Whitepaper: Why Deals Break After LOI (and it’s usually not diligence)

Most deals don’t break in diligence. They break because the LOI never structured the risk. In many lower middle market transactions, the issues that ultimately kill deals are already visible before diligence begins: - EBITDA that doesn’t survive QoE - Working capital that was never actually defined - Customer concentration that lenders won’t underwrite - Contracts that don’t transfer on change of control - Liabilities that weren’t surfaced or allocated early - Financing assumptions that don’t hold None of these are surprises. They were present when the LOI was signed—the LOI just didn’t address them. What typically happens: - Buyer prices to win the deal and leaves key terms directional. - Exclusivity starts and leverage begins to shift. - Diligence surfaces issues that require adjustment. - The seller views it as a retrade, regardless of whether it’s justified. - The deal stalls or collapses. In many cases, the outcome was set before diligence even started. The buyers who close more consistently tend to approach LOIs differently. They don’t eliminate uncertainty. They define how it will be handled before it shows up. I put together a short framework that breaks down where deals actually fail after LOI, how these issues show up in practice, and how to structure around them earlier in the process. Check it out here: https://drive.google.com/file/d/1R3RyzwH0yMaog1jfZ4J8FAUzxisn09ns/view?usp=sharing