Glossary · Valuation and finance
Escrow
Also called escrow account
Definition
An escrow is part of the purchase price held by a neutral third party, such as a bank or law firm, for an agreed period after closing. If the buyer has a valid warranty or indemnity claim, it is paid from the escrow. Otherwise the money is released to the seller.
Related terms
Indemnity A promise to repay a specific loss in full, often used for known risks found in due diligence. Earn-out Part of the price that is only paid later if the business hits agreed targets after the sale. Representations and warranties Statements of fact the seller makes about the business in the purchase agreement, with a remedy if they prove untrue. Completion accounts Accounts drawn up at closing to adjust the price for the actual cash, debt and working capital on that day. EBITDA Earnings before interest, tax, depreciation and amortisation: the profit figure most deals are priced on. Leveraged buyout An acquisition paid for largely with borrowed money, secured on the target company itself. Locked box A way of fixing the price on a past balance sheet date, with no adjustment after closing. Net working capital Current assets minus current liabilities: the cash tied up in running the business day to day.