Why Most LOIs Fail: And What Business Brokers Should Be Doing Differently

Insights from Axial’s 2025 Dead Deal Report

Letters of Intent (LOIs) are supposed to move deals forward. Too often, they become the point where momentum quietly dies.

According to Axial’s 2025 Dead Deal Report, a significant percentage of executed LOIs never make it to closing, even after both parties believe they are aligned. That data confirms what experienced brokers already know: getting an LOI signed is not the same thing as getting a deal done.

At Exit Game Plan, we see this firsthand across lower-middle-market transactions. Axial’s findings validate an important truth that brokers, buyers, and sellers all need to understand.

What Axial’s Data Says About Broken LOIs

Axial analyzed executed LOIs that failed to close in 2025 and identified the most common causes. The top reasons were not surprises, but their weighting matters.

The most frequent deal killers included:

• Non-QoE diligence findings (legal, compliance, customer, contract, or operational issues)

• EBITDA discrepancies uncovered during Quality of Earnings

• Inability to renegotiate after diligence findings

• Seller backing out mid-process

• Financing constraints

• Business underperformance during diligence

(Source: Axial, “Dead Deal Report: Unpacking 2025’s Broken LOIs”)

The key takeaway?

Most LOIs don’t die because the LOI was vague. They die because diligence reveals issues that weren’t identified, framed, or coached early enough.

The Misconception: “A Stronger LOI Solves Everything”

There’s a growing narrative in the market that broken deals are primarily the result of poorly drafted or insufficiently detailed LOIs.

A solid LOI does matter. But Axial’s data shows that even well-structured LOIs fail when reality collides with assumptions.

In the lower middle market especially:

• Buyers often don’t know what they don’t know pre-diligence

• Sellers may underestimate which aspects of their business will raise concern

• Over-engineering deal terms too early can actually increase retrade risk

A highly detailed LOI that locks in assumptions before diligence doesn’t prevent failure, it often just moves the failure later, after more time, money, and emotion have been invested.

The Business Broker’s Real Job Happens Before Diligence

This is where experienced intermediaries earn their keep.

Axial’s data reinforces that brokers must do more than facilitate paper between buyer and seller. Brokers need to:

• Identify pressure points in the business before diligence begins(customer concentration, owner dependency, margin normalization, contracts, compliance, working capital, transition expectations)

• Coach the seller on which issues are likely to surface

• Frame those risks intelligently so diligence doesn’t feel like a surprise

• Avoid locking parties into assumptions that diligence is likely to correct

A strong LOI should reflect intentional alignment, not premature certainty.

Strong LOIs Aren’t Longer: They’re Intentional

The goal isn’t to negotiate every detail at the LOI stage. The goal is to decide what must be agreed to early versus what should wait until diligence provides clarity.

When that distinction isn’t made:

• Buyers ask for more than they ultimately need

• Sellers resist committing to terms they don’t yet understand

• Diligence turns into renegotiation

• Momentum collapses

Axial’s data shows that when deals break, it’s rarely because expectations changed arbitrarily, it’s because new facts emerged that the process wasn’t prepared to absorb.

A Missing Distinction: Pre-Close Failure vs. Post-Close Failure

One important nuance often gets lost in LOI discussions.

There are two different failure windows in any transaction:

1. Pre-close failure LOI signed → diligence → deal collapses (This is what Axial’s data primarily measures.)

2. Post-close failure Deal closes → disputes → litigation (This is where poorly defined terms and long entanglements show up.)

Both matter, but they require different solutions.

A broker’s primary role is preventing pre-close failure by surfacing risk early. Attorneys primarily protect against post-close failure through precise documentation.

Durable deals require both.

What This Means for Sellers and Buyers

If you’re selling a business:

• Don’t assume diligence issues mean a buyer is acting in bad faith

• Prepare early for the questions diligence will raise

• Understand where flexibility may be required before an LOI is signed

If you’re buying a business:

• Don’t confuse a signed LOI with certainty

• Expect diligence to refine, not confirm, assumptions

• Work with intermediaries who will push hard questions early

The Exit Game Plan Perspective

Axial’s report validates something we’ve long believed:

Deals don’t fall apart because brokers move too slowly. They fall apart because risks weren’t identified early enough.

A solid LOI is critical, but it’s not a substitute for preparation, coaching, and judgment. Every transaction is different. Every business has its own pressure points. And the earlier those realities are addressed, the higher the probability of getting to a real closing.

About Exit Game Plan: Navigating the sale of your business is a complex journey, but you don't have to go it alone. The team of Carson Bomar, Tampa business broker, Matt Perkins, Ohio business broker, & Tom Brubaker, Tampa business broker the Co-Founders of Exit Game Plan are here to provide the clarity and expert guidance you need to achieve your goals.

If you're ready to explore your options, contact Carson Bomar & Matt Perkins, Co-Founders and Business Brokers at Exit Game Plan for a confidential, no-pressure conversation.

Source

Axial, Dead Deal Report: Unpacking 2025’s Broken LOIshttps://www.axial.net/forum/dead-deal-report-unpacking-2025s-broken-lois/