A well-structured escrow account can mean the difference between success and failure in a complex business transaction. Sixty per cent of M&A transactions in Spain in 2024 opted for additional guarantee mechanisms, making this financial instrument an essential tool for mitigating post-closing risks.
However, the effectiveness of an escrow account lies not only in its implementation, but also in its technical design and the selection of the right custodian. Many entrepreneurs discover too late that a poorly planned structure can create more problems than solutions.
Why do you need an escrow account in your M&A transactions?
The operation of an escrow account is seemingly simple, but its strategic value is profound. During a business sale transaction, the buyer deposits a certain amount with a neutral agent. These funds remain blocked until compliance with specific, pre-agreed conditions is verified.
In business sale transactions, it is very common to use escrow contracts as a guarantee instrument, especially when there are uncertainties about working capital adjustments, tax contingencies or possible hidden liabilities. The mechanism simultaneously protects the interests of both the buyer and the seller.
Furthermore, this contractual arrangement, which derives from Anglo-Saxon law, requires specific regulation in the Spanish legal system, making it crucial to seek expert advice during its structuring.
The escrow account acts as a financial buffer that allows complex transactions to be completed without paralysing the business while pending technical issues are resolved.
Selection of the escrow agent
The choice of agent to manage your escrow account will determine the effectiveness of the entire operation. In Spain, the escrow agent is usually a notary, but it can also be a solicitor, a bank, a chamber of commerce or an electronic service provider.
Each type of agent has specific advantages. Banks offer financial strength and experience in fund management, while law firms as escrow agents provide agility, security, trust and cost savings in business transactions.
If you wish, you can view it on our YouTube channel.
However, the decision should not be based solely on the cost of the service. Factors such as sector experience, responsiveness to contingencies and the absolute neutrality of the agent are decisive.
Lawyers, banks, or notaries can act as escrow agents, although notaries are not obliged to accept the assignment, so the availability and specialisation of the chosen professional must be carefully evaluated.
A poorly selected escrow agent can turn your guarantee into an operational obstacle that causes delays and unexpected additional costs.
How Confianz optimises your escrow account for real results
At Confianz, we understand that each transaction requires customised solutions. We do not use generic templates or standardised approaches. Our method is structured in three distinct phases.
First, we design a specific contractual framework that precisely defines the conditions of release, custody periods and agent responsibilities. Each clause reflects the actual risks identified during the analysis of your transaction.
Second, we evaluate and select the most suitable escrow agent for your transaction. We analyse their financial solvency, sector experience, independence and operational capacity before making our final recommendation.
Third, we project contingency scenarios and prepare early resolution mechanisms. We simulate possible tax, labour or contractual imbalances to shield the structure from subsequent claims.
This comprehensive approach transforms the escrow account from a contractual formality into an operational tool that truly protects your interests throughout the transaction.
Our goal is for the escrow account to function as smart insurance that is activated only when necessary, allowing your transaction to flow without unnecessary obstacles.