Holdback

A holdback is a portion of the purchase price retained by the buyer or held in escrow after closing to protect against post-closing risks.

Types of Holdbacks

Indemnity Holdback

• Covers breaches of representations and warranties
• Typically 10-15% of purchase price
• Released after 12-24 months if no claims

Working Capital Holdback

• Covers working capital adjustment true-ups
• Usually settled within 60-90 days post-closing
• Based on final vs. estimated working capital

Earnout Holdback

• Contingent on future performance
• Paid if certain milestones are achieved
• Can extend 1-3 years post-closing

Typical Terms

Holdback Type	Amount	Duration
Indemnity	10-15%	12-24 months
Working Capital	5-10%	60-90 days
Earnout	5-20%	1-3 years

Holdback Negotiation Tips

For Buyers:

• Push for larger holdbacks to reduce risk
• Extend release periods for complex businesses
• Include specific release triggers

For Sellers:

• Negotiate caps on claims against holdback
• Seek shorter release periods
• Define clear release conditions