RKJ Partners - Why Most Lower Middle Market Deals Fail After the LOI

Most buyers believe the hardest part of a deal is getting the Letter of Intent (LOI) signed. However, the real challenge lies in everything that follows. In the lower middle market, a significant number of acquisitions fall apart between the LOI and closing—not because buyers change their minds, but because the true nature of the business is revealed. Here are some common deal killers we often encounter: - The financials don’t align with the narrative: Adjusted EBITDA can look very different once due diligence begins. - Working capital gaps emerge: Buyers may find that the business requires much more cash to operate than initially expected. - Customer concentration raises concerns: If one client accounts for 10% or more of revenue, lenders may change the loan structure. - Seller expectations shift: Advisors, friends, or competing buyers can influence the seller mid-process. - Owner dependence becomes apparent: Key relationships, operations, and decision-making often rest with the founder, complicating what seemed like a straightforward deal. At RKJ Partners, we recently published a report on why many lower middle market transactions fail after the LOI. For those actively acquiring businesses, understanding these risks before signing the LOI is crucial. https://www.rkjpartners.com/s/RKJ-Partners-Buy-Side-Newsletter-Vol-5-Article###-###-#### pdf