Dead Deal Report: Unpacking 2025’s Broken LOIs

Transactions can fall apart for a variety of reasons, including financing challenges, diligence-related findings, quality-of-earnings (QoE) discrepancies, or changes in seller intent. Given the complexity of LOIs and the varied structure of many transactions, identifying a single, definitive cause of a broken deal is often difficult.

To better understand why some deals broke down, we analyzed a set of Axial-sourced deals that fell apart in 2025. The analysis is based on 75 unsuccessful transactions across eight firm types and eight industries. We are grateful to the Axial members who provided valuable context on the factors that ultimately prevented these transactions from closing.

This annual report breaks down the most common reasons Axial-sourced LOIs failed to close, supported by transaction-level data, member-provided context, and year-over-year comparisons from 2023 through 2025.

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Broken Executed LOIs By Reason

 

Diligence-related issues were the leading drivers 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. These findings frequently surfaced issues outside formal QoE work, including undisclosed legal or compliance risks, customer concentration concerns, and contract issues. 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.

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. 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. Financing constraints were cited in 10.7% of cases, driven by shifting capital availability or investor hesitation. Business underperformance, while less common at 8.0%, still played a meaningful role when operating results deteriorated during the diligence period.

The examples in the table below provide firsthand context on how these issues manifested across buyer types and industries, illustrating the practical realities behind the aggregate data.

Select Broken Executed LOIs

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2025 Deal Data | Broken Executed LOIs

*Average days the deal was under exclusivity before breaking

Beyond buyer type and industry, the data underscores the meaningful time and expense often incurred before an executed LOI ultimately falls apart. Many of the largest transactions remained active for several months before terminating, reflecting prolonged diligence processes and significant sunk costs. As one independent sponsor noted after walking away from a deal, “This deal went sideways. After spending a hefty sum on QoE, the EBITDA was off by between $265k and $594k.” These extended timelines and late-stage diligence findings highlight how material discrepancies can surface only after substantial resources have already been committed, reinforcing the financial and opportunity costs associated with failed LOIs

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To better understand the market, we reviewed why LOIs fell apart in 2023 through 2025 to identify trends in whether an executed LOI goes on to close or break. Below is a year-over-year comparison of the reasons LOIs fell apart.

Broken Executed LOIs By Reason | 2023 – 2025

 

Year-over-year data shows a clear shift toward diligence-related issues as the primary drivers of broken LOIs. 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%. At the same time, financing-related broken LOIs declined materially, from 21.3% in 2023 to 10.7% in 2025, and transactions in which the seller backed out also trended lower. Renegotiation remained relatively stable year over year, while business underperformance peaked in 2024 before moderating in 2025. Overall, the data suggests that as capital availability improved, diligence-driven findings increasingly determined whether executed LOIs ultimately closed.

Key Takeaways From Deals That Didn’t Close

The findings in this report make it clear that a signed LOI is not a finish line, but a checkpoint increasingly shaped by diligence-driven risk. While financing constraints and seller decisions remain factors, non-QoE diligence findings and EBITDA discrepancies now account for the largest share of failed Axial-sourced transactions, often emerging only after months of work and significant expense. Incomplete information, unsupported assumptions, and late-stage discoveries carry real financial and opportunity costs. Ultimately, the data highlights the growing importance of early diligence, disciplined underwriting, and alignment between buyers and sellers to reduce the likelihood that an executed LOI ends without a closing.

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Additional Resources

Exit Ready is Axial’s twice-monthly newsletter that distills the best content, tips, and guides for exit-minded business owners. Below are a few resources from the newsletter that we hope will be helpful and can aid in better preparation for the transaction process.

To subscribe to Exit Ready, enter your email below.

• Understanding Sell-Side Advisory Services for Small Businesses
• Small Business Exit Strategy: How to Exit Your Business Through an M&A Process
• eBook -> 12 Things Not to Do in M&A: A business owner’s guide on how to best approach the mergers & acquisition process.
• Video -> Why Quality of Earnings Can Make or Break a Deal | Jay Jung, Embarc Advisors

To help Axial members navigate financial diligence, we’ve secured preferred relationships with several lower middle market QoE providers. If you’re an Axial member and need to put a sell-side or buyside QoE in motion, let us know here. We’ll be happy to make some introductions.

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Axial is the trusted deal platform serving the lower middle market ($2.5-$250M TEV).

Over 3,500 advisory firms and 3,000 corporate and financial buyers have joined Axial to efficiently connect with relevant capital partners, source actionable deals, and build new relationships.

Visit the Member Closed Deals page to see selected transactions that have been sourced and closed via Axial.