In financial transaction specially in Merger & Acquisitions, sellers are often concerned about assurance for receiving the payment, whereas the buyer is concerned about their investment.
Have you ever thought how this problem is tackled. Let's dive right into the topic.
This problem is solved using Escrow account.
The Escrow account is a 3rd party who holds assets or money behalf of two parties that are in the process of completing a transaction. They continue to hold the funds until both parties have fulfilled their contractual requirements.
How it works:
The buyer places the funds in escrow account with an agent/firm with instructions to disburse them to the seller once the transactions gets fulfilled. This way, both buyers and seller are safe, and the transaction can proceed.
Where Escrow is used:
Escrow accounts are usually used in large party transactions. Some classic use cases can be
1. Real Estate transaction as it involved the lots of procedures like bank approval, secure financing, get inspections completed, purchase of insurance, and what not.
2. Mergers & Acquisitions(M&A):
Recently #adanigroup acquired #ACC and #AmbujaCement from Holcim group. This is where Escrow account plays it's important role in big fat transactions. For the deal, The Adani family has opened an escrow account with Barclays Bank in Mumbai.
3. Most of the companies issues bonus/performance based shares to it's top executives as extra compensation. This extra incentives comes with lock-in of shares for a particular period. So, the escrow accounts are also used for shares lock-in.
4. Online Sales:
Escrow protects the buyer and seller from fraud or nonpayment. An online platform acts as the middleman for online product sales. It’s generally best suited for high-ticket items, such jewelry or art or electronics items.
Escrow can provide security for high-ticket transactions, but that service generally comes with a fee. Many companies have leverages thier business with the help of Escrow as a service. One of such example is #PayPal Adaptive. You can read more about it:
enginethemes.com/paypal-adaptiv…
Thank you for reading!
I hope you like this thread and add some value to your knowledge. Tagging @itsTarH @ishmohit1 @soicfinance @sahil_vi @SagarSinghSetia @AnishA_Moonka @AimInvestments @NeilBahal @aditya_kondawar to add some value to thread.
Signing off for now.
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