This case study is anonymised. The details have been modified to protect confidentiality. The sequence of events. and the reasons the deal failed. is real.

In 2024, a business services company in Southern Europe completed a six-month sale process. Three buyers had submitted non-binding offers. One had been selected, a letter of intent signed, and a 60-day exclusivity period agreed. The indicative enterprise value was €9.2 million. a 6.1× multiple on adjusted EBITDA of €1.5 million.

The deal collapsed in week two of due diligence. The buyer walked. No deal was reached. The company was taken off the market.

What the buyer found in week one

The first issue surfaced during financial due diligence. The buyer's accounting firm noticed that three transactions in the prior year. totalling approximately €380,000. had been booked as revenue from a supplier entity that shared a director with the target company. The transactions were not disclosed in the Information Memorandum. They were not illegal. But they were related-party transactions that had not been separately identified or explained.

When the buyer's team asked the seller about them, the explanation was credible but required documentation that did not exist. The buyer's confidence in the financial statements dropped materially. Their diligence scope expanded. What was planned as a 45-day process became open-ended.

What the buyer found in week two

The second issue emerged during legal due diligence. Two of the company's top five contracts. representing approximately 35% of revenue. contained change-of-control clauses that gave the counterparty the right to terminate the agreement on acquisition. Neither clause had been disclosed in the data room. Both had been in the contracts for years. The seller had not read them recently.

A 35% revenue risk at signing is not manageable through contractual protections alone. The buyer's legal team modelled three scenarios. full retention, partial loss, full loss of those contracts. and determined that the deal could not be structured at the agreed price with acceptable risk. They requested a significant price reduction and an extended earn-out. The seller refused. The deal collapsed.

What the IM had shown

When the buyer's team reviewed the Information Memorandum after the deal failed, they noted that the indicators of both problems had been present from the beginning. The related-party revenue was visible in the accounts if you knew what to look for. The change-of-control risk was flagged, obliquely, in the contracts summary. The buyer had simply not looked hard enough until they were in exclusivity.

That is a common pattern. Non-binding due diligence before LOI is often superficial. The detailed work starts after exclusivity. when the seller has no leverage and the buyer controls the timeline.