Why Deals Die - It's The Details that Matter

Signing a Letter of Intent feels like crossing the finish line. In reality, it is only the halfway mark. Plenty of deals collapse between LOI and closing, and understanding why can help business owners avoid those pitfalls. Think of it like flying a plane: most accidents happen not at cruise altitude, but during takeoff and landing.

1. Surprises in Diligence

Buyers expect to confirm what they were told. If they discover inconsistent financials, missing contracts, or legal problems, it can spook them. Even small surprises can make a buyer wonder what else they have not seen.

For example, imagine a landscaping company showing $2 million of “steady” revenue. Once the buyer digs in, they realize 40 percent of sales came from one city contract that is up for renewal next year. Suddenly, that “steady” business looks much riskier. Or picture a dental practice that cannot produce signed patient contracts or consistent payroll records. The buyer’s legal team starts asking tough questions, and the deal momentum slows.

Surprises do not have to be catastrophic to cause trouble. They just erode trust. If a buyer feels like they are constantly uncovering little issues, they may decide it is not worth the risk. However, some surprises are positive (think: a marque customer decides to extend their contract in the heat of diligence). What matters the most is what you can control... that's your level of preparedness and control of the narrative during diligence.

2. Overstretched Expectations

Valuation is often the stickiest part of a deal. Sellers may hear a high number early in the process and hold onto it as gospel. But indications of interest are not binding. Once buyers review the real numbers, they may come in lower.

Take a small e-commerce brand with strong year-end sales. A buyer might initially value the business at $10 million based on those results. But during diligence, they notice sales drop by half every spring and summer because the products are seasonal. Suddenly, the buyer revises their valuation to $7 million. If the seller refuses to budge, the deal falls apart.

This is sometimes called “re-trading.” While frustrating, it often comes down to expectations not being aligned from the start. Sellers who have a realistic sense of what drives value, and who prepare their numbers carefully, are less likely to hit these painful resets.

It can be hard for many founders to accept, but an exit is not a gold medal for past effort. Buyers make offers because they believe the business will generate returns for them going forward, not simply because of the sweat and sacrifice that went into building it. A buyer will not “pay up” out of appreciation for hard work... their focus is on risk, cash flow, and yield.

3. Financing Problems

Even some large buyers rely on financing to close transactions. For smaller deals, private equity funds or search fund buyers often need loans. If credit markets tighten or lenders change their terms, the buyer may not be able to fund the deal as planned.

For example, say you are selling a specialty food distributor. A private equity buyer lines up private credit financing for 50 percent of the purchase price. Two months into diligence, interest rates climb and the bank gets nervous about food costs and supply chain risks. The financing falls through, and suddenly the buyer cannot pay what they offered.

This can happen even if your business is healthy. The issue is on the buyer’s side, but the result is the same: no deal. The best sellers prepare for this by favoring buyers with strong balance sheets or multiple financing options, not just one shaky loan commitment. Your investment banker will help you navigate financing risk as you evaluate bids.

4. Cultural or Strategic Misfit

Numbers matter, but so does fit. Buyers are not just buying your profits, they are buying your people, your customers, and your way of doing things. If that does not mesh with their culture or strategy, enthusiasm can fade quickly.

Imagine a family-owned HVAC company being courted by a large national consolidator. On paper, the deal makes sense. But in management meetings, the owner emphasizes community relationships and steady growth, while the buyer pushes aggressive sales targets and cross-selling. The disconnect worries both sides. Eventually, the buyer walks away, deciding it is not the right cultural fit.

Another example: a marketing agency focused on nonprofits receives an LOI from a buyer who mainly works with fast-growing tech startups. The buyer realizes halfway through diligence that their client bases do not align. Better to kill the deal than buy a company that does not fit strategically.

5. Market Shifts

A deal negotiated in one environment can look very different a few months later. A sudden drop in industry demand, regulatory changes, or competitor moves can alter the buyer’s appetite.

Take the pandemic as a real-world case study. Countless deals signed in early 2020 fell apart within weeks as revenue collapsed in industries like restaurants, gyms, and live events. Even outside extreme events, smaller shifts matter. A buyer might be hot on a trucking company when freight rates are high. If rates decline 30 percent during diligence, the deal may no longer pencil out.

For Nest Egguity readers, think about a daycare operator whose buyer gets spooked by new local licensing rules, or a craft brewery that loses its main distributor mid-process. Market context can turn a once-exciting deal into a no-go.

6. Exhaustion and Deal Fatigue

An M&A process is long, often 9 to 12 months, and sometimes more. Each stage brings new requests, negotiations, and conference calls. If both sides feel worn down, even minor disagreements can become deal-killers.

Picture a seller who has been answering weekly data requests for six months. They are running the business at the same time and starting to lose patience. When the buyer asks for yet another round of customer data, the seller snaps and delays responses. The buyer, already nervous about timing, interprets the delay as lack of transparency and pulls out.

Fatigue can also hit buyers. If their internal team is stretched across multiple deals, they may choose to abandon one just to lighten the load. Deals that drag tend to die, which is why preparation and momentum are so important.

Conclusion

Most deals fall apart for preventable reasons. Surprises, misaligned expectations, weak financing, poor cultural fit, shifting markets, or simple fatigue can derail months of work. The good news is that many of these risks can be reduced with strong preparation, realistic planning, and clear communication. The more you reduce surprises and friction, the better chance your deal will land smoothly.