How deals close, and why they fall apart
A price agreed is not a deal done.
A price agreed is not a deal done. Roughly a third of engagements never close, and the ones that fail mostly fail late, after a letter of intent is signed and both sides have spent real money getting there. This page is about that gap.
The pattern in the 2025 numbers is worth stating plainly. The single largest cause of a broken letter of intent is no longer financing and it is no longer the buyer walking. It is what diligence turns up once the buyer is allowed to look properly, and the second largest is a disagreement about what the earnings actually were. Between them they account for nearly half of all failures. Both are things a seller can find and fix in advance, which is the whole argument for preparing early.
Everything below is dated and sourced. Open any figure to see the sentence it came from and the page it was read on.
25 figures · 4 sources · last reviewed 2026-09-10
Why deals break after the letter of intent
What causes deals to fall apart after the letter of intent is signed?25.3%
Non-QoE diligence findings account for the largest share of broken LOIs in 2025
Non-QoE diligence findings accounted for 25.3% of failed transactions, making it the single most common reason deals fell apart post-LOI.
Based on 75 unsuccessful Axial-sourced transactions; does not include deals from other sources
Why are so many deals falling apart after the LOI these days?25.3%
Diligence-related findings have become the primary driver of broken LOIs year over year
Non-QoE diligence findings increased steadily from 19.1% in 2023 to 21.5% in 2024 and 25.3% in 2025, while QoE EBITDA discrepancies more than doubled over the same period, rising from 10.6% to 21.3%.
Shift indicates that as capital availability improved, diligence-driven findings increasingly determined deal closure outcomes
How often do disagreements about earnings numbers kill a deal?21.3%
QoE EBITDA discrepancies are the second-leading cause of broken LOIs
QoE EBITDA discrepancies followed closely at 21.3%, highlighting the continued impact of earnings normalization on deal viability when reported performance diverged materially from buyer expectations.
QoE EBITDA discrepancies more than doubled from 10.6% in 2023 to 21.3% in 2025, indicating increasing severity
What happens when price negotiations restart after an LOI?14.7%
Renegotiation challenges account for a significant share of broken LOIs
Beyond diligence, renegotiation challenges represented 14.7% of broken LOIs, often reflecting an inability to align on revised pricing or structure following diligence findings or updated financial analyses.
Renegotiation remained relatively stable year over year (2023-2025)
How often do sellers back out of deals in the lower middle market?13.3%
Seller decisions lead to deal termination in lower middle market transactions
Seller decisions accounted for another 13.3% of failed deals, with examples including sellers pulling transactions off the market or reconsidering strategic alternatives mid-process.
Transactions in which seller backed out trended lower over 2023-2025 period
What happens to a deal if the business starts underperforming before closing?8.0%
Business underperformance contributes to deal failure when operating results deteriorate
Business underperformance, while less common at 8.0%, still played a meaningful role when operating results deteriorated during the diligence period.
Business underperformance peaked in 2024 before moderating in 2025
How often do M&A deals actually close?32%
Deal failure rate approximately 32% of all engagements
Approximately one-third of all engagements (median 32%) did not result in a closed transaction; the valuation gap between buyer and seller expectations was the most frequently cited cause.
Median value across respondents. Primary failure cause is valuation expectations gap. Data from investment banker and business broker responses.
How much price gap usually kills a deal?11-20%
Common pricing gap when deals fail is 11-20%
When deals failed to close, the most commonly reported pricing gap was 11 - 20% — suggesting that even relatively modest valuation disagreements are sufficient to terminate a sale process.
This is the most commonly reported gap, not the average or median. Indicates modest valuation gaps drive deal failure.
How much is changing hands
How many businesses sold in the lower middle market this quarter?3,523
Q2 2026 saw record deal volume in the lower middle market
Q2 2026 deal volume reached a quarterly record, with 3,523 deals coming to market.
Represents deals listed on Axial platform; does not include all LMM transactions
How many small businesses actually changed hands in Q2 2026?2,117 transactions
Total business transactions in Q2 2026
A total of 2,117 businesses changed hands in Q2 2026
BizBuySell tracks broker-reported closed transactions, skews Main Street
Are fewer businesses selling this quarter than last?10% decline
Transaction volume decline quarter-over-quarter
down 10% both quarter-over-quarter and year-over-year
Is the market for buying and selling businesses slowing down?10% decline
Transaction volume decline year-over-year
down 10% both quarter-over-quarter and year-over-year
Which sectors are moving, and how fast
What share of all business sales are service companies?40%
Service businesses portion of all transactions
Service businesses remained the market's largest segment in Q2, accounting for 40% of all transactions
Are service businesses harder to sell than they used to be?11% decline
Service sector deal volume decline year-over-year
Deal volume declined 11% year-over-year
How long does it take to sell a service business?155 days (9% improvement)
Service sector median days on market improvement
median days on market improved 9% to 155 days
Improvement means fewer days on market
Is there less buying and selling in manufacturing?9% decline
Manufacturing sector transactions decline year-over-year
Manufacturing business transactions declined 9% year-over-year
Is it taking longer to sell a manufacturing business?247 days (17% increase year-over-year)
Manufacturing sector days on market
manufacturing transactions taking 247 days to close, up 17% year-over-year
Is the restaurant business market getting tighter?12% decline
Restaurant sector transactions decline year-over-year
Restaurant business transactions declined 12% year-over-year
Is it harder to sell a retail business than it used to be?15% decline
Retail sector deal volume decline year-over-year
deal volume declining 15% year-over-year
Who is buying, and with what
Who are the people actually buying businesses?46%
Buyers identified as corporate refugees
Forty-six percent (46%) of buyers identified as corporate refugees pursuing independence through business ownership
Are repeat entrepreneurs common among business buyers?14%
Buyers identified as serial entrepreneurs
14% described themselves as serial entrepreneurs
How many buyers are coming from recent layoffs?13%
Buyers identified as recently unemployed professionals
13% as recently unemployed professionals
Are more people buying businesses through search funds or ETAs?48%
Brokers reporting increase in ETA and Search Fund activity
Nearly half (48%) of business brokers report an increase in both Entrepreneurship Through Acquisition (ETA) and Search Fund activity
What size business are private equity buyers typically targeting?34%
Most common LMM buyout size band is $1M-$4.99M EBITDA
For buyout transactions, the most common EBITDA size band was $1M–$4.99M (34% of respondents), reflecting the lower middle market concentration of the PE respondent pool.
Percentage of PE respondent pool in survey, not market volume. Distribution reflects survey respondent focus areas.
How much cash does the buyer need to have at close?<$500K 88/10/1; $500K-$1M 81/14/4; $1M-$2M 83/12/2; $2M-$5M 86/9/1; $5M-$50M 87/6/4 (cash/seller note/earnout, percent)
Cash at close, seller financing and earnout by deal size, Q3 2025
Chart-vision read. Cash at close is high across every band, which cuts against the common claim that lower middle market deals are mostly seller-financed. Columns do not always total 100 because of rounding.
Related figures, kept on their own pages
- Does the buyer's inability to get financing kill many deals? What money costs10.7%
- Are buyers expecting me to finance part of the sale? What money costs90%
- How many sellers are willing to finance part of the sale? What money costs29%
- Are most sellers refusing to carry seller financing? What money costsAlmost half (approximately 47-49%)
- How many sellers haven't decided on seller financing? What money costs23%
- How old are the business owners selling their companies? The ownership transferBaby Boomers 59%, GenX 27%, Silent 7%, Millennials 6%, GenZ 1%
What these numbers cannot tell you
These are the reasons deals were recorded as dying, which is not always the reason they died. A buyer who has lost confidence will usually find something in diligence to point at. A quality of earnings dispute and a buyer looking for a discount can produce the same line in the same report, and no dataset separates them.
The size of the gap matters more than most sellers expect. Where deals fail on price, the most commonly reported distance between the two sides is 11 to 20 percent, not a chasm. Deals of that shape are usually lost to preparation rather than to real disagreement about what the business is worth.
One figure here cuts against a common belief. Cash at close sits above 80 percent in every size band from under half a million dollars to fifty million, which is hard to square with the idea that lower middle market deals are mostly seller-financed. Read it alongside how often seller notes appear at all, on what money costs.
What the business is worth before any of this starts is on what businesses sell for, and how ready owners are when they arrive is on the ownership transfer.
Sources on this page
- Axial
- BizBuySell Insight Report
- IBBA / M&A Source Market Pulse
- Pepperdine Private Capital Markets Report
Reported as published by the sources named. Not investment, legal, tax or valuation advice.