This article ranks the causes of post-LOI failure using Axial's 2025 dataset of 75 broken letters of intent. Each cause is paired with the leading indicator that appears first and the countermeasure available to the seller. Written for owners of lower middle market businesses who have signed an LOI or are about to.
Key takeaways
- Diligence-driven failures rose from 29.7% of broken LOIs in 2023 to 46.6% in 2025 (Axial, n=75).
- The 2025 breakdown: non-QoE diligence findings 25.3%, QoE EBITDA discrepancies 21.3%, renegotiation 14.7%, seller backed out 13.3%, financing 10.7%, business underperformance 8.0%.
- Financing has faded as a deal killer, dropping from 21.3% in 2023 to 10.7% in 2025.
- Deals that died had already burned months of exclusivity: an average of 106 days for private equity buyers and 129 days for independent sponsors.
- LOI to close in the $5M to $50M segment has held steady at 4 months since Q1 2023 (IBBA and M&A Source Market Pulse, Q1 2026).
- Almost every cause on this list produces a leading indicator two to six weeks before the buyer walks.
Why M&A deals fall apart after LOI: the ranked causes
A signed LOI is a checkpoint with a countdown attached, and the countdown is what makes post-LOI failure expensive. Axial's Dead Deal Report, published January 2026, analyzed 75 Axial-sourced transactions that broke after an executed LOI in 2025, across eight buyer types and eight industries.
The ranking below uses that dataset. The early warning column is the practitioner's overlay: the observable signal that typically precedes the stated cause.
| Cause of broken LOI | Share of 2025 failures | Earliest warning sign |
|---|---|---|
| Non-QoE diligence findings | 25.3% | A second, narrower request list naming one contract, customer or entity |
| QoE EBITDA discrepancies | 21.3% | Item-by-item support requested for individual add-backs |
| Renegotiation | 14.7% | Buyer goes quiet for five to ten days after a findings memo |
| Seller backed out | 13.3% | Owner reopens their own post-closing role or transition terms |
| Financing | 10.7% | No named lender by week three of exclusivity |
| Business underperformance | 8.0% | Two consecutive months of declining trailing-twelve-month EBITDA |
| Other, including external events | 6.7% | Policy or tariff exposure raised in a diligence question |
1. Non-QoE diligence findings (25.3%)
Findings outside the earnings review are the single most common reason an executed LOI breaks. Axial attributes 25.3% of 2025 failures to them, up from 19.1% in 2023 and 21.5% in 2024.
These are legal, contractual and operational discoveries. Axial's reported examples include undisclosed criminal charges surfacing early in diligence and a business services target with 40% of revenue tied to government sponsorship in one state. In another case a contract issue was serious enough that the buyer's lender declined to underwrite.
Early warning sign: the buyer's request list narrows. A broad opening list is routine. A second list that names one customer contract, one entity or one permit means someone found a thread and is pulling it.
Countermeasure: run the legal and contract review before the LOI, not during it. Change-of-control clauses, assignability, licensing and any pending claims belong in a seller-controlled file. This is the core of sell-side due diligence readiness, and concentration risk in particular is better addressed months before a process starts.
2. QoE EBITDA discrepancies (21.3%)
Earnings that do not survive the buyer's quality of earnings review caused 21.3% of broken LOIs in 2025, more than double the 10.6% recorded in 2023. This is the fastest-growing cause in the dataset.
The mechanism is simple. A quality of earnings report rebuilds adjusted EBITDA from source data and tests every add-back for whether it is truly non-recurring. One independent sponsor in the Axial sample reported that the banker had overstated EBITDA by 25%. Another described walking away after the diligenced EBITDA came in between $265,000 and $594,000 below the presented figure.
Early warning sign: the QoE team stops asking for schedules and starts asking for invoices. Item-by-item support requests on individual add-backs mean the aggregate has already been questioned.
Countermeasure: commission your own analysis first. A sell-side quality of earnings report finds the same problems while you still have competing bidders and can fix or disclose them on your terms.
Which number would still stand after a buyer's diligence? The valuation calculator gives you a reference range before you sign anything that starts an exclusivity clock.
Get Started3. Renegotiation you cannot walk away from (14.7%)
Renegotiation accounted for 14.7% of 2025 broken LOIs. These are deals where a finding was real, the buyer proposed new terms, and the parties failed to agree on the revision rather than on the original price.
Axial's examples are instructive: an independent sponsor who could not reach agreement on price after the CPA analysis, and a healthcare services deal where the sellers declined a new structure and price. Note what these have in common. The seller had no alternative bidder left to name.
Early warning sign: silence. A buyer who has been sending questions daily and then goes quiet for five to ten days after receiving a findings memo is building an internal case for a revised offer, not losing interest.
Countermeasure: write a standard into the LOI. Material price changes should require a written finding with quantified impact. Keep the second and third bidders informed of timing throughout, and understand where earn-out structures will be proposed as the bridge when a buyer wants to reprice.
4. The seller backs out (13.3%)
Sellers themselves ended 13.3% of these deals. The pattern is rarely about price. It is about what the owner discovers they actually agreed to.
Axial's examples include a search fund deal where the seller rejected the post-acquisition strategy, a seller who pulled the business off the market, and an industrial services owner who paused citing market uncertainty. Context matters here. Some 86% of advisors report that first-time sellers make up at least half their current engagements (IBBA and M&A Source Market Pulse, Q1 2026), so most sellers are working through this once.
Early warning sign: the owner reopens their own terms. When the conversation shifts back to the post-closing role, the transition period or the employment agreement, the commitment underneath the LOI is unresolved.
Countermeasure: settle the personal terms before signing. What the owner does on day one after closing belongs in the exit preparation work, well ahead of the LOI.
5. Financing falls through (10.7%)
Financing caused 10.7% of broken LOIs in 2025, down sharply from 21.3% in 2023. Credit conditions explain much of the decline.
The Federal Reserve's July 2026 Senior Loan Officer Opinion Survey reported basically unchanged standards for commercial and industrial loans to firms of all sizes during the second quarter of 2026. Current standards sit easier than the midpoints of banks' historical ranges for loans to small firms. Financing is available. What still fails is the specific buyer's specific structure: Axial cites a funding partner who changed terms late and a lead equity investor who became uncomfortable with the valuation.
Early warning sign: no named lender by week three of exclusivity, or an equity source that is still being assembled deal by deal.
Countermeasure: ask before signing. Who is the lender, is the equity committed or being raised, and what has this buyer closed in the last 24 months. A structured competitive process surfaces these answers while alternatives still exist.
6. The business underperforms during diligence (8.0%)
Deterioration in the business itself ended 8.0% of deals. This is the cause most fully inside the seller's control and the one most often ignored once a process is running.
The mechanism from the Axial sample: company performance declined materially enough that the valuation had to change, and the process went pencils down. A buyer underwriting to a trailing-twelve-month EBITDA figure will re-cut that figure at the closing date. Every month of exclusivity replaces a strong month in the trailing window with a current one.
Early warning sign: your own monthly close. Two consecutive months of declining trailing-twelve-month EBITDA during diligence will produce a price conversation, whether or not the buyer has raised it yet.
Countermeasure: protect management capacity. Diligence requests should route through a deal team and an advisor rather than through the operators running the business. The realistic time budget for this is covered in how long it takes to sell a business.
7. External events and everything else (6.7%)
The remaining 6.7% covers causes that fit no single category, most of them external. Axial records one search fund deal in industrials and manufacturing that collapsed with the tariff situation.
These are the hardest failures to prevent. A buyer underwriting a manufacturer with imported inputs, a distributor with cross-border supply, or a healthcare business with reimbursement exposure is pricing a policy variable neither party controls.
Early warning sign: diligence questions about the outside world rather than about your business. Requests for input-cost sensitivity, supplier country of origin or payer mix by program mean the buyer's investment committee has flagged an exposure.
Countermeasure: quantify the exposure yourself and put it in the data room with your own analysis attached. A seller who has already modeled a 10% input-cost increase controls the framing. This belongs on the sell-side preparation checklist.
What a post-LOI retrade actually costs
A retrade after the LOI costs more than the headline price reduction, because the buyer usually adjusts the structure at the same time. The following example is illustrative and uses figures typical of the lower middle market.
Assumptions: a services business with $13.0M in revenue and $2.60M in adjusted EBITDA as presented, and an LOI at 5.0x. The structure is all cash at close with escrow, no earn-out and no seller note. The buyer reprices on the diligenced number rather than walking away.
| Step | Item | Amount |
|---|---|---|
| 1 | Adjusted EBITDA as presented in the CIM | $2,600,000 |
| 2 | Add-backs rejected in the buyer's QoE | ($260,000) |
| 3 | Diligenced EBITDA | $2,340,000 |
| 4 | LOI headline price at 5.0x | $13,000,000 |
| 5 | Repriced enterprise value at 5.0x | $11,700,000 |
| 6 | Purchase price reduction | ($1,300,000) |
| 7 | Escrow at LOI, 7.5% of price | $975,000 |
| 8 | Escrow after retrade, 10% of reduced price | $1,170,000 |
| 9 | Working capital peg reset, 12-month to 24-month average | ($150,000) |
| 10 | Cash at close as signed | $12,025,000 |
| 11 | Cash at close after retrade | $10,380,000 |
| 12 | Delta on the wire | ($1,645,000) |
The exclusivity clock is the real exposure
Exclusivity is the reason a post-LOI failure hurts. During it the seller has one buyer, a stopped process and a growing bill, and the Axial data shows how long that state typically lasts before a deal dies.
| Buyer type | Average days under exclusivity before breaking |
|---|---|
| Independent sponsor | 129 |
| Corporation | 125 |
| Holding company | 115 |
| Private equity fund | 106 |
| Individual investor | 93 |
| Search fund | 70 |
For reference, the LOI-to-close period in the $5M to $50M segment has averaged 4 months in every first quarter since 2023 (IBBA and M&A Source Market Pulse, Q1 2026). A deal that breaks at day 106 has consumed most of a normal closing timeline.
Five terms that limit the damage
- Cap the initial exclusivity at 60 days, with extensions tied to defined milestones rather than granted automatically.
- Require the buyer to deliver its full diligence request list before exclusivity begins.
- Set a written standard for price changes: a quantified finding, in writing, with supporting workpapers.
- Keep runners-up informed of timing without disclosing terms, so the process can restart in days.
- Hold a scheduled weekly call with the buyer's deal lead. Silence is data, and you only get it if a rhythm exists.
Selecting the buyer well is upstream of all of this. What separates buyer types on closing reliability is one of the questions an M&A advisor is engaged to answer, and it is why a structured competitive process matters more than the highest indicative number.
Already under an LOI and reading the signals? Book a confidential consultation to work through where your deal is most likely to be challenged and what the exclusivity terms actually allow.
Get StartedThis article is for general information and does not replace individual advice from a qualified tax advisor, CPA or attorney.
About the author: Lud Schroedl is the founder of FISART. An operator who built and sold his own companies, he understands the sale process from the owner's side of the table.