What types of payments might I receive in relation to my transaction?

Payments from an Escrow Account (Interim and Final): An escrow account is established at closing and is funded from a portion of the purchase price. The account is held with a neutral third party (e.g., an escrow bank) to be used as a source of payment to the buyer in the event the buyer becomes entitled to indemnification. After a specified period of time (the survival period) the balance of the escrow account is paid to the selling shareholders. Some transactions may include interim escrow releases, which distribute a portion of the escrow at pre-determined times prior to the end of the survival period, subject to any claims against the escrow.

Payments from a Buyer Holdback (Interim and Final): A holdback is a portion of the purchase price that is withheld by the buyer to used as a source of payment to the buyer in the event the buyer becomes entitled to indemnification. After a specified period of time (the survival period) any unused portion of the holdback account is paid to the selling shareholders. Some transactions may include interim holdback releases, which distribute a portion of the holdback at pre-determined times prior to the end of the survival period, subject to any claims against the funds.

Payments from a Purchase Price Adjustment: Many merger agreements provide for an adjustment to the purchase price shortly after the closing. The most common type of purchase price adjustment is a working capital adjustment. This occurs when the actual working capital (current assets minus current liabilities) of the target company is higher or lower than the amount of working capital that was estimated at the time of closing. While the timing of these adjustments vary from deal to deal, an adjustment usually occurs within 60 to 90 days after closing. In the event this adjustment results in a positive balance for securityholders, a working capital release will be processed.

Payments from an Earnout: An earnout is a provision stating that the selling securityholders will obtain additional purchase price if the seller or surviving company reaches certain milestones, such as revenue targets or receipt of regulatory approvals.

Payments from a Tax Refund: A tax refund payment is a distribution to former securityholders of a tax refund received by the target company.

Click here for a typical release payment timeline.

If you have any questions, please contact us at support@srsacquiom.com.

 

 

Posted in: Clients: Payment Information