I researched why LMM deals actually fail. Here are the Top 10.

I spent some time digging into the research on why lower middle market acquisitions fail. Pulled from search fund studies, claims data, purchase price adjustment disputes, and academic work on customer concentration and succession risk. Here’s where the rankings landed: 1. Cash-flow quality errors: QoE misses, revenue recognition, bad AR, understated normal expenses This is the most common and most expensive failure mode. Post-close adjustments show up in the vast majority of private deals, and financial statement issues remain one of the biggest drivers of paid claims. Revenue recognition. AR quality. Normalized add-backs. Owner perks. Expenses quietly pushed below the line. 2. Customer concentration and fragile material contracts Customer-concentrated targets tend to produce worse acquirer outcomes and weaker long-run performance. Sellers may say the relationships are “sticky.” Sometimes they are. But that can change quickly when the owner leaves, pricing changes, service slips, or the customer gets a better offer. 3. Owner dependency and succession gaps Small companies run on knowledge, personal relationships, and one person’s judgment. If the seller approves every quote, handles the major customers, keeps the team calm, knows which supplier will bend, and remembers every exception in the business, you may be buying a very expensive apprenticeship. 4. Restrictive leverage and refinancing squeeze Search fund failure studies repeatedly flag restrictive capital structures as a major theme. In construction and trades, debt can also choke bonding capacity, which means you may not even be able to bid the work you thought would fund the deal. One missed month becomes a cash issue. 5. Labor retention failure and weak management bench People leave. That sounds obvious until you buy a business where a key person walks out the door at 5 p.m. This is damaging in professional services, healthcare, logistics, construction, and any business where know-how lives in people instead of process. 6. Compliance, licensing, reimbursement, and legal-regulatory misses Compliance-with-laws breaches show up across industries, and the risk gets sharper in healthcare, logistics, retail, and regulated services. Billing. Coding. Wage-hour. Licensing. Privacy. Safety. Franchise rules. Contract compliance. Not always the headline killer, but expensive when it lands. 7. Working-capital peg and balance-sheet traps: inventory, deferred revenue, rebates, gift cards, lease liabilities Different line item from QoE, same basic problem: the buyer thought the cash economics were cleaner than they were. AR reserves. Inventory. Deferred revenue. Rebates. Gift cards. Lease obligations. "Normal" working capital that was never actually normal. 8. Asset-condition, deferred-maintenance, and capex-underwrite misses The seller stopped spending money before the sale, so profits looked better than they really were. Old equipment. Delayed repairs. Tired stores. Underinvested systems. Facilities that look fine until someone has to pay to keep them running. EBITDA looks stronger before closing. 9. Contract transferability, lease, franchise, and change-of-control failures Franchise consents. Site leases. Qualifying-party licenses. Top customer contracts. Payor arrangements. Vendor terms. These do not automatically transfer just because the CIM says “recurring revenue.” This is less cleanly measured in the data, but repeatedly shows up in practice. 10. Tech debt, IP, cyber, and systems-integration failure Tech IP and material-contract breaches run above the cross-industry average. Cyber is becoming more material, especially in rollups where the acquired systems look like they were last patched during the Obama administration. The pattern across industries is pretty consistent: cash conversion, concentration, people dependency, leverage. Based on your experience, does this match your ranking? What would you move? What’s missing from this list that deserves a spot?