How do escrow shares and holdback mechanisms affect the valuation?

part of the purchase price is withheld (typically 10–15% of total consideration) and, after closing, locked in an escrow account for 12–24 months. Functions:

• Indemnity security: on W&R breach claims (warranties & representations), the escrow is drawn on to satisfy damages.
• Working-capital adjustment: any net-working-capital difference between closing and the reference date is settled through the escrow.
• Earn-out backstop: in earn-out structures the escrow secures seller payments. Valuation effect for the seller: the escrow portion is not fully value-equivalent — risk-adjusted and with a time-value-of-money discount. Risk-adjusted value: typically 90–95% of nominal.