Most of the value that gets lost in a lower middle market exit is not lost in the marketing process. It is not lost in the LOI negotiation. It is lost in the ninety days that follow the LOI, in a window most founders do not realize is the window where the price actually gets set.
A founder came to us last quarter convinced his LOI number was his close number. The LOI was at a fair multiple, the buyer had a track record, the diligence period was structured normally. Ninety-three days later the transaction closed at 78 percent of the LOI number. The compression came in three discrete moves. A working capital normalization that absorbed two turns. A management add-back disallowance that absorbed half a turn. A customer cohort finding that produced a structural escrow holdback and an earnout structure that, in expected value terms, took the rest. None of these were inflicted by a buyer behaving badly. All of them were the buyer's QoE provider doing the job the buyer paid them to do.
The structural pattern repeats. We published a working paper on it last month, The Buyer Lane Preparation Map (DOI 10.2139/ssrn.6735844). The paper documents that the divergence between LOI indicated value and close indicated value in the population studied is forecastable, with the bulk of the compression concentrated in a small number of structural drivers that are visible months before LOI. The paper is the buyer-archetype version of a finding the predecessor paper, The Preparation Gap, also documented: the gap is large, the gap is recurring, and the gap is structural.
Three drivers absorb most of the compression.
The first is working capital normalization. The buyer's QoE will normalize working capital against a peg derived from the trailing financial information. If the seller's actual operating working capital sits above the normalized peg, the difference comes out of the close proceeds. In our data, this is the single most common driver of post-LOI compression. The repair is preventive. Eight to twelve months before LOI, the seller and the seller's advisors should be running working capital against the same peg the buyer's QoE will run, and surfacing and closing the gap before marketing begins. The eight-week version of this exercise, run after the LOI, surfaces the gap too late to close it.
The second is add-back defensibility. Most sellers carry add-backs into the trailing EBITDA calculation that they believe are defensible. A non-trivial share of those add-backs are not defensible to a sophisticated buyer's QoE provider. Owner compensation normalization, related-party transaction normalization, non-recurring expense add-backs, and discretionary expense reclassifications are the four categories that produce the most compression. The repair is preventive. Defensibility is built through documentation, third-party validation, and conservative scoping. The defensibility analysis the seller-side QoE produces eight months before LOI is the document that protects the add-backs in late diligence. The defensibility analysis built in the diligence window itself is too late.
The third is customer cohort and concentration. Buyers in 2026 underwrite customer cohorts with discipline. Customer concentration above buyer-archetype-specific thresholds (different for strategic, platform PE, and search/sponsor) produces structural compression. Customer churn patterns that do not match the management narrative produce compression. Customer cohort retention curves that compare poorly to the buyer's reference set produce compression. The repair, again, is preventive. The cohort analysis run eight months before LOI gives the founder time to address concentration, document retention, and build the cohort story the buyer's QoE will test.
The three drivers are not exhaustive. Management depth, capital intensity, free cash flow predictability, and the legibility of the financial information also matter, and the paper documents the archetype-specific weighting. But in the population studied, these three drivers absorb the majority of the compression that lands in the ninety-day post-LOI window.
The operational implication is the one most advisors have not internalized. The post-LOI window is not the window where compression gets fought. It is the window where compression that was forecastable months earlier gets crystallized. The fight happens in the preparation period or it does not happen. The founders who keep close value in the ninety-day window are the ones who did the preparation work eight to twelve months earlier. The founders who lose close value are the ones who treated the LOI as the finish line and walked into the post-LOI window unprepared for the diligence workstream the buyer was always going to run.
The reframe for sellers is short. The marketing process sets the LOI. The preparation work sets the close. The ninety days between LOI and close are the period where the work that was done (or not done) months earlier becomes visible in the price. The advisors who anchor their work to that reframe are the ones whose clients close at or near LOI value. The advisors who do not are the ones whose clients call me three weeks into QoE asking what just happened.