Both parties involved in a merger or acquisition deal take on some risk. For the buyer, of course, there’s the risk that the target company doesn’t provide the expected benefits. Perhaps sales aren’t as robust as forecast, or expenses spike unexpectedly. Sellers take on risk as well. Even once the deal is inked, the buyer may claim the seller misrepresented the company.

These risks are even greater when the company is smaller and private, since, by definition, little or no public information is available. One way around this is through the use of an escrow account. At the closing of the transaction, a portion of the purchase price is placed in escrow and held until the terms of the agreement are satisfied. About 70-some percent of deals in which the target company is private and the deal size falls below about $1 billion use escrow agreements, says Rocky Motwani, managing director and head of escrow business with JPMorgan.

Motwani and his colleagues have studied the escrow agreements used in M&A transactions over the past several years. In the 2010 M&A Escrow Holdback Report, they looked at 142 deals, out of a universe of 550, in which some claims were made on the escrow account. The average deal size just topped $100 million; 91 percent were unsolicited. more

The misnamed Dodd-Frank-Cougar-Mellencamp Wall Street Reform and Consumer Protection Act (it applies to all publicly listed companies) has garnered significant compliance attention recently. As it should.

However, the new law also has accounting implications – including some real doozies.

Clawback accounting deals with estimating the grant-date fair value of an equity instrument, determining the level of objectivity in performance targets, and stock modification accounting, among other enjoyable activities. I don’t know what most of that stuff means, but I do know that it requires a lot of cross-checking with the FASB’s Accounting Standards Codification (ASC 718, in particular).

If you want to delve into the accounting ramifications of the Dodd-Frank’s clawback provision, this PricewaterhouseCoopers’ three-pager is a good place to begin. ###

Companies will outsource IT to save money and time and to tap skills they don’t have in-house. But mainly they do it to save money. The outsourcing wave slowed a bit during the recession, but recent reports from India show the big Indian IT services providers again adding staff.

The far-offshore IT outsourcing approach has dominated the outsourcing strategies of North American companies for a decade. Business Finance covered it in 2009 and again in 2010. This year, the focus shifted to nearshore outsourcing, which mainly refers to Brazil and Latin America.

It turns out that you can get many of the advantages of offshore outsourcing while staying much closer to home. Called domestic sourcing or rural sourcing, it combines lower costs with greater cultural affinity and easier communications and management. Rural Sourcing Inc. has been driving the movement to bring IT outsourcing home. more