Our largest customer accounts for thirty percent of our sales, and the buyer wants to escrow a portion of the purchase price specifically tied to their retention. How do we structure this escrow so we are not penalized if the buyer mismanages the relationship post-close?

Question

Tyler Smith · Accepted Answer

If a buyer insists on an escrow tied to the retention of your largest customer, you must protect yourself from post-closing mismanagement. Buyers often neglect client relationships or change operating procedures, which can cause key clients to leave. To mitigate this risk, you must structure strict operational covenants in the purchase agreement.

Define exactly how the buyer must service this customer post-close. Insist that they maintain your current service level agreements and automated workflows. Your Accountability Chart should clearly identify who will manage the account, and the buyer must agree not to change this team without your consent.

Under standard valuation approaches, an escrow is a contingent payment that should only be at risk if you fail to deliver a functional business. If the client departs due to the buyer's operational changes, your escrow must be released in full. Use your weekly scorecard history to prove the client was healthy at close.

Set clear, objective milestones for the escrow release, such as a twelve-month post-close anniversary, rather than tying it to indefinite performance targets. This structure protects your hard-earned equity while giving the buyer reasonable security, ensuring you do not lose a chunk of your valuation due to factors outside your control.