By , Founding Partner, Cordis Group LLC ·

Every founder interviewing advisors asks some version of the same question: what happens when we close? What will I net, how long will it take, who will the buyers be. It is the right question and every advisor is ready for it. Almost nobody asks the other one. What happens if we do not close? What will this have cost me, what will I still owe you, and what will my company look like the day I have to tell everyone the deal is off? That question gets asked far less often, and the answers are much more revealing about the person you are about to hire.

It is not a hypothetical. Deals that reach a signed letter of intent still fall apart with some regularity in the lower middle market, and even the ones that survive rarely arrive at closing on the terms they started with. In a review of 89 lower-middle-market transactions across late 2025 and early 2026, post-LOI price adjustments occurred in 68 percent of deals, with a median compression of 9.8 percent of the original LOI value (https://dx.doi.org/10.2139/ssrn.6515478). A process that gets renegotiated is the common case. A process that dies outright is uncommon but far from rare, and a founder should understand the downside before signing an engagement letter rather than while living through it.

Start with the money that leaves regardless. Legal fees are incurred as the work is done and are owed whether or not there is a closing. On a lower middle market transaction that runs into six figures without much difficulty, and a deal that dies late, after the purchase agreement has been marked up several times, costs considerably more in legal fees than one that dies early. A sell-side quality of earnings report is paid for by the seller up front and is a sunk cost the moment it is commissioned, although it is one of the few sunk costs that retains value, since a current report can support a relaunch. Tax and estate planning work done in anticipation of a sale is similarly spent. None of this is refundable and none of it is contingent.

What You Still Owe the Advisor

The advisor's fee is where founders make the most assumptions and get the fewest specifics. Most engagements are built around a success fee that is only earned on a closing, which founders reasonably read as no deal, no fee. But most engagements also carry pieces that are not contingent: a monthly retainer, a work fee or preparation fee charged at signing, and expense reimbursement. Those are typically non-refundable, and they can add up to a meaningful number over a nine month process that ends in nothing. Ask for the total non-contingent exposure as a dollar figure across a twelve month engagement that does not close. A good advisor will give it to you in about a minute. An advisor who cannot or will not is telling you something.

Then ask about the tail. Nearly every engagement letter contains a tail provision, which says that if you sell to a buyer the advisor introduced during the engagement, and you close within some period after the engagement ends, the success fee is still owed. That is a reasonable protection against a founder terminating an advisor and closing next month with a buyer the advisor found. What makes tails dangerous is their scope and length. A twelve month tail limited to a written, named list of buyers actually contacted is fair. A thirty-six month tail applying to any party who became aware of the opportunity is not, and it can make your company effectively unsellable through anyone else for three years. We walked through this clause and the rest of the document in the anatomy of the engagement letter. If you read only one section closely, read the tail.

Founders sometimes assume a break fee will cushion a collapse. In lower middle market deals it usually will not. Termination fees appear in a small minority of these transactions, and in the cases where they do appear they tend to be payable by the buyer or by both parties rather than by the buyer alone in the seller's favor. Smaller sellers rarely have the leverage to extract one. Plan on the assumption that if the buyer walks during diligence, you absorb your own costs.

The Costs That Do Not Appear on an Invoice

The larger expense is usually not the fees. A company that has been to market and come back is a known quantity. Buyers in a given sector are a small world, and the ones who passed remember why. Coming back six months later to the same list of acquirers means answering a question you cannot avoid: what happened last time, and what has changed since. That question is answerable, and companies relaunch successfully all the time, but it costs leverage. The usual advice is to wait long enough to have a genuinely different story to tell, which in practice means somewhere between twelve and twenty-four months and a fixed version of whatever killed the first process.

Then there is the company itself. A sale process consumes an enormous amount of senior management attention at exactly the time it is most needed elsewhere, and the operational drift shows up in the numbers a quarter or two later. If the management team was told, they now know the owner tried to sell and failed, and some of them will draw conclusions about their own futures. If they were not told, they have spent months watching the founder disappear into rooms with strangers. Either way the internal cost of a broken process is real and it lands on the same twelve months you will need to be growing again before a relaunch is credible.

The Questions to Ask Before You Sign

Five things are worth putting to any advisor you are considering, in writing, before an engagement letter is signed. What is my total non-contingent cost if we run twelve months and do not close? What exactly does the tail cover, for how long, and is it limited to a written buyer list? Of the last ten engagements you signed, how many closed, and what happened to the ones that did not? At what point in a process do you tell a client that it is not working and recommend stopping? And what does the wind-down actually look like: who tells the buyers, what happens to the data room, what do I own of the work product when this ends?

That third question is the one that separates candidates. Every advisor has broken deals. An advisor who claims otherwise is either new or not being straight with you. What you are listening for is whether they can describe the failures specifically and without defensiveness, and whether the reasons cluster into a pattern that would also apply to your company. An advisor whose deals die at diligence for financial reporting problems has a preparation habit worth knowing about before you hire them, not after.

The last question matters more than it sounds. Work product ownership determines whether a failed process leaves you with an asset or with nothing. The financial model, the confidential information memorandum, the buyer research, the diligence file assembled over months: all of that has real value in a relaunch, and whether you keep it should be settled in the engagement letter rather than negotiated during a wind-down when the relationship may already be strained.

Reducing the Odds Is the Real Answer

All of this is downside management, and downside management is a poor substitute for not being in the downside. The deals that break most often are the ones that went to market before the company could survive being examined, where the financial reporting had never been tested, the customer concentration had never been explained, or the add-back schedule was built to support a number rather than to describe a business. Those problems do not appear at the letter of intent. They appear in the ninety days after it, which is when most of the value in a lower middle market exit quietly leaks away, a pattern we described in why the 90 days after LOI quietly eat most of a lower middle exit. The advisor who spends the first several months of an engagement finding those problems before a buyer does is the advisor least likely to hand you the conversation this article is about.

So ask the closing question and then ask the other one. An advisor who answers both plainly, with numbers, and without treating the second as an insult is demonstrating exactly the disposition you want representing you when a buyer calls in month seven with a reason the price should be lower. The willingness to describe how things go wrong is not pessimism. In this business it is close to the only reliable evidence of competence.

Further Reading