What is Holdback?
Purchase-price dollars the buyer keeps temporarily - similar to escrow, but held by the buyer rather than a third party.
A holdback is money the buyer retains directly (instead of placing it with an escrow agent) to cover a specific, expected adjustment - most often the final working-capital true-up or a known contingent liability. It's released once the adjustment is settled. Holdbacks and escrows often coexist: a holdback handles the predictable working-capital math, while escrow backstops the broader representation-and-warranty risk. Why it matters to you: because the buyer holds the cash, you have less leverage to force a timely release than with a neutral escrow agent. Pin down the exact trigger, the calculation method, and the release date in the agreement so a holdback doesn't quietly become a discount.
Example
- A buyer holds back $1M to settle the working-capital adjustment, releasing the balance 90 days after close once the closing balance sheet is finalized.