An escrow account is a mechanism by which a portion of the acquisition price is held by an independent third party (bank, notary, law firm) in a blocked account for a defined post-closing period — serving as collateral for the buyer against potential warranty breaches by the seller. At the end of the escrow period (typically 12–24 months), funds are released to the seller if no claims have been submitted, or retained to cover indemnity obligations. Escrow is an alternative or complement to W&I Insurance in M&A transactions.

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Example: in a CHF 20.0 million acquisition, a CHF 1.5 million escrow (7.5% of price) is established for 18 months. During this period, the buyer may assert warranty claims against the escrowed amount. At month 18, if no claim has been notified, CHF 1.5 million is released to the seller. If a CHF 400,000 claim is pending, CHF 1.1 million is released immediately and CHF 400,000 remains blocked until claim resolution.

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Hectelion advises on escrow sizing, duration and release conditions in M&A mandates, balancing buyer protection with the seller's economic interest in timely access to full disposal proceeds.