Deals killed after DD
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Hello,
I am curious to learn what experiences you have with regards to deals killed after DD, and generically speaking the nature of the issues identified.
Tks
Hello, Gilberto! In 2018, I was doing a deal with a VC firm in Phoenix. The deal included me buying two MarComm businesses in their portfolio. As part of the deal, the VC was going to acquire 11% of my company. It was complicated, and I needed to do DD on the two firms and the VC. The deal also included my moving from MN to AZ. I made the move within the 90-day DD period and ended up killing the deal because the VC firm fell short on many of the promises they made. The deal looked great on paper, but once I got to know the people in the deal better, I determined this was not a good fit for me. I am grateful I made the decision that I did. The VC firm broke up two years later.
In my previous company, a recent acquisition ultimately failed post-DD.
The primary driver was cultural misalignment, closely linked to a fundamentally different reward and incentive system.
While the financial and legal diligence did not raise major red flags, the people and behavioural aspects were underestimated. Post-close, misaligned incentives led to conflicting priorities, erosion of trust, and challenges in retaining and motivating key talent.
In addition, the acquisition appeared to be driven more by ownership ego and personal ambition than by a clear value-creation thesis for the group. The absence of a coherent strategic rationale made integration difficult and weakened sponsorship for the necessary changes.
In hindsight, the deal highlighted how cultural fit, leadership intent, and incentive alignment can be decisive factors, even when traditional DD outcomes look sound.In my experience, deals that are terminated after due diligence are most often killed by quality-of-earnings issues (unsustainable revenue, aggressive revenue recognition, or one-off earnings), customer and concentration risks, and people-related risks that turn out to be far more material than expected (loss of key leaders, weak second layer of management, or high dependency on a few individuals). Less frequently, deals also fall over due to hidden compliance or regulatory exposure and technology or integration complexity that materially increases execution risk. In most cases I’ve seen, it’s not a single red flag, but a combination of financial and operational findings that ultimately undermines confidence in the investment case.
Deals that get killed after due diligence typically don’t collapse over a single red flag, but rather the accumulation of issues that fundamentally challenge the original investment thesis. The most common deal‑breakers I’ve seen relate to undisclosed liabilities, such as tax exposures, legal disputes, or contingent obligations that materially affect valuation. Significant quality‑of‑earnings concerns – for example, revenue heavily dependent on one customer, aggressive accounting practices, or unsustainable cost structures – also frequently derail deals. Another major category is operational and technology risks, including outdated systems, technical debt, or cybersecurity weaknesses that require substantial remediation. And increasingly, people and culture issues surface as deal‑killers when leadership gaps, talent flight risk, or cultural incompatibility threaten post‑deal integration. While each issue on its own might be manageable, it’s when the DD findings fundamentally alter the risk/reward balance that buyers ultimately decide to walk away.
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