Big Story

Sellers Share the Full Story With Buyers They Trust

Key Takeaways

• Sellers decide within the first two meetings whether they trust a buyer enough to share the parts of the business that do not appear in the financial statements.

• Trust is increasingly built through financial preparation as well as transparency. Sophisticated buyers and advisory firms increasingly expect sellers to provide a sell-side Quality of Earnings (QoE) report, and accounting errors or unexplained discrepancies can quickly undermine confidence in the seller.

• The information that often saves a deal, the context behind a weak year, the story of the largest customer relationship, the honest picture of what the transition requires, almost never comes from the data. It comes from the seller choosing to share it.

• Roughly one-third of signed Letters of Intent never reach closing. Diligence findings cause many of those failures, but the strength of the buyer-seller relationship often determines whether the parties can work through them.

• Buyers need to build trust before exclusivity. Once diligence begins, it is usually too late.

Every deal hits a difficult moment.

Sometimes it is a customer. The buyer's quality-of-earnings team discovers that the top account, responsible for 22% of revenue, has a 30-day termination clause the seller had never mentioned. Sometimes it is a number. The add-back schedule includes $180,000 in owner compensation that the buyer's accountants classify as partially recurring rather than fully discretionary. Sometimes it is a person. The general manager who runs daily operations announces during week three of diligence that she has accepted a role elsewhere.

None of this is unusual. 

The timing of the disclosure changes how the buyer interprets it. Shared early, it becomes context the parties can plan around. Discovered during diligence, it can look like concealment and raise questions about what else has not been disclosed.

In deals where buyer and seller have built genuine trust with each other, the response is a meeting. The seller explains that the termination clause has never been exercised in 11 years and that the relationship predates everyone currently working at the account. Both parties, having invested months in a process they each want to finish, find a way to work through it. It is not comfortable. But it happens, because there is enough goodwill in the room to absorb the friction.

In deals where the relationship is transactional, where the seller has felt more like a subject of scrutiny than a partner, the same discovery becomes a negotiation. The buyer revises the offer. The seller interprets it as bad faith. The tension from months of guarded exchanges makes every subsequent conversation harder. And frequently, the deal dies.

CT Acquisitions' 2026 deal-failure analysis, drawing on the Axial Dead Deal Report and SRS Acquiom data, finds that roughly 30% of signed Letters of Intent never reach closing. Diligence findings and quality-of-earnings discrepancies account for more than half of those failures. In most cases, the underlying issue was information the seller had, disclosed incompletely, and that the buyer discovered at the worst possible moment, under exclusivity.

The pattern is predictable once you see it. Sellers decide within the first two or three meetings whether a buyer has earned the kind of credibility that makes full disclosure feel safe. That credibility is built by listening. A buyer who spends the first meeting asking what the seller is most proud of signals that they see a person, not a transaction. A buyer who remembers something the seller mentioned three weeks earlier demonstrates that they were paying attention. These are not techniques. They are the natural behavior of someone who recognizes that the human relationship being formed in the first meetings is as consequential to the eventual outcome as any term in the LOI.

The most successful transactions are the ones where principals worked together to identify problems early, managed expectations openly, and stayed focused on getting the deal done. That collaboration does not emerge from a signed NDA. It emerges from the quality of the conversations that came in the first meetings.

Governance Feed

1. TPG Twin Brook says lower-middle-market lending risk depends heavily on borrower selection, loan structure, and portfolio oversight. The direct lender reviews 1,000 to 1,500 opportunities annually but closes only 50 to 65, focusing on businesses with $5 million to $25 million in EBITDA. Deals are structured at roughly 40% loan-to-value, with a 60% equity cushion, and must support debt in a flat-growth scenario with a modeled 250-basis-point rate increase. The firm also holds the revolver and a financial maintenance covenant in every deal, giving it earlier visibility into liquidity problems and business underperformance.

2. The Federal Reserve held the federal funds rate at 3.5% to 3.75% at its July meeting. Three regional presidents dissented and preferred a quarter-point increase. The hold keeps the prime rate at 7.5%. Variable rate SBA 7(a) pricing stays where it has been all year. Buyers modeling acquisition debt service should not count on cheaper financing before the September meeting.

3. S&P Global Ratings reported that redemption requests exceeded inflows at every rated business development company in the second quarter, reversing the net inflows several managers recorded earlier in the year. Managers say requests are concentrated among a small number of large investors rather than spread across retail bases, and there were early signs of improvement in June. The agency also flagged software exposure as a concern, with software loans making up 18% of assets in rated middle market CLOs. Sustained outflows matter for buyers because they constrain how much fresh capital nonbank lenders can deploy into new acquisition financings.

4. Private credit lenders are finding steadier deal flow in the lower middle market even as broader direct lending activity slowed to $33.6 billion in new loans in Q2, the lowest level since Q2 2023. Lenders described the segment as more stable than the core and upper middle markets, with pricing mostly at SOFR plus 475 to 525 basis points and some deals reaching SOFR plus 650 or higher. Aging private equity portfolios in the segment are expected to keep generating financing opportunities.

Thesis Principle

Section 1202 lets founders holding qualifying C corporation stock exclude up to $10 million in gain from federal tax, raised to $15 million for stock issued after the 2025 One Big Beautiful Bill Act. The requirements are strict. The company must be a domestic C corporation with gross assets under $50 million through issuance, and the stock must be held more than 5 years from original issuance. Owners operating as S corporations or LLCs today should ask their tax advisor whether their entity choice is costing them the exclusion.

Resources & Events

📅 CVBBA Annual Conference (Cary, NC - September 22-24, 2026) 

The Carolinas-Virginia Business Brokers Association Annual Conference takes place September 22-24 at the Embassy Suites by Hilton in Cary, North Carolina. The event brings together business brokers, M&A advisors, lenders, attorneys, accountants, and valuation professionals who advise privately held businesses throughout the Southeast. Educational sessions focus on valuation, buyer financing, transaction structure, negotiation, and current market conditions, alongside peer networking and industry roundtables. Details →

📅 Michigan Business Brokers Association Annual Conference (Lansing, MI - October 9, 2026)

The Michigan Business Brokers Association’s annual conference will run from 8:30 a.m. to 5 p.m. at Lansing Community College’s West Campus. Built around the theme “Where Great Deals Begin,” the event will bring together business brokers and advisers working across acquisitions, growth, financing, valuation, and business exits. The full-day program will focus on professional education, industry connections, and collaboration among Michigan business brokers and advisers. Details →

📊 Report Spotlight: US Middle Market Monitor Q2 2026 (CIBC)

The US middle market remained subdued in Q1, with 747 transactions under $500 million and longer timelines as tariff, commodity, and geopolitical uncertainty weighed on activity. Average valuation multiples for $10 million to $500 million LBOs rose to 7.3x EBITDA, but buyers concentrated on businesses with durable earnings and clean financials. Add-ons represented 76.3% of PE buyouts, while average debt increased to 3.9x EBITDA, showing that financing remains available for quality deals. Smaller platforms still faced a clear scale discount, with a 2.6x valuation gap between $10 million-$100 million and $100 million-$500 million transactions. Read → 

For the Commute

Think Like a Buyer, Not an Owner (DealQuest Podcast)

Many owners spend years building a business without ever asking how a buyer would evaluate it. In this episode, David Horwich explains the difference between good and bad revenue, why selling additional products to existing customers is often the most efficient growth strategy, and why owners should understand every available path, including keeping the business, recapitalizing, or selling, before deciding on an exit. For founders preparing for a future transaction, it's a conversation on building a business that buyers want to own rather than simply one owners are proud to operate.