The Complex Machinery Powering M&A (Scott Armstrong Commentary)

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When headlines announced the acquisition of Hewlett Packard Enterprise’s $14 billion purchase of Juniper Networks, most people saw a splashy headline, a stock market ripple and maybe a quote from a CEO about “synergy” or “long-term value creation.” But what the headlines rarely reveal is the intricate web of negotiations, diligence, advisers and financial structures working behind the scenes.

A typical merger or acquisition deal involves an orchestra of players such as dealmakers, investment bankers, escrow agents, attorneys, accountants, tax advisers, regulators, lenders, integration teams and sometimes even public relations firms, with each responsible for a different part of the puzzle. One misstep can derail the entire transaction.

Each acquisition is the culmination of strategy, due diligence and risk assessment. Terms must be negotiated, representations and warranties dissected, financials scrutinized, legal risks weighed, and regulatory filings submitted. Each deal is a delicate balance: The buyer wants to ensure they’re getting what they pay for; the seller wants to walk away with as much certainty and capital as possible.

Traditionally, buyers and sellers relied on escrow accounts, where part of the purchase price was held post-closing to cover potential breaches of representations and warranties. These funds served as a safety net for buyers while creating a capital holdback for sellers.

Five years ago, the M&A landscape shifted with the rise of representations and warranties insurance (RWI), which transferred deal risks to third-party insurers. RWI gained popularity for enabling sellers to retain more of the purchase price at closing while protecting buyers against post-closing breaches. Early policies were inexpensive, broadly inclusive and attractive to private equity and strategic buyers.

The RWI market has since changed. As insurers faced claims and losses, they tightened underwriting, raised premiums and added exclusions — especially around cybersecurity, regulatory compliance and employee misclassification. Insurers narrowed the scope of coverage and shifted more risk back to buyers.

Once a tool to ease escrow tension is now a more complex and costly product. While RWI remains a fixture in dealmaking, it no longer provides the broad protection it once did. Buyers and sellers must now approach it with greater scrutiny, adapting their strategies to address its evolving limitations and gaps.

While risk allocation in M&A is never one-size-fits-all, several foundational principles remain: transparency, rigorous due diligence, clear indemnification terms and sound legal documentation.

In high-stakes transactions where details matter and timelines are tight, the right advisers aren’t just helpful, they’re essential. An experienced escrow agent is one of those critical partners who can help protect your deal where your RWI falls short. And when that escrow agent is part of a bank, you gain the support of an entire banking team working to ensure fast and seamless execution. Throughout my career, I’ve had the privilege of being involved in thousands of transactions. One truth consistently stands out: The deals that succeed, those that close smoothly and create lasting value, are typically backed by experienced, aligned and highly capable advisory teams.

Scott K. Armstrong is the senior vice president, specialty deposits group manager at Encore Bank where he is a nationally recognized escrow agent.