The Post-Close Money Trap: Why Earn Out and Escrow Deserves the Same Scrutiny as Purchase Price

Olshan Litigation partner Kyle Bisceglie authored an article in New York Law Journal’s “Expert Opinion” column entitled “The Post-Close Money Trap: Why Earn Out and Escrow Deserves the Same Scrutiny as Purchase Price.” In the article, Kyle examines how imprecise drafting of earn-out provisions and indemnification escrows can drive costly post-closing M&A disputes. “This article addresses two areas that practitioners should consider carefully when negotiating and drafting a private company purchase agreement to avoid surprises and needless litigation after closing,” he writes. “For each, the outcome of post-closing litigation under Delaware or New York law often turns on the precision of the drafting.” Kyle explains that parties should define the applicable operating and efforts standards during the earn-out period rather than leave material obligations to implication. He also urges clear, specific language around anti-reliance provisions, escrow loss definitions and notice requirements so the agreement reflects the allocation of risk the parties intended. “Vague efforts standards, boilerplate integration clauses, and loosely defined loss triggers do not resolve disputes; they defer them to the courtroom,” Kyle explains. “Vigilance and precision at the drafting table is the most effective, and least expensive, protection against post-closing litigation.”