In Turkish M&A, the hardest part is often not signing the SPA—it’s making sure the buyer can actually recover if something goes wrong after closing. Sellers want clean exit and full payment. Buyers want protection against hidden liabilities, tax/SGK surprises, litigation, and warranty breaches. The tool that frequently balances these interests is escrow and holdback.
This 1500-word SEO-focused guide explains escrow and holdback in Turkey M&A: what they are, how they work, what to include in the SPA, and how to avoid the most common traps that turn escrow into a fight instead of a solution.
1) What Are Escrow and Holdback in Turkey?
Although people use the terms interchangeably, they describe two different payment protection mechanisms:
Escrow
A portion of the purchase price is paid into a neutral account or held by an escrow agent (typically a bank or agreed intermediary) and released based on defined conditions.
Holdback
A portion of the purchase price is not paid at closing and is simply withheld by the buyer, to be paid later if no claims arise (or after adjustments).
Key difference: Escrow adds neutrality and controlled release; holdback is simpler but creates trust and enforcement risk.
2) Why Escrow and Holdback Are Common in Turkish Deals
Escrow/holdback is used to secure:
- warranty and indemnity claims (undisclosed liabilities),
- tax and SGK risks discovered after closing,
- working capital adjustments,
- post-closing obligations (deliver documents, release pledges),
- earn-out disputes (sometimes),
- litigation risk (known disputes resolved after closing).
In Turkey, they are especially useful where the target’s compliance history is uncertain or documentation is weaker than expected.
3) Escrow vs Holdback: Which One Works Better in Turkey?
Choose Escrow when:
- parties don’t fully trust each other,
- claim risk is significant,
- seller is exiting Turkey or may be hard to collect from later,
- a neutral release mechanism is needed,
- multiple conditions and documents must be managed post-closing.
Choose Holdback when:
- parties have strong relationship/trust,
- risk is limited and well-defined,
- the structure needs maximum simplicity,
- escrow cost and complexity are not justified.
Practical takeaway: If the seller is likely to disappear or be judgment-proof, escrow is usually safer than holdback.
4) What the Escrow/Holdback Must Cover (Define the “Purpose” Clearly)
One of the biggest mistakes is a vague purpose like “general protection.” Instead, define whether it covers:
- general warranties and indemnities,
- specific known risks (e.g., ongoing tax inspection),
- working capital adjustment only,
- a mix (with sub-buckets and separate rules).
Best practice: Use “baskets” (sub-amounts) inside the escrow:
- Bucket A: tax/SGK
- Bucket B: litigation
- Bucket C: general warranties
Each bucket has its own release and claim rules.
5) The Most Important Drafting Point: Release Conditions and Timelines
Escrow fights happen when release conditions are unclear. Your SPA should define:
- escrow amount and currency
- escrow period (e.g., 12–24 months depending on risk)
- release schedule (e.g., 50% at 12 months, 50% at 24 months)
- claim notification deadline
- required claim content (facts, amount, supporting evidence)
- dispute mechanism if seller rejects the claim
- what happens to undisputed portion (partial release)
Best practice: Use “deemed release” rules: if no valid claim notice is given by the deadline, escrow releases automatically.
6) Who Acts as Escrow Agent in Turkey?
In practice, escrow can be held by:
- a bank (common),
- a trusted intermediary agreed by parties,
- occasionally a structure involving counsel accounts depending on jurisdiction and banking arrangements.
What matters is not the “title” but:
- neutrality,
- clear instructions,
- ability to execute releases reliably,
- cost and compliance (KYC) feasibility.
7) Claim Process: Make It Mechanical
A strong claim procedure includes:
- Buyer sends claim notice with evidence and amount
- Seller has X days to accept or dispute
- If disputed, independent expert/arbitration/court route is triggered
- Undisputed portion is released immediately
- Disputed portion stays locked until resolution
Without this, sellers argue “you’re holding my money hostage,” buyers argue “you’re refusing liability,” and everything freezes.
8) Link Escrow to Warranty Limits (Caps, Baskets, Survival)
Escrow should not exist in a vacuum. Align it with warranty/indemnity mechanics:
- cap: maximum seller liability
- basket: minimum claim threshold
- de minimis: ignore tiny claims
- survival periods: how long warranties last
- knowledge qualifiers: what seller “knew” and disclosed
Practical note: If warranty survival is 12 months, escrow should not run 36 months for general warranties—unless there is a special risk bucket.
9) Escrow in Turkey for Tax/SGK: Why It’s Different
Tax and social security liabilities often arise later and can be large. Buyers commonly ask for:
- longer survival period for tax warranties,
- specific indemnity,
- separate escrow bucket with longer duration.
Sellers will push back because money is locked too long. The balanced approach is:
- risk-based duration,
- partial releases over time,
- objective triggers (audit completion, limitation period milestones).
10) Common Mistakes in Turkish Escrow/Holdback Structures
- vague release triggers (no timeline, no clear evidence standard)
- escrow amount too small for real risk
- holdback with no enforceable claim mechanism
- seller can’t be reached post-closing (foreign exit)
- bank KYC delays kill escrow setup
- dispute route unclear → escrow frozen forever
- mismatch between warranty survival and escrow term
Avoiding these issues is the difference between a smooth deal and a permanent fight.
FAQ
Is escrow enforceable in Turkey M&A deals?
Escrow is enforceable if properly documented and if the escrow agent has clear written instructions and release mechanisms aligned with the SPA.
Does escrow replace warranties and indemnities?
No. Escrow is a payment/security mechanism. Warranties and indemnities define liability. Escrow secures recovery.
How much escrow is typical?
It varies based on risk. Clean companies require smaller escrow; high-risk targets require larger or multi-bucket escrow.
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