What is a holdback (escrow amount)?
A holdback is the part of the purchase price in an M&A deal that is not paid at closing but retained, either by the buyer directly or in a third-party escrow, to cover post-closing claims: breaches of representations and warranties, indemnities, purchase price adjustments or specific known risks such as an ongoing tax audit. It is the buyer’s first and cheapest recovery source, because setting off against money you already hold beats suing a seller who has distributed the proceeds.
How holdbacks are structured
Market practice in tech M&A puts general holdbacks around 10 to 20 percent of the price for 12 to 24 months, tracking the survival period of the representations. Specific risks get their own escrows with their own release triggers. The mechanics that matter in drafting: who holds the money and at what interest, what exactly permits the buyer to claim against it, the objection and dispute procedure, partial release schedules, and whether the holdback is the exclusive remedy or just the first pocket. Sellers push for escrow with a neutral agent and automatic staged release; buyers prefer direct retention and broad set-off rights.
Holdbacks in Turkish deals
Turkish law accommodates both models through ordinary contract law, and bank escrow services are available for TRY and foreign currency accounts. In cross-border deals the escrow agreement often follows the SPA‘s governing law with an international escrow agent. Tax deserves attention: the timing of the seller’s income recognition on the held-back portion, and the treatment if part of it is never released, should be modelled at signing rather than negotiated with the tax office later.
What is the difference between a holdback and an earn-out?
A holdback secures claims on money already earned; an earn-out makes part of the price conditional on future performance. A holdback answers “what if something you told me was wrong”, an earn-out answers “what if the business does not perform”.
How large should a holdback be?
Large enough to cover realistic exposure identified in due diligence, small enough not to poison the deal. The 10 to 20 percent convention is a starting point; a specific known risk should be priced separately rather than inflating the general holdback.
Escrow agent or buyer retention?
For sellers, a neutral escrow agent with a clear release mechanism is worth negotiating: buyer retention converts every dispute into a collection problem on the seller’s side of the table.
Related terms: escrow, earn-out, due diligence.
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