Glossary · Deal structure
Holdback
A holdback is a portion of the purchase price the buyer does not pay at closing: tied to specified conditions such as key-customer retention or operational KPIs.
Definition
Holdback differs from escrow on one critical point: the money stays with the buyer (often on a separate account) instead of with an independent third party. That makes holdback structurally cheaper (no escrow-agent cost) but also riskier for the seller: the buyer can in practice stall on payout.
Holdback is commonly used for specific commercial risks that don't fit an R&W claim: top-3 customer retention in year 1, key-person retention, successful ERP migration. Conditions are typically binary (pass/fail) rather than continuous like an earn-out. Duration is usually 6-18 months.
When it matters
For service businesses with customer concentration, acquisitions requiring operational transition (key-person dependency), and deals where DD surfaced specific conditions that don't justify a price chip but do justify security.
Frequently asked
- What is the difference between holdback and escrow?
- In escrow an independent third party holds the money; in holdback the buyer does. Escrow gives the seller more certainty of payment. Holdback is cheaper but requires stronger trust in the buyer.
- How large is a typical holdback?
- 5-10% of price for Benelux SME deals. Above 15% it structurally becomes a second earn-out: better to unify the structure.
- What conditions are reasonable?
- Conditions that are directly in the seller's hands or precisely measurable: top-3 customer retention, migration completion, no claims in the first 12 months. Conditions depending on buyer-side conduct are risky.