Did you know that legal disputes in multi-billion dollar mergers and acquisitions can cost billions of dollars and years of delays?
How can companies protect themselves from these risks and ensure the success of their purchase and sale agreements? The answer is simple: use an escrow account.
In this article, we will explain what escrow is, how it works, and why it is an essential tool for multi-billion dollar mergers and acquisitions.
In today’s fast-paced and ever-changing business world, it is essential to act quickly and securely. Many of the major business deals that make headlines today have fallen into unnecessary legal disputes and delays that have cost time and money for those involved.
One of the most high-profile cases in recent years has been the acquisition of Twitter by tech mogul Elon Musk.
Since Elon Musk announced in early April 2022 that he had made a formal proposal to Twitter’s board of directors to buy the company, one of the most media-covered stories in the financial world in recent years began to unfold.
At first, Twitter’s board of directors resisted the takeover, but after a few days, they accepted the Tesla founder’s offer. However, the parties began a back-and-forth of accusations, initially informally through social media.
The parties could not agree on the number of real users the platform had and on other matters related to the future of the platform.
The conflict between the two parties escalated quickly and a possible lawsuit was filed against Elon Musk to force him to keep his word to buy Twitter for the agreed-upon amount.
Escrow as a Solution
Columbia Law School professor Eric Talley said one solution to the conflict would be for Musk to deposit the money into an escrow account until the deal is complete. Talley suggested that such an account could contain cash and/or Twitter shares, as a demonstration of Musk’s good faith.
Eric Talley is an expert at the intersection of corporate law, governance, and finance. He also teaches and conducts research in the areas of mergers and acquisitions, quantitative methods, machine learning, commercial and contract law, alternative investments, game theory, and economic analysis of law.
What is Escrow?
Escrow is a legal agreement where a third party, called an escrow agent, holds money or documents, until certain agreed-upon conditions are met. This ensures secure and transparent transactions for both the seller and the buyer.
The fact that Professor Talley suggests the use of escrow to resolve a conflict of this magnitude is not by chance. In fact, an expert like Professor Talley knows that an escrow account is an essential tool for this type of complex agreement.
An escrow deposit is one of the main requirements that the boards of directors of a large company like Twitter should demand before moving too far ahead with a possible purchase agreement.
There are many factors that influence the purchase of a company as large as Twitter and too many variables that can affect the decision to continue negotiations. Therefore, it is important that the party interested in buying the company put the money from its offer into an escrow account that guarantees the goodwill and solvency necessary for the purchase.
If you would like to obtain personalized advice on escrow matters at Pura Vida Escrow and Trust, we are here to help you. Contact us and we will be happy to assist you.
