Axa SA’s U.S. unit is seeking to add to its investment operation by competing with banks for the billions of dollars held in escrow accounts tied to mergers and acquisitions.
Funds that are set aside in deals can earn higher interest rates with the subsidiary of the Paris-based insurer than typical escrows, Managing Director Todd Solash said in an interview. The company is working with SRS Acquiom, which advises M&A clients after deals are completed. Ten percent or more of a transaction price can be held in escrow to guard parties against events that could diminish the value of a deal.
The escrow market is more than $250 billion, with cash usually invested in bank products or money market funds, the companies said in a statement. The partners said they expect their initiative to benefit from the pickup in the M&A market and the reluctance of banks to hold some shorter-term deposits as regulators seek to limit their reliance on borrowed money.
“We think it takes a lot of capabilities that we have in terms of balance sheet management,” Solash said of the effort. “We haven’t worked in M&A escrow previously, but in terms of managing a general account and creating a product design that’s suited to a specific product, we think we do that all the time.”
There have been about $1.5 trillion worth of mergers and acquisitions announced this year through Monday, excluding terminated offers, as low interest rates and an improving economy fuel consolidation, according to data compiled by Bloomberg. That’s close to the record-setting pace of 2007. Axa said that its offering will guarantee principal for clients, while Solash declined to specify the interest rates.
SRS Acquiom has worked on more than 900 transactions, valued at $150 billion, according to the company’s website. The firm last week announced that former JPMorgan Chase & Co. banker Heidi Miller had joined its board.
JPMorgan said in February that it planned to cut as much as $100 billion of some clients’ excess deposits in the bank’s efforts to limit capital required under a new U.S. proposal.
While the largest global insurers also face the prospect of tighter regulation, the companies have said they have fewer liquidity pressures than banks. That’s because funds backing insurance policies can be held for decades, and aren’t as vulnerable to immediate withdrawal as some bank offerings.