Escrow
Private Equity glossary · Valuation, Diligence, & Value Creation
Definition
Amounts held in third-party accounts to secure specific post-closing obligations (indemnification claims, working capital adjustments).
Escrow in plain English
Escrow is money set aside in a neutral holding account — controlled by a trusted third party, not the buyer or seller — that only gets released once certain promises are kept. When a company is sold, some problems don't surface until later (a hidden tax bill, or the final inventory count being off), so the buyer parks part of the price in escrow instead of handing it all over at closing. If a promised problem appears, the buyer takes what it's owed from that account; if everything checks out, the rest goes to the seller. It's like a security deposit on an apartment: the landlord holds your cash until they're sure you didn't trash the place.
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Practice Escrow
What specific mechanism is usually mandated in the LPA to protect LPs in this scenario?
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