TLDR:
Escrow is a financial arrangement where assets (cash, securities, documents, source code) are held by a neutral third-party agent until specific contractual conditions are met. Escrow provides protection to both parties of a transaction—the depositor knows assets won’t be released without conditions; the beneficiary knows resources are available when conditions are met.
Escrow in M&A Transactions
The most common M&A use is indemnity holdback: at closing, the buyer pays part of the purchase price (typically 5-15%) into escrow, where it remains for the survival period of representations and warranties (typically 12-24 months). If the buyer brings indemnification claims for breaches, funds are released from escrow rather than collected from the seller directly. Standard structures include: regular indemnity escrow, separate tax escrow, working-capital adjustment escrow, and special escrows for known potential issues. Escrow agreements specify release mechanics, disputed claim procedures, and final release timing.
Source Code and Technology Escrow
Software escrow protects customers who depend on software developed by a third-party vendor. The vendor deposits the source code, build instructions, and documentation with an escrow agent; if specific trigger events occur (vendor bankruptcy, abandonment of product, failure to provide support), the customer can obtain the source code to maintain the software independently. Source code escrow is common in enterprise SaaS contracts, government procurement, and licensed software for critical infrastructure. Specialized providers (Iron Mountain, NCC Group, Codekeeper) offer source code escrow services.
Real Estate and Other Uses
Real estate escrow handles funds and documents between contract signing and closing—the buyer deposits earnest money, the seller deposits the deed, and the escrow agent releases each upon satisfaction of closing conditions. Escrow is also used in: cryptocurrency transactions (smart contract-based escrow for trustless trades), employment (deferred compensation, settlement payments), litigation (disputed funds pending court resolution), and international trade. Turkish hukuk recognizes escrow through ticari emanet provisions in the Commercial Code and contractual escrow structures using bank or notary intermediaries.