What Is Escrow and How Does It Work on Acquire?

In the days before the internet, most business transactions took place in person. You got to know someone before you did business with them, and if things didn’t smell right, you walked away from the deal. The same rules apply today, but they’re a little harder to enforce. 

Why? Because the internet has shifted most business online. It’s faster, easier, and ignores geography. You can import coffee from Jamaica or sell a business to a buyer in Pakistan without ever setting foot in either country. But it’s also introduced additional risks.

It’s much easier to hide malicious intentions behind a keyboard than in person, for example. People can mask or fake their online identities, making it harder to vet them. We use Persona to verify identities, but we also want to protect you at the transaction level where risk is highest. 

That’s where escrow comes in. Rather than trust someone you barely know, you assign a neutral third party to manage the transaction (on Acquire, it’s Escrow.com). Someone with no interest in the transaction and who can safely act in both of your interests so the transaction closes safely. 

Why Use an Escrow Service?

Is there a more important transaction in your life than an acquisition?

The stakes are incredibly high – especially if you’re selling a business for a life-changing amount of money or acquiring one destined for multimillion-dollar success. Do you want to put all that on the line by trusting due diligence alone?

You probably won’t meet your counterparty face-to-face on Acquire. Chances are you’re going to close your transaction online, so you must use an escrow service. 

Our escrow partner, Escrow.com, is already built into your Acquire workflow. While it’s effective for simple to moderately complex transactions, it can’t handle every possible deal. In other words, it can’t replace a traditional escrow agent or attorney. 

If you intend to buy or sell businesses on Acquire, please read on to learn exactly what Escrow.com does and how it affects you. 

How Escrow Works

Escrow is a service that helps you and another person conduct business safely. 

If you’re buying a business, for example, an escrow service will hold your money until you receive and approve the assets described in the acquisition purchase agreement (APA). 

Equally, the escrow service assures the seller that the funds are in place to close the deal, and they’re not handing over assets they won’t get paid for. 

Beyond assets and purchase price funds, escrow can also apply to many different aspects of your acquisition or deal structure. 

You might use an escrow service to protect:

  • The conditional portion of the purchase price in an earnout.
  • The capital requirement of an indemnity clause.
  • Money set aside for purchase price adjustments.

Attorneys and escrow agents have long helped provide escrow services for various needs. They can handle any escrow need imaginable, but in simple cases, an online escrow service such as Escrow.com can do it for you at a cheaper price. On Acquire, an Escrow.com transaction looks like this:

  1. Buyer deposits acquisition funds on Escrow.com.
  2. Seller sends the assets as described in the APA to the buyer.
  3. The buyer reviews the assets and approves the release of funds on Escrow.com.
  4. Seller receives the acquisition funds from Escrow.com.

What Escrow.com does 

Escrow.com has safely managed the exchange of funds and assets for almost 25 years. In that time, it’s helped transact over $5 billion in online sales and served millions of customers. Escrow.com can easily handle many types of closing structures, including:

✅ All cash payments

✅ Seller financing 

✅ Indemnity holdbacks

✅ Earnout clauses

✅ Asset review periods

Escrow.com will also assist in any asset-review periods, help resolve disputes, and potentially arbitrate between buyers and sellers in connection with the transaction. That said, acquisition transactions can be complex, and Escrow.com can’t do everything.

What Escrow.com does not do 

You can structure an acquisition in hundreds of different ways. Some of these are complex and require you to complete certain actions pre- or post-closing to finalize the transaction. Such items vary by jurisdiction, industry, or transaction size, including (but not limited to): 

  • Securing any UCC-1 forms 
  • Securing lien release letters
  • Filing bulk sale notices 
  • Assisting with trademark transfer with any local or national agencies
  • Securing any Franchise Tax Board releases
  • Securing any Board of Equalization releases 
  • Filing of any allocation of purchase price forms (such as IRS Form 8594)

Depending on who’s on your acquisition team, these items might be handled by business brokers, M&A Advisors, investment bankers, attorneys, an escrow agent, or a combination. Escrow.com won’t complete any of these or similar actions.

Equally, Acquire doesn’t complete any of these items for you or on your behalf. Please ensure you understand what’s required of you to close your acquisition. We recommend you speak with your advisors regarding their applicability and any other questions you may have. 

Still Need Help With Escrow?

If you’re unsure whether Escrow.com can handle your acquisition transaction, email Mauli Fry at Escrow.com (mfry@escrow.com).

Our support team (support@acquire.com) can also answer general escrow questions. But for professional advice, consider hiring an expert advisor from our M&A Advisor Directory.

The content on this site is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional before entering into any M&A transaction. It is not Acquire’s intention to solicit or interfere with any established relationship you may have with any M&A professional. 

Get content like this, and more, sent directly to your inbox twice a month.