Escrow
A neutral third-party arrangement where funds or documents are held until specific conditions are met, commonly used in M&A to hold purchase price deposits and holdbacks.
Escrow is a financial arrangement where a neutral third party holds funds or documents until predetermined conditions are satisfied.
Escrow in M&A Transactions
Pre-Closing Escrow
- Earnest money deposit (typically 1-5% of purchase price)
- Shows buyer's serious intent
- Released at closing or forfeited if buyer backs out without cause
Post-Closing Escrow
- Holdback funds for indemnification
- Working capital adjustment amounts
- Earnout payments
Escrow Agents
Common escrow agents include:
- Title companies
- Banks
- Specialized escrow companies
- Law firms
Escrow Agreement Terms
Key provisions:
- Release conditions
- Dispute resolution process
- Investment of funds
- Fees (typically split 50/50)
- Reporting requirements
Typical Escrow Timeline
LOI Signed → Deposit to Escrow (2-5%)
↓
Due Diligence Complete
↓
Closing → Purchase Price to Escrow
↓
Same Day → Release to Seller (minus holdback)
↓
12-24 Months → Holdback Release
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