Escrow
A portion of acquisition proceeds held by a neutral third party for a period, to cover potential post-closing claims.
In an M&A deal, a portion of the total purchase price — commonly 10-15% — is held in escrow with a neutral third-party agent for a set period (typically 12-18 months) rather than paid out immediately to sellers. It protects the buyer against claims that arise after closing, such as breaches of the seller's representations and warranties or unexpected liabilities discovered post-acquisition.
If no valid claims are made against the escrow during the holding period, the funds release to the sellers in full; if the buyer successfully asserts a claim, the disputed amount is deducted from the escrow before the remainder is released.
A $50M acquisition sets aside $6M (12%) in escrow for 18 months to cover representation and warranty breaches. If no claims arise, sellers receive the full $6M at the end of the escrow period on top of the $44M already paid at closing.
Negotiate the escrow percentage and duration as real deal terms, not boilerplate — a large escrow held for a long time meaningfully delays when sellers actually see their full proceeds, and representation and warranty insurance can sometimes reduce the escrow amount needed.
What's a typical escrow percentage in an acquisition?
Commonly 10-15% of the total purchase price, held for roughly 12-18 months, though the exact figures vary by deal size, risk profile, and whether representation and warranty insurance is used to reduce the amount held back.
Related terms
Run the numbers yourself: dilution, SAFE conversion, and fund-returner calculators.