M&A Escrow
A middle market merger or acquisition in California usually runs 90 to 120 days from signed letter of intent to released escrow funds. The escrow phase does not cover the entire span, but it sits at the center of every critical milestone. Once the purchase agreement is countersigned, the buyer wires the initial deposit into an escrow account licensed by the Department of Financial Protection and Innovation, and the clock starts ticking.
During the first two weeks, escrow officers collect organizational documents, capitalization tables, and good standing certificates. They also open a separate indemnity escrow sub account equal to 10 percent of the purchase price. Parallel to that process, buyer counsel conducts legal diligence while the accounting team performs quality of earnings work. Any missing schedule or unresolved lien shows up now, because the escrow holder will not approve the second deposit until title and tax clearance letters are delivered.
Weeks three through six focus on third party deliverables. The escrow agent coordinates payoff demands for existing loans, obtains landlord estoppels for leased locations, and publishes the bulk sale notice required under California Commercial Code. That notice runs in a newspaper of general circulation for 12 business days; creditors have until day 15 to file claims. Most sellers accelerate this step by ordering the publication while the purchase agreement is still being negotiated, shaving almost three weeks off the timeline.
Weeks seven and eight are when financing and insurance converge. Senior lenders require updated UCC searches dated within five days of closing, so escrow orders them automatically. If the buyer is using representation and warranty insurance, the underwriter delivers a final policy binder to escrow, not to the buyer, ensuring that the indemnity escrow amount can be reduced or eliminated. Environmental insurers, cyber carriers, and key man life policies must also name the lender and escrow agent as additional insureds before funds are released.
The final 10 days revolve around numbers that move. Working capital is trued up against the peg, payroll liabilities are prorated, and cash is swept from seller accounts. Escrow collects final signatures on the bill of sale, secretary certificates, and management resignations. At T minus 24 hours, the buyer wires the balance of the purchase price, the seller delivers closing deliverables via DocuSign, and escrow simultaneously records the stock transfer power with the California Secretary of State.
Typical M&A Escrow Milestones (Calendar Days)
- Day 1: Purchase agreement executed; buyer wires 5% deposit
- Day 7: Bulk sale notice published; landlord estoppels requested
- Day 21: Quality of earnings report issued; working capital peg finalized
- Day 35: Lender commitment letter cleared; R&W insurance bound
- Day 45: Tax clearance received; lien releases recorded
- Day 60: Buyer wires balance; escrow releases 90% to seller
- Day 540: Indemnity escrow releases remaining 10% (if no claims)
Post closing, the indemnity escrow remains open for 18 to 24 months. The escrow agreement sets a deductible, usually 1 percent of the purchase price, below which buyer claims are paid from the reserve. Claims above the deductible trigger a dispute resolution clause that can extend the hold period another six months. Secured Trust Escrow maintains separate interest bearing accounts for the indemnity reserve and remits monthly statements to both counsel so that surprises do not compound.
Acceleration is possible if both sides cooperate. Pre ordering title and survey, using representation and warranty insurance instead of a large cash escrow, and delivering diligence documents in indexed folders can shave 15 days off the schedule. Conversely, missing tax clearance letters, unrecorded mechanic liens, or delayed landlord waivers can push closing past day 90 and trigger extension fees of $500 per day under most purchase agreements.
Bottom line: treat the M&A escrow timeline like a construction schedule. Every trade depends on the prior trade, and one late deliverable ripples through the entire chain. Secured Trust Escrow provides a live milestone dashboard so buyer, seller, and counsel can see exactly which item is on the critical path. Contact our M&A desk today for a day by day escrow roadmap tailored to your purchase agreement.
