Earnest Money Deposit | M&A Basics
Introduction
Within the iGaming industry—where licensing, compliance, and technology integrations amplify execution risk—earnest money deposits (EMDs) play the same signaling role they do in other sectors: they demonstrate a buyer’s willingness to commit resources now for the right to close later. Yet their prevalence varies sharply by buyer profile and deal size.
Middle-market and institutional buyers. Private-equity funds, large listed operators, and strategic consolidators rarely post an EMD. They view the six-figure sums they spend on legal, regulatory, and technical due-diligence as an equivalent—and largely non-refundable—show of good faith.
Entrepreneurial or first-time acquirers. Where the acquirer is an individual or club deal with no M&A track record, an EMD protects the seller’s confidential data and raises the psychological cost of walking away after the data room opens.
Because iGaming assets trade on future cash-flow confidence, data leaks matter. A well-structured EMD reassures sellers that access to player databases, KYC files, source code, and proprietary trading models will not be abused.
Process at a Glance
Once the seller signs a letter of intent (LOI), the buyer wires the EMD to a neutral escrow agent—typically the trust account of a Tier-1 law firm or a regulated payments processor. Escrow releases the funds only when both sides:
Consummate the share/asset purchase agreement (SPA); or
Mutually agree to terminate; or
Obtain a court or arbitral order after a default.
A larger EMD strengthens the buyer’s optics and usually accelerates the seller’s cooperation during confirmatory diligence. Conversely, a zero-deposit offer from an inexperienced buyer is a red flag that often slows information flow.
Benchmark Expectations
| Deal Consideration (USD) | Typical Buyer Archetype | Usual EMD (% of price) | Escrow Tenor | iGaming-Specific Notes |
|---|---|---|---|---|
| < $5 m (micro-studio, white-label skin) | Individual / search-fund | 5 % – 10 % | 30-45 days | Seller may insist on gradual data releases; deposit often held by attorney-escrow. |
| $5 m – $50 m (single-brand operator) | Regional strategic / family office | 3 % – 5 % | 45-60 days | Source-code escrow and key vendor consents usually tied to deposit release milestones. |
| $50 m – $200 m (multi-jurisdiction operator) | Mid-market PE / listed company | 0 % – 2 % | 60-90 days | Buyers prefer to offset EMD with documented diligence spend; sellers accept if buyer pedigree is proven. |
| > $200 m (platform or global portfolio) | Tier-1 public operator / mega-fund | Rarely used | 90 + days | Reputation substitutes for cash; break-fees or reverse break-fees more common than EMDs. |
Typical Amounts
For a $1 m acquisition of a Curacao-licensed casino skin, a 5 % ($50 k) EMD is standard; amounts under $10 k rarely satisfy sellers. At $25 m—say, a Malta-licensed sportsbook with stable EBITDA—3 % ($750 k) is common, while anything north of $1 m sends a powerful message that the buyer will not re-trade terms lightly.
Pros and Cons of Requiring an EMD
Pros
Data-room discipline. Filters out tire-kickers before sensitive player cohorts or revenue APIs are shared.
Psychological anchoring. Buyer internalizes sunk cost, reducing the temptation to chip away at valuation later.
Damages buffer. Provides a ready pool to offset legal fees if the buyer defaults after contingencies drop.
Cons
Deal friction. Institutional buyers may view EMDs as amateur hour and step back rather than comply.
Liquidity drag. Ties up buyer capital that could be funding tech audits, third-party pen-tests, or gaming-labs reports.
False comfort. In a serious dispute, escrow rarely releases funds without litigation—delaying seller recovery.
Handling Refusals
When an individual balks at an EMD, probe the cause. Genuine liquidity constraints might be solved by a smaller refundable tranche released only after license applications clear, whereas a blanket refusal often signals either cold feet or a fishing expedition for market intel. With PE funds or listed operators, replace an EMD with a reverse break-fee or milestone-based cost-sharing agreement to keep both sides aligned.
Frequently Asked Questions
Q1: Do I automatically keep the money if the buyer walks?
No. Escrow releases require joint instruction or a judgment. Without alignment you may need arbitration or court action—so draft the LOI to spell out default triggers and governing law.
Q2: Can I demand both an EMD and a break-fee?
Yes, but only when leverage is exceptional—e.g., multiple bidders or scarce regulatory approvals. Most buyers will accept one or the other, not both.
Q3: What if my competitor is the bidder?
Stagger disclosures: high-level KPIs first, granular player-level data only after the SPA is unconditional. Couple this with an EMD or, at minimum, a staged release schedule tied to regulatory filings.
Q4: Who holds the deposit?
Use a neutral escrow: a law firm with gaming expertise in London, Malta, or Gibraltar, or a regulated payments institution. Avoid holding the funds yourself; independence breeds trust.
Q5: How long should the money stay in escrow?
Match tenor to the critical-path items—licensing, platform migration, or antitrust approval. For a straightforward asset deal, 45 days suffices; a multi-jurisdiction share deal may need 90 days or more.
Conclusion
Earnest money deposits remain a practical, if situational, lever for reducing execution risk in iGaming M&A. They are indispensable when the buyer’s track record is thin, optional when pedigree and diligence budgets speak louder than a wire transfer, and negotiable everywhere else. Calibrate the amount to the deal’s scale and the sensitivity of the data you are about to reveal—then document the release mechanics with the same rigor you apply to game-RNG certifications or responsible-gaming controls.
