A new report from Axial, a private deal network covering the lower middle market, breaks down the most common reasons signed letters of intent failed to close on its platform in 2025. The leading cause was not financing. It was not the seller getting cold feet. It was diligence findings that surfaced after the LOI was signed.
Non-QoE diligence findings accounted for 25.3 percent of broken LOIs in 2025 according to Axial. That is up from 19.1 percent in 2023. Quality of earnings discrepancies more than doubled over the same period, rising from 10.6 percent of dead deals to 21.3 percent.
Meanwhile financing-related deal failures dropped meaningfully, from 21.3 percent in 2023 to 10.7 percent in 2025.
Read that data slowly. In 2023 the most common reason a signed LOI failed was that the buyer could not get the money. In 2025 the most common reason is that the buyer found something in the business they did not like after they signed.
This is not a small shift. I read it as a structural change in where the leverage lives in the deal process.
In my latest book The Business Sale Paradox I call this the LOI Paradox. Signing the Letter of Intent feels like the finish line. It is actually the starting line. The moment you sign, the power dynamic flips from seller to buyer. You agreed to a price. You agreed to exclusivity. You stopped talking to other buyers. The clock starts ticking and now they have the only seat at the table.
The Axial data is one window into what the LOI Paradox looks like in numbers. Among the Axial-sourced LOIs that broke in 2025, roughly one in four failed because of non-QoE diligence findings. The dead deals are only the ones where the parties could not bridge the finding. The data does not capture the deals that were re-traded down, restructured, or pushed through at worse terms. Those numbers are likely larger.
The same report breaks down what specifically buyers found. Non-QoE diligence findings include undisclosed legal or compliance risks, customer concentration concerns, and contract issues. QoE EBITDA discrepancies are the difference between the earnings number the seller represented and the earnings number the buyer’s quality of earnings provider could defend.
Often, the seller either did not recognize the issue, underestimated its materiality, or had not done the work to convert the company’s records into something that would survive professional scrutiny. Sometimes buyers also use diligence findings as leverage rather than as a true reason to walk.
The book covers something I call the Four Pillars of Sale Readiness. The pillars are personal and emotional readiness, financial strength, transferable value, and diligence readiness. Most owners I have read about and observed obsess over the first three. The fourth is where deals tend to die.
Diligence readiness means doing your own quality of earnings before you go to market. It means understanding which of your customer relationships are durable and which are concentration risks. It means having every contract in order, every related party transaction documented, every off-book adjustment cataloged. It means assuming a buyer’s team of accountants will dig harder into your numbers than you ever have.
Many middle market owners are surprised by how deep buyer diligence goes. The ones who are not surprised are the ones who already lived through their own version of it before the LOI was signed.
The owners who lose deals at this stage rarely think they are going to lose them. They sign the LOI feeling good. They have a number they can live with. They have a buyer they liked at dinner. They start thinking about what they will do with the money.
Then the buyer’s quality of earnings team shows up. Or the buyer’s law firm. And what surfaces is something the seller either did not know was material or did not bother to fix when there was still time.
By then the leverage is gone. The seller has been off the market for sixty days. The other bidders have moved on. The advisors have rebuilt their pipelines. The seller can renegotiate at a worse price or walk away and start over.
Neither option is good.
My read of the Axial data is not that the market got harder. It is that the part of the market where you have leverage is shrinking. The window where you control the process closes when you sign the LOI. What happens after that is decided by what you did, or did not do, in the year before you went to market.
The best owners I have studied treat their pre-market preparation the way an athlete treats training camp. They run their own diligence on themselves. They fix what is broken before a stranger finds it. They walk into the LOI with nothing to find.
That is the only version of the LOI Paradox that works in the seller’s favor.
For more on the Four Pillars of Sale Readiness see The Business Sale Paradox.
Source: https://www.axial.net/forum/dead-deal-report-unpacking-2025s-broken-lois/
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