When the LOI Falls Apart: How to Recover the Deal
- Dr Allen Nazeri DDS MBA
- Jul 19
- 4 min read
In the world of mergers and acquisitions (M&A), a signed Letter of Intent (LOI) is a critical milestone, but not a guaranteed outcome. It signals serious intent, outlines deal structure, and kicks off due diligence. However, deals can and often do fall apart after the LOI stage. Whether it’s due to unfavorable diligence findings, financing delays, shifting priorities, or misunderstandings, deal fatigue can set in fast.
But the end of an LOI doesn’t have to be the end of the deal. In fact, when the LOI falls apart, it can present an opportunity to reset expectations, renegotiate smarter, and salvage what could still be a win for both sides.
Why Deals Collapse After the LOI
When the LOI Falls Apart: Common Causes
The LOI stage may feel like the halfway point, but the real deal-making starts after signatures hit the page. Here are the top reasons LOIs fall apart:
Discrepancies during due diligence: Undisclosed liabilities, inflated EBITDA, or unresolved legal issues can derail trust quickly.
Financing issues: Buyers relying on outside capital can lose momentum if their investors back away or terms change.
Valuation gaps: If assumptions made pre-LOI don’t hold up, the buyer may revise their offer—often downward—causing friction.
Cultural or strategic misalignment: The more founders and teams interact post-LOI, the more potential for disconnects to emerge.
Deal fatigue: Complex negotiations and delays can exhaust one or both parties, especially if there's no clear path forward.
The Psychological Fallout
When the LOI Falls Apart: The Emotional Impact
For sellers, it can feel like betrayal. Months of preparation, data sharing, and vulnerability suddenly seem wasted. For buyers, walking away after investing time and money into diligence is equally disheartening.
This emotional toll often leads to reactive decisions—lashing out, cutting off communication, or posting the deal back on the market prematurely. But this is where M&A professionals earn their keep: by guiding clients through uncertainty with strategic clarity.
Salvaging the Deal: What to Do Next
When the LOI Falls Apart: Regaining Momentum
Not all deals deserve resurrection, but when there's still strategic alignment and goodwill, here are five actionable ways to recover:
1. Clarify the Real Issue
Before jumping to conclusions, get granular about why the LOI failed. Was it a single issue—like working capital adjustment, seller notes, or post-closing employment—or a death by a thousand cuts?
Open a candid dialogue between decision-makers (not just advisors) to uncover whether there's room for compromise.
2. Reframe, Don’t Rehash
If trust has eroded, avoid retracing every step of the original negotiation. Instead, propose a clean-sheet discussion with new assumptions, fresh term sheets, and clearly defined roles moving forward.
This may include:
Introducing third-party valuation or quality of earnings review
Splitting diligence costs
Suggesting a mediator or transaction advisor to facilitate terms
3. Shorten Timelines with Milestone-Based Exclusivity
When deals drag, they die. Instead of long exclusivity periods, use milestone-based extensions:
7 days to provide proof of funds
14 days to submit revised term sheet
21 days to complete diligence
This protects the seller while giving the buyer breathing room to regroup and recommit.
4. Revise the Structure, Not Just the Price
Buyers often reduce headline price when risks appear. But many times, deals can be saved by restructuring, not just slashing:
Add earn-outs tied to future performance
Shift more to seller financing
Re-negotiate working capital adjustments or holdbacks
This allows both parties to share the risk and reward, keeping valuation perception intact.
5. Bring in a Fresh Set of Eyes
If you’ve been negotiating directly, consider bringing in an M&A advisor who wasn’t part of the initial LOI process. A neutral intermediary can defuse tension, assess value gaps objectively, and offer creative deal structures that save face for both sides.
When It’s Time to Walk Away
When the LOI Falls Apart: Knowing When to Move On
Not every deal is worth saving. Sometimes, walking away is the most strategic move—especially if:
The buyer repeatedly changes terms without justification
The seller fails to provide key disclosures
Legal or regulatory red flags surface
Financing becomes too uncertain
In these cases, it’s critical to end with professionalism and preserve optionality. Deals have a funny way of coming back around when the timing and positioning improve.
Preventative Measures: How to Avoid a Broken LOI
When the LOI Falls Apart: Lessons for the Next Time
To reduce the risk of an LOI collapse in future deals, implement these best practices:
Pre-diligence prep: Clean up financials, legal docs, and operational KPIs before going to market.
Proof of funds: Don’t sign an LOI without knowing the buyer’s funding sources and timelines.
Clear deal milestones: Establish agreed checkpoints with consequences for delays.
Understand motivations: Ensure both sides are aligned on strategic goals—not just numbers.
Involve experienced advisors: Seasoned M&A professionals can anticipate problems early and keep parties accountable.
Final Thoughts
When the LOI Falls Apart: A Second Chance Done Right
The collapse of an LOI doesn’t mean failure. It means there’s more negotiating and navigating to do. For experienced M&A professionals, this is often when the real value creation begins. With transparency, creativity, and urgency, many “dead” deals can be reborn even stronger than before.
If your LOI just fell apart, pause, but don’t panic. With the right strategy, it might still lead to a successful close. And if not, the lessons learned will prepare you for the next, better-aligned opportunity.
Dr. Allen Nazeri, aka "Dr. Allen," boasts over 30 years of global experience as a healthcare entrepreneur. He is the Managing Director at American Healthcare Capital and Managing Partner at PRIME exits. Dr. Allen provides strategic growth consulting to leadership teams of both privately held and publicly listed companies, ensuring their preparedness for successful exits.
He holds a Dental Degree from Creighton University and an MBA in M&A and Investment Banking from the University of Bedfordshire. Dr. Allen is the author of "Value Engineering: Strategies to 10X the Value of Your Clinic and Dominate the Market!" and the brand new book "Selling Your Healthcare Company at a Premium". Dr. Allen offers a free valuation to business owners ready for a partial or complete exit strategy. Dr. Allen collaborates with strategic buyers, private equity firms, and institutional investors, taking direct accountability for the annual successful sell-side representation of nearly $750M in enterprise value.
To have a confidential discussion about your company and receive a free valuation, please email Allen@ahcteam.com or Allen@ahcpexits.com
You can now communicate with Dr. Allen's clone https://www.delphi.ai/drallen
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