Private equity transactions involve significant financial flows and precise timetables: a fund's entry into the capital, the disposal of a holding, a reorganisation of the shareholding. At each stage, escrow secures payment and compliance with the agreed conditions.
On an investor's entry
When an investor subscribes to a capital increase or buys shares, holding the funds in escrow ensures that they will be released at the precise moment when the conditions of the transaction are met - satisfaction of the conditions precedent, signature of the documentation, putting the shareholders' agreements in place.
On exit
On the disposal of a holding, escrow secures the price, but also the mechanisms that accompany it: post-closing price adjustment, warranty on assets and liabilities, deferred price components. A fraction of the price may be blocked while these mechanisms produce their effects.
Escrow and post-closing price adjustment
Many private equity transactions provide for a price adjustment after closing, based on the company's final accounting position (completion accounts or locked box mechanisms). Holding a fraction of the price in escrow makes it possible to cover this adjustment: the sums remain blocked until the reference accounts are finalised, then are released for the benefit of the party owed the adjustment.
A controlled framework
The escrow agent strictly applies the agreement and releases the funds to the designated beneficiary, in accordance with the agreed timetable. When entrusted to a lawyer, it benefits from the framework of the CARPA account: control of movements, a dedicated sub-account, traceability and professional secrecy.
Are you carrying out a private equity transaction? Fidens secures the funds on entry as well as on exit, on a dedicated CARPA account.
Frequently asked questions
What is the purpose of escrow in private equity?+
It secures the financial flows of investment transactions: release of funds on an investor's entry once the conditions are met, blocking of a fraction of the price on exit to cover a price adjustment, a warranty on assets and liabilities or a deferred price component.
What is a post-closing price adjustment?+
It is the revision of the price after the transaction is completed, based on the company's final accounting position. Holding part of the price in escrow makes it possible to cover this adjustment until the reference accounts are finalised.
Is escrow suitable for transactions involving several investors?+
Yes. The escrow agent holds the funds on a dedicated sub-account and releases the sums to the designated beneficiary in accordance with the timetable of the agreement, whatever the number of parties involved.
A transaction to secure?
Fidens sets up the escrow of the price on a CARPA account, under the responsibility of a lawyer.