Escrow account

An escrow account is a bank account held by a neutral third party — typically a bank, notary or law firm — into which a portion of the acquisition price is deposited temporarily until a predefined condition is met. In M&A, escrow is used to secure post-closing warranty obligations: a portion of the price (typically 5–20%) is held for a warranty period (12–24 months) and released to the seller if no warranty claim is made. It protects the buyer against seller insolvency during the warranty period and serves as an alternative or complement to warranty and indemnity (W&I) insurance.

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Example: in the sale of a Swiss company for CHF 22.0 million, CHF 2.2 million (10%) is held in escrow for 18 months to cover potential warranty claims. No claims are exercised during the period; the full amount plus accrued interest is released to the seller at maturity — a temporary but not permanent reduction in the seller's net proceeds at closing.

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Hectelion advises on escrow structuring and calibration in M&A transactions, balancing buyer protection with seller liquidity and deal economics.