Why Deals Die After the LOI (And What That Says About the Deal)
There's a moment in almost every M&A process that feels like the finish line but isn't. The letter of intent gets signed, both sides shake hands (sometimes literally), and everyone exhales like the hard part is over.
It isn't. Not even close.
We've watched plenty of deals that looked done at LOI fall apart in the sixty or ninety days that followed. Not because anyone was acting in bad faith, necessarily, but because the LOI is a lot lighter than people treat it. It's a statement of intent, not a contract. And that gap between "we intend to do this deal" and "this deal is actually closing" is where things go sideways.
The LOI Isn't the Deal. It's the Outline of One.
A letter of intent typically nails down price, structure, and a few key terms. What it usually doesn't nail down — in any real detail — is everything due diligence is about to uncover. Customer concentration that looked fine on a summary but raises questions once you dig in. An employment agreement nobody flagged. A lease that doesn't transfer the way everyone assumed.
None of that means the buyer was misled or the seller was hiding something. It usually just means the LOI was signed before anyone had really kicked the tires. That's normal. It's also exactly why so many deals wobble right after signing instead of before.
Financing Falls Through More Than People Admit
This one's less talked about than it should be. A buyer gets a lender excited early, terms look good, everyone assumes it's a formality. Then underwriting actually happens, and the picture changes — maybe the multiple looks aggressive once a bank's credit committee sees it, maybe leverage assumptions don't hold up. Sellers who don't ask hard questions about a buyer's financing before signing an LOI are sometimes surprised months later when the deal quietly stalls.
A Retrade Doesn't Always Mean Trouble
A retrade is when a buyer comes back after due diligence and asks for a lower price or different terms than those in the LOI. Sellers understandably hate this. Sometimes it's a legitimate response to something diligence turned up — a working capital shortfall, a customer contract that's about to expire, an owner add-back that doesn't hold up under scrutiny. Other times, it's a buyer testing how much room they have to push. Knowing the difference matters, and it's usually where having someone in your corner who's seen a hundred of these pays for itself.
What Actually Protects a Deal
Honestly, most of what keeps a deal alive after the LOI isn't clever deal-making. It's preparation that happened before the LOI was ever signed. Clean, well-organized financials. Recast earnings that a buyer's lender will actually believe. A seller who's already thought through the messy questions — the customer concentration, the pending lawsuit, the related-party lease — instead of getting blindsided by them mid-process.
The sellers who make it through diligence with the deal intact are rarely the ones who got lucky. They're the ones who did the unglamorous work of getting their house in order months before anyone signed anything.
The Real Lesson
If there's one thing we'd tell an owner heading into an LOI, it's this: treat it as the start of the real work, not the end. The handshake feels good. The champagne can wait.
At Masterworks Capital, we spend a lot of our time in that stretch between LOI and closing — the part nobody posts about on LinkedIn, but the part that actually determines whether a deal gets done. If you're heading into a process and want a second set of eyes on what's ahead, we're happy to talk it through.