a corporate trust team member.

UMB is a sponsor of The DI Wire, and the article was published as part of their standard directory sponsorship package.

For more UMB news, please visit their directory page.