Escrow accounts in M&A must be drafted with precision to truly protect sellers. When drafted properly, escrow accounts in M&A and holdback arrangements are powerful tools that protect sellers, preserve deal value, and reduce post-closing disputes.
These mechanisms can:
• Ring-fence claims so only a defined portion of the price is at risk, ensuring sellers receive most of the consideration safely and on time.
• Provide comfort to buyers without locking more capital than necessary, enabling faster access to funds.
• Reduce friction by setting clear, objective rules on when escrow funds must be released and what evidence is needed to support a claim.
Poor drafting shifts power not risk.
Vague terms allow buyers to delay release or raise broad, unsubstantiated claims. Sellers then spend time and legal fees chasing funds that should already be theirs. Properly structured escrow accounts in M&A prevent buyers from using vague disputes as leverage.
In tighter markets, buyers frequently push for aggressive holdbacks or conditions that operate as leverage rather than legitimate protection.
Consider this example:
A founder sells his company for AED 50 million. AED 5 million is held in escrow for warranty claims, with release “subject to no outstanding disputes.”
The clause does not define what qualifies as a dispute or require a substantiated claim.
Just before release, the buyer raises a speculative quality-control concern and labels it a “potential dispute,” blocking the escrow release.
The founder may now face delays, negotiations, and legal costs to access funds that should have been released automatically.
A better clause would have required documented claims, objective triggers, and a defined resolution timeline.
In every transaction, sellers should evaluate escrow duration, claim thresholds, evidence requirements, and mechanisms for dispute resolution. These are small details, but they determine how quickly funds are released and how easily a buyer can raise or prolong a claim. Stronger clarity in escrow accounts in M&A transactions creates financial predictability and reduces unnecessary post-closing pressure.
Key Takeaway for Sellers
Escrow and holdback mechanics must be precise, measurable, and time-bound.
Vague language benefits the party holding the funds — not the party entitled to them.
Shoeb Saher
Corporate & Commercial | M&A | Contracts
Helping sellers structure deals to minimize post-closing risk.
Insights
Why Sellers Must Control the Structure of Escrow Accounts in M&A
Why Escrow Accounts in M&A Require Close Attention from Sellers
Escrow accounts in M&A must be drafted with precision to truly protect sellers. When drafted properly, escrow accounts in M&A and holdback arrangements are powerful tools that protect sellers, preserve deal value, and reduce post-closing disputes.
These mechanisms can:
• Ring-fence claims so only a defined portion of the price is at risk, ensuring sellers receive most of the consideration safely and on time.
• Provide comfort to buyers without locking more capital than necessary, enabling faster access to funds.
• Reduce friction by setting clear, objective rules on when escrow funds must be released and what evidence is needed to support a claim.
Poor drafting shifts power not risk.
Vague terms allow buyers to delay release or raise broad, unsubstantiated claims. Sellers then spend time and legal fees chasing funds that should already be theirs. Properly structured escrow accounts in M&A prevent buyers from using vague disputes as leverage.
In tighter markets, buyers frequently push for aggressive holdbacks or conditions that operate as leverage rather than legitimate protection.
Consider this example:
A founder sells his company for AED 50 million. AED 5 million is held in escrow for warranty claims, with release “subject to no outstanding disputes.”
The clause does not define what qualifies as a dispute or require a substantiated claim.
Just before release, the buyer raises a speculative quality-control concern and labels it a “potential dispute,” blocking the escrow release.
The founder may now face delays, negotiations, and legal costs to access funds that should have been released automatically.
A better clause would have required documented claims, objective triggers, and a defined resolution timeline.
In every transaction, sellers should evaluate escrow duration, claim thresholds, evidence requirements, and mechanisms for dispute resolution. These are small details, but they determine how quickly funds are released and how easily a buyer can raise or prolong a claim. Stronger clarity in escrow accounts in M&A transactions creates financial predictability and reduces unnecessary post-closing pressure.
Key Takeaway for Sellers
Escrow and holdback mechanics must be precise, measurable, and time-bound.
Vague language benefits the party holding the funds — not the party entitled to them.
Shoeb Saher
Corporate & Commercial | M&A | Contracts
Helping sellers structure deals to minimize post-closing risk.
Recent Posts
Seller Warranty Liability UAE: 4 Essential Protections in Business Sale Agreements
5 Essential Rules for Construction Variation Claims in UAE Projects
UAE Competition Law M&A: 7 Essential Compliance Rules for 2026