J.P. Morgan Issues 2010 M&A Holdback Escrow Report

30% of Analyzed Deals Had Claims Against Escrow; 78% of Claims Paid Out

NEW YORK--(BUSINESS WIRE)-- For the second year, J.P. Morgan has issued its M&A Holdback Escrow Report that is designed to give the M&A community a deeper understanding of the dynamics of holdback escrows and their value as a risk mitigation tool. The study uses J.P. Morgan’s proprietary data and provides information not available elsewhere. A third of the deals analyzed had claims filed, and 78% had pay outs, which speaks to the value of a holdback escrow as a hedge against deal risks.

With a holdback escrow, a percentage of the value of the M&A deal is placed in an escrow account and held until the terms of the escrow agreement have been satisfied. The agreement enables the buyer to make claims against the account and retrieve funds in the event that the seller fails to meet specific terms of the sale and purchase agreement.

The 2010 M&A Holdback report looks at a variety of factors, including the percentage of escrows that have claims filed against the account; the types of claims; the average life span of the escrowsand more. Also in the report is a summary of benefits that both buyers and sellers have experienced when including holdback escrows in their deal structures.

Key findings in the report include:

• The average expected duration of holdback escrow accounts is 19 months.
• Of the deals analyzed, 30 percent had claims filed against the escrow. Six percent of these had multiple claims. On average, 78 percent of amounts claimed from escrow accounts were ultimately paid out.
• Purchase price adjustments and working capital adjustments were the most common claim reasons, followed by representations and warranties.
• Escrow fees were split between counterparties 80 percent of the time, indicating that both buyers and sellers value holdback escrows.

The report findings are based on analysis of a sample of active and terminated escrow transactions originated in the United States with J.P. Morgan from June 2008 to December 2009 in which J.P. Morgan Escrow Services acted as escrow agent for the buyer and the seller.

"As a leading provider of escrow services, J.P. Morgan has the unique ability to provide the deal community with information not available from other sources.” said Rocky Motwani, managing director and head of J.P. Morgan's Escrow business. “Our second annual report delivers compelling insights that demonstrate the importance of holdback escrows. It also provides a base of information that helps us guide our clients as they consider their escrow needs.”

J.P. Morgan provides customized end-to-end Escrow services to help customers better manage financial risk associated with a range of business transactions, such as mergers and acquisitions, initial public offerings, import and export payments, collateral trusts for reinsurance, and construction project funding. Acting as an independent third party, J.P. Morgan holds assets in escrow until the commitments of the agreement are fulfilled. J.P. Morgan’s dedicated Escrow team offers a reliable and dependable service to ensure that transactions close quickly, accurately and securely.

The company actively administers more than 5,000 escrow accounts globally with more than $30 billion under management and offers Escrow services in Australia, Brazil, Canada, China, Germany, Hong Kong, Ireland, India, Korea, the Netherlands, Nigeria, Singapore, the United Kingdom and the United States.

For additional information on J.P. Morgan’s 2010 M&A Holdback Escrow Report, contact Nicholas Scarabino at 212-623-1180 or Nicholas.A.Scarabino@jpmorgan.com. Also visit www.jpmorgan.com/escrow.

About J.P. Morgan Treasury Services

J.P. Morgan’s Treasury Services business is a full-service provider of innovative cash management, trade, liquidity, commercial card and escrow services -- specifically developed to meet the challenges treasury professionals face today. More than 135,000 corporations, financial institutions, governments and municipalities in over 180 countries and territories entrust their business to J.P. Morgan. J.P. Morgan Treasury Services is one of the world's largest providers of treasury management services and a division of JPMorgan Chase Bank, N.A., member FDIC. More information can be found at www.jpmorgan.com/ts.

About JPMorgan Chase & Co.

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands. Information about JPMorgan Chase & Co. is available at www.jpmorganchase.com.

Media:
JPMorgan Chase & Co.
John Murray, 571-934-2808
john.t.murray@jpmchase.com

Source: JPMorgan Chase & Co.