Unclaimed Property and Mergers & Acquisitions Guide

Unclaimed property can create material and often overlooked financial risk in mergers and acquisitions (M&A) transactions. Unlike many other liabilities, unclaimed property exposure can reach back decades, especially when records are incomplete or risk is identified after closing. That can leave buyers exposed to substantial historical liabilities, audit assessments, and remediation costs after closing. Unclaimed property has a unique compliance framework and warrants a separate, focused review during the due diligence period. 

Primary M&A Risks

• Stock deals: Buyers generally assume the target’s historical and ongoing unclaimed property liabilities.
• Asset deals: Liabilities typically remain with the seller; generally, exposure can be limited but might still exist.
• Audit triggers: Public M&A activity can attract attention from states and third-party auditors, increasing audit risk. 
• Extended look-back periods: State reviews might go back 15+ years and result in significant interest and penalties.
• Missing or Incomplete records: States default to estimation for unsupported periods.
• Valuation impact: Material unclaimed property exposure can reduce deal value and seller’s value. 

Key Due Diligence Areas

• Uncashed checks and credits: Focus on high-risk property types: accounts payable (uncashed checks), payroll (uncashed wages), and accounts receivable (credit balances, refunds).
• Suspense accounts: Evaluate high-risk areas such as unapplied cash, unresolved balances, and royalties. 
• Filing history: Confirm whether the target has consistently filed annual unclaimed property reports.
• Policies and procedures: Identify red flags, including write offs, and validate accuracy.

Mitigation Strategies

• Purchase and sale agreements: Address unclaimed property responsibility and indemnification. 
• Purchase price adjustments: Use quantified exposure estimates to support price reductions for known exposure.
• Record continuity: Preserve historical accounting records, policies, and institutional knowledge to avoid gaps.
• Escrow accounts: Consider setting aside funds to cover potential liabilities identified.
• Voluntary disclosure agreements: Resolve exposure through participation.