How to choose an escrow or paying agent in Germany

Smooth and timely execution of payments is key to a successful merger and acquisition transaction. Our experts Caspar Huith, Country Director Escrow and Settlement, and Andreas Grundhoefer, Managing Director, Germany, explain the process

Central to every merger and acquisition (M&A) transaction is the transfer of money. An escrow or settlement account, therefore, is often at the centre of this process. So finding the right escrow or paying agent to provide that service, and ensuring the deal runs smoothly, must be a priority. And choosing an escrow or paying agent as a partner in Germany, as with any country in the EU or the UK, means understanding exactly what the transaction involves and the competencies required.

In many ways it is an uncomplicated process – after all, holding assets on behalf of the parties involved in a deal is straightforward. But that does not mean it is an easy service to get right. For a start, the technical and regulatory aspects of acting as an escrow or paying agent can be complicated – especially in Germany.

In fact, finding the right partner is particularly challenging here because the cost of this service is much higher than elsewhere in Europe and probably the rest of the world.

The absolute starting point in the selection process must be the proven trustworthiness – the reputation – of the provider. Success is dependent on their competence and neutrality – so all transacting parties can be confident that their money is safe and they are being treated exactly the same as each other.

The challenges of notary escrow and settlement services in Germany

The German market has, in many ways, been under-serviced for escrow and settlement services. Escrow has long been the domain of notaries – individual lawyers with an effectively captive audience.

Their fees are inflexible because they are set by German law as a percentage of the transaction value. This means the greater the size of the transaction, the higher the fees a notary can charge.

While notaries tend to keep accounts on hold and can be quite nimble in setting them up, today’s deals – with, say, 200 payees to manage for completion settlement – may be beyond their capabilities, especially at short notice.

The job is also highly regulated, and this burden can discourage notaries from complicated deals or those involving multiple parties.

Flexibility can also be an issue. For instance, an out-of-hours or weekend service – which would be a completely standard part of meeting client needs for an escrow and settlement services provider such as Intertrust Group – is unusual for a notary.

Managing the complexities of the modern escrow transaction

The complexities of today’s M&A deals mean all parties need a different kind of service provider: one with the ability to manage intricate requirements to the benefit of all stakeholders.

At Intertrust Group, a respected escrow services partner for companies across Europe, we are offering this as part of an efficient and more cost-effective service. We can act more quickly, setting up and implementing an escrow arrangement much faster than traditional German providers.

This is critical because the time in which deals are completed has shortened considerably over the past two or three years. The pace at each stage, from negotiation to completion and paying out the money (the escrow transaction agent’s role), has accelerated.

Another driver of change is shareholder fragmentation. Traditionally a buyer-to-seller model has been the norm; whereas now, there are more likely to be large groups of shareholders and options holders accessing an investment together.

In combination, these developments create heightened administrative and logistical complexity in transactions. Critically, it makes administration of all the cash flows much more intense.

How does Intertrust Group manage complex escrow transactions?

At Intertrust Group we take in money and pay it out in three stages:

• before completion, when we deposit funds from the transacting parties
• at completion, when we distribute to shareholders and option holders
• after completion, with a possible “hold back” to secure post-completion liability of sellers

Notaries may remain the standard escrow transaction option in Germany – indeed, until relatively recently there have been few alternatives. But for companies doing business in Germany today, choosing a different type of service might well help seal the deal.

Why Intertrust Group?

• We have an unimpeachable reputation. As one of the largest providers, with a truly Europe-wide operation, our experienced, multilingual teams provide services to all European and German escrow accounts.
• Time is of the essence in escrow transactions. We offer a highly responsive service with a single point of contact and the flexibility to meet your deadlines.
• We offer transparent fees with fixed prices – unlike those of German notaries – with quotes delivered within a few hours.
• As well as being regulated and licensed throughout the EU, we have global coverage with offices in all the key financial centres.