Taking advantage of the recent spike in M&A activity, AXA Equitable and SRS Acquiom have partnered to launch Escrow Shield Plus, an investment alternative for escrow accounts designed exclusively for mergers and acquisitions.
Escrow Shield Plus combines the following:
A collateralized guarantee of principal from AXA Equitable
The opportunity for higher yields than traditional deposit or money market-type products
Liquidity on demand for approved claims against the escrow
- Premium service provided by SRS Acquiom, a privilege of M&A post-closing services
According to Thomson Reuters, more than 40,000 M&A transactions, worth nearly $3.5 trillion, were announced worldwide in 2014. In a typical M&A transaction, roughly 10 to 20 percent of a deal’s value is deposited into an escrow account upon closing, where it is generally held for one to two years.
This deposit serves as a risk mitigation tool for the buyer in the event that a seller misrepresents certain facts about its business or fails to meet specific terms of the agreement. The funds are typically invested in money market deposit accounts, money market funds or treasury funds — historically low yield investments.
This marks the first time a major insurance company has entered the M&A business to provide merger parties with a new way to manage claims liquidity, obtain principal protection and enhance its yield.
In light of this recent news, LifeHealthPro.com posed a few questions to Martin Woll, head of the institutional savings business line at AXA U.S.
LHP: In your opinion, why has no insurer entered this field to date?
Martin Woll: The management and investment of escrow monies related to M&A deals has largely been conducted by depository institutions and asset management companies. These institutions conducted their business the same way for decades and had no incentive to alter it. Regulatory changes resulting from Basel III and Dodd-Frank, however, are changing the status quo for many of these firms. AXA, in collaboration with SRS Acquiom, recognized the impact of this change and anticipated how M&A buyers and sellers need an alternative escrow strategy for guarantee of principal, opportunity for higher yields, and liquidity on demand.
LHP: It seems like AXA Equitable is blazing the trail for other insurers to take advantage of the recent increase in M&A deals. What is your advice to other companies wishing to follow in AXA’s footsteps?
MW: AXA Equitable has been a trailblazer for over 150 years. We were one of the first insurance companies to offer a group life product, a variable life product, and a living benefits on variable annuities. Escrow Shield PlusSM is the next innovative product that we are launching into the marketplace. We have spent a considerable amount of time with SRS Acquiom to build a custom tailored product that meets the needs of M&A parties by combining a unique and dynamic asset management strategy. SRS Acquiom has been involved in close to 900 transactions representing over $150 billion of deal value. The breadth of knowledge and prowess that they bring to the table is unrivaled by any other firm in this space. Our collaboration represents a significant barrier to entry.
LHP: Are there any potential risks to managing M&A escrow accounts? If so, what are they?
MW: AXA is a global leader in the management and pricing of risk. Our product design and management always takes into account the potential for actual experience diverging from initial and on-going assumptions. With Escrow Shield Plus, we have the advantage of SRS Acquiom’s extensive M&A escrow claims activity behavior data, combined with AXA’s risk management expertise, analytical capabilities and balance sheet management. We rely on this combination to continuously test against adverse scenarios and build in safeguards.