Signing a Letter of Intent is a milestone, not a commitment. In our experience, the majority of deals that reach LOI don’t close. Roughly 69% fall apart between signing and closing, according to industry data. Many look promising at LOI, only to unravel during due diligence. Not because the business fundamentally changed, but because conviction didn’t survive contact with real information.
That’s the process working, not failing.
Below are the six situations where, across the deals we’ve supported, we most consistently recommend walking away.
At LOI, most assumptions rest on limited information. As due diligence progresses, the question shifts from “is this business attractive?” to “what happens if performance is below plan?”
Earnings that looked stable turn out to depend on a handful of contracts. Customer concentration is higher than the headline numbers suggested. Working capital swings more than anticipated.
A business can look good on the upside and still be too risky to buy. If the searcher can’t clearly answer what a bad year looks like and how survivable it is, that’s usually reason enough to stop.
Some owner-operated businesses look straightforward until you get inside them. The owner handles three of the top five client relationships personally. There’s no sales process, just a person. Pricing decisions live in someone’s head, not a system.
These businesses aren’t necessarily bad. But the acquisition risk is real: can the searcher take control and run this effectively without the current owner? If the answer is uncertain, the path to stable operations is longer and harder than most models assume.
How a seller behaves after the LOI often tells you more than anything that came before it. Someone warm during early conversations may go quiet when diligence requests arrive. Key documents take weeks. Answers shift. Small terms get relitigated.
This matters beyond closing. The first six months post-acquisition typically depend on seller cooperation: client introductions, knowledge transfer, and staff reassurance. A seller who checks out before closing won’t suddenly re-engage afterward.
Initial LOI terms get renegotiated. That’s normal. But when each round adds another layer: a structured earn-out, a seller note with unusual conditions, financing that assumes everything goes to plan, the structure starts doing work it shouldn’t.
Complexity usually means underlying disagreements haven’t been resolved, just deferred. Each open question gets papered over rather than settled. If the economics can’t be explained simply, that’s a signal to pause.
Search fund acquisitions often take months between LOI and closing. The business keeps operating during that window, and the numbers keep moving.
When reality diverges materially from the LOI baseline, in either direction, the deal is in trouble.
If performance comes in below expectations, the original price doesn’t hold. The searcher has to renegotiate downward with a seller who signed expecting something different. For many owner-operators, a lower valuation isn’t just a financial adjustment. It’s personal. Those conversations often don’t end well.
The opposite scenario is less obvious but just as dangerous. If the business significantly outperforms, the seller notices. What felt fair at LOI can feel like a bad deal six months later. Renegotiation restarts, leverage shifts, and momentum disappears fast.
A business can look healthy in isolation. Diligence sometimes reveals a different picture: a market that’s contracting, a regulatory shift coming, a well-funded competitor entering the space. The company may be well-run. The problem is what surrounds it.
Most diligence looks inward. Financials, operations, people. The structural forces acting on the business get less attention, and that’s often where the surprises are. When we dig into the competitive landscape and find something the seller either didn’t know or didn’t mention, it changes the investment case, regardless of how strong the business looks on paper.
The six deal-breakers that matter most
The searchers who build strong businesses are rarely those who close the most deals. They’re the ones who stay clear-eyed about what they’re seeing and are willing to walk away when the picture doesn’t hold.
Walking away after LOI isn’t cost-free. It means months of work, adviser fees, and opportunity costs written off. But it’s almost always less costly than closing a deal that shouldn’t have closed.
Due diligence is the last real decision point before significant capital and personal commitment get locked in. Sometimes using it well means stopping. That call, made clearly and early, is one of the most important a searcher will make.
