Holdback Provisions in M&A: Case Study (Company A vs Company B)

Holdback provisions in M&A are standard. They are tools buyers use to guard against post-closing surprises and are widely used in deals across the US market. I’m Angie Reed, a compliance analyst, and I have observed these provisions move from edge cases into standard practice. The core idea is simple: the buyer holds back a slice of price to cover liabilities or unmet seller obligations after closing. That slice typically sits at 10-20% of the total price, and the holdback period usually runs 12-24 months, depending on deal complexity and risk profile. This isn’t escrow in the strictest sense, holdbacks are funds retained by the buyer directly, whereas escrow often uses a neutral bank as custodian. But functionally they are close siblings in risk transfer.

From my experience, the key mechanics to get right are release triggers and the calculation method. Release is commonly 6 or 12 months post-closing if conditions line up, though some deals do staged releases. The math matters: holdbacks can be tied to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization (a metric used to judge operating performance)), gross profit, or revenue, and they can also hinge on non-financial conditions like contract renewals or key employee retention.

In practice, you’ll see “all-or-nothing” formats or graduated schedules that release portions as targets are met or as time passes. This flexibility helps bridge valuation gaps when buyer and seller can’t agree on enterprise value upfront.

A solid overview of the landscape shows that holdbacks and earnouts are often treated as interchangeable by deal teams, even though there are structural distinctions. The purpose is clear: shift risk from buyer to seller during the post-closing period, ensuring performance standards or setup conditions are still in scope after the deal closes. In 2025, the trend toward deferred purchase price structures, holdbacks, earnouts, and rollover equity, has only accelerated. Deals increasingly combine holdbacks with price adjustments for tax or leakage, and the literature supports this integration. WilmerHale’s 2025 M&A Report and the JP Morgan 2025 Holdback Escrow Study both reinforce that holdbacks are a core risk-management tool, not a one-off maneuver.

From a controls perspective, the biggest risk for sellers is regret around what’s left on the table if the buyer can’t pay the holdback due to insolvency or other liquidity issues. Escrow arrangements help mitigate that risk by placing the funds with a neutral party, which can also minimize counterparty risk exposure.

It’s common for the escrow to earn interest and for the seller to receive the funds subject to post-close claims if unknown liabilities surface. In practice, this creates a predictable path for resolving claims and helps maintain deal integrity when a later issue arises.

Now, a real-world case study to illustrate how these elements play out in practice. I’ll reference a recent, high-profile pairing to show the mechanics in action: Salesforce’s acquisition of Tableau. While the exact holdback math isn’t published in detail, public disclosures and industry analyses align with the framework I’ve described. In this deal, you’d expect a holdback or earnout component aimed at preserving post-closure value in Tableau’s software stack and channel relationships. The structure would likely tie a portion of the price to Tableau’s ability to retain strategic customers and to meet revenue milestones over 12-24 months. The non-financial safeguards would include customer contract retention and success metrics tied to product adoption in key verticals. This kind of arrangement is typical for large software acquisitions where integration risk and customer retention are the primary post-close concerns.

In real terms, you’ll see percentages in the 10-20% range, with a typical 12-24 month holding period. Early partial releases around 6 months post-closing are rare for full payout but more common for partial releases when certain conditions are clearly satisfied.

The literature shows that bank activity in M&A hits a steady pace: 34 bank deals worth about $1.61 billion announced in Q1 2025, signaling ongoing appetite for sophisticated financing and risk-sharing tools in deal execution. The practical takeaway: holdbacks and related structures are not a niche; they’re a standard feature of credible deal terms, especially when the buyer wants assurance against post-close liabilities and the seller seeks a credible valuation bridge.

From a practitioner’s view, the key questions are: what conditions trigger release, how is the amount calculated at risk, and who bears administrative responsibilities for the holdback funds? You’ll want precise terms: define the liabilities covered, specify the post-closing period, lay out the release mechanics, and confirm who administers any interest or earnings. A robust drafting approach blends financial metrics with non-financial conditions to create a balanced, enforceable structure. It helps to have clear tax treatment paths and to align with purchase price adjustment provisions so the overall deal economics remain transparent.

What this means for deal teams today: start with a baseline holdback of 10-15% for most mid-makret transactions, or 15-20% for higher risk profiles (regulatory exposure, customer concentration, or long-tail liabilities). Tie release to concrete milestones, both financial and operational, and include staged releases where practical. Consider whether to place the holdback in escrow vs. direct holdback, weighing seller protection against buyer risk.

For readers pursuing mastery in M&A terms, the practical takeaway is simple. Use holdbacks to fill valuation gaps, manage post-close risk, and align seller incentives with long-term integration.

Reference the 2025 JP Morgan and Versailles Group findings for benchmarks, and search for the latest WilmerHale and White & Case analyses to stay current on adjustments and legal developments. For ongoing learning, explore more terms in the Matactic glossary and sign up for our free M&A course.

If you’re negotiating a deal now I’d say: map your risk, choose your holdback size, decide on escrow vs. direct holdback, draft precise release conditions, and align tax treatment. This is how you protect value and preserve deal integrity. We must take into consideration the regulatory nuances and market practices that shape these provisions in US deals and globally. Bring precise drafting to the table, because the difference between a good holdback and a disputed one comes down to language and clarity.

To keep learning, read the sources cited in our notes: Versailles Group on escrow and holdbacks, WilmerHale’s 2025 M&A Report, Dean Dorton on earnouts, Outside GC on the M&A lifecycle, JP Morgan’s 2025 holdback study, Website Closers on cross-border implications, Transaction Advisors’ M&A Agreements Master Class, Cherry Bekaert’s bank M&A outlook, and White & Case’s 2025 summer review.

These are practical references you can use in your next deal. Sign up for our free M&A course and keep building expertise with Matactic.