The conventional explanation for a broken deal has been the same for years. The financing fell through. The seller got cold feet. Valuation gap. These explanations show up in every post-mortem, and they’re not wrong. They just describe a market that has changed.
In 2025, the problem moved. And most deal processes haven’t caught up.
Axial analyzed 75 broken LOIs across eight firm types and eight industries. Non-QoE diligence findings were the single largest cause of failure at 25.3% of transactions. QoE EBITDA discrepancies followed at 21.3%. Together, those two categories account for nearly half of every LOI that didn’t close last year. In 2023, financing was the dominant failure mode at 21.3% of broken deals. By 2025, it fell to 10.7%. Diligence failures nearly doubled over the same period.
A separate Axial survey of 107 lower middle market advisors tells a slightly different story. In that sample, valuation expectations ranked as the leading cause of deal failure in 2025, cited by 28.3% of respondents, with diligence findings close behind at 24.5%. Financing came in third at 17.9%. The two datasets aren’t contradictory. They’re measuring different things. Transaction-level data points to what actually killed the deal at the table. Advisor sentiment reflects what they saw as the starting condition. Read together, what you get is a market where deals are reaching the table in worse shape than buyers realize, and valuation disagreements that could be surfaced earlier are instead surfacing during diligence.
What changed?
Capital got easier. Rate cuts in late 2025 brought more deals to the table. That’s good, unless buyers are arriving less prepared than the stage requires. Non-QoE findings (undisclosed legal exposure, customer concentration risk, contract problems) are surfacing after exclusivity is signed, not before it. QoE is revealing EBITDA that doesn’t match the CIM. One independent sponsor, after walking from a deal, noted the reported EBITDA was off by between $265,000 and $594,000. They found out after spending heavily on QoE to get there.
The cost of a broken LOI is not just the lost deal. It’s everything spent getting there. Independent sponsors averaged 129 days under exclusivity before walking away from a dead deal. Private equity funds averaged 106 days. That’s four months of legal fees, QoE spend, management distraction, and opportunity cost for a deal that didn’t close. The sunk cost problem is real, and it compounds when buyers treat exclusivity as the checkpoint where serious diligence begins rather than where it should be closing out.
For mid-market advisors and independent sponsors, the practical implication is direct. The old risk to manage was whether the capital stack would hold. That risk still exists, but it is no longer where most deals die. The new risk is arriving at the table without having done enough work to know what you’re actually buying. That means pushing harder on preliminary financial validation before the LOI is signed, asking for documentation on customer concentration and key contracts earlier in the process, and being willing to walk away before the meter is running rather than after.
A few limits worth noting.
The Axial broken LOI dataset covers 75 deals, skewed toward independent sponsors and search funds. Larger PE funds may see different patterns given their diligence infrastructure. The category labels also have edges. “Seller backed out” is an endpoint, not a cause. It usually reflects something that eroded earlier: trust, information quality, how the buyer managed the process. The data tells you where deals died. It is quieter on why buyers stayed in as long as they did before finding out.
Dig into the data for yourself
Dead Deal Report: Unpacking 2025’s Broken LOIs
2026 Lower Middle Market M&A Outlook: Valuations, Deal Activity & Market Trends
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