In 2024, a significant portion of healthcare M&A deals faced delays or collapse due to avoidable issues like poor preparation and regulatory hurdles. costing sellers millions in lost enterprise value. For owners and operators preparing for a transaction, understanding the most common reasons why deals fall apart is as critical as understanding how they successfully close.
At M&A Healthcare Advisors, our team has advised on dozens of transactions across behavioral health, home health, hospice, pharmacy, physicians’ practices, and a variety of other healthcare segments. In this article, we draw from our experience to examine the most common issues leading to failed transactions and share practical strategies to mitigate them — ensuring that operators can engage a sale process with confidence, employing these key risk-reducing strategies.
In the sections that follow, you’ll learn how to reduce buyer risk, avoid regulatory pitfalls, streamline your deal timeline, and align valuation expectations to increase your chances of a successful close.
Why Deals Fail: Key Culprits
Uncertainty and Buyer Risk Aversion
Financial buyers, particularly private equity firms, operate with a strict mandate: maximize returns, minimize risk. When a seller is unable to present reliable and accurate financial statements, uncertainty can begin to creep in for the buying party. As one PE partner in our network famously stated, “The best deals are the ones we didn’t do.”
Sellers lacking a defensible EBITDA, reliable financial documentation practices, or the ability to explain margin fluctuations often lose credibility with the buyer community long before trust can even be established. Even strong businesses with a long history of successful operations can falter in a process without clear data and thoughtful presentation, ideally with the review, analysis, and approval of a third party QoE firm.Lack of Strategic Buyers and Deal Fatigue
Strategic acquirers, typically larger providers of the same services or segment-adjacent providers, tend to move more decisively when compared to financial buyers. But in today’s healthcare M&A environment, there are fewer strategic buyers showing up with offers that can compete with those put forth by financial buyers. This scarcity tends to shift the market toward financially driven buyers, who typically require extensive diligence, modeling and layers of approvals, as a means to ensure the best chances of maximizing their ROIC (return on invested capital). These drawn-out due diligence processes, focused on identifying potential risk factors, can often lead to seller fatigue, particularly among owner-operators still managing day-to-day operations.
Sellers have historically walked away from active sale processes not because a deal is poor or not in their best interest, but because the process becomes unmanageable and begins to affect the performance of their business due to the owner’s diversion of attention away from business growth and maintenance.Regulatory and Legal Hurdles
Between FTC scrutiny of large-cap roll-ups and a shifting reimbursement landscape, the regulatory terrain in healthcare is increasingly treacherous and constantly shifting. Unresolved CMS audits and UPIC investigations can quickly stall buyer interests, especially in states like California where enforcement activity is heightened.
Even when investigations are ultimately resolved favorably, the uncertainty and optics can derail a process before it even begins. Working with a regulatory attorney or compliance expert to identify any potential risks or unresolved issues, can make a big difference before engaging with buyers.
Private Equity Exit Challenges
Private equity firms face pressure from their limited partners (LPs) to produce liquidity in their investments. As traditional exits become more elusive, some PE firms are repurchasing their own portfolio companies via continuation vehicles. While this may be a viable capital solution for PE funds, it often means fewer offers on companies for sale in the open market and results in stiffer competition for sellers. This, overall, can lead to a more difficult market to purposefully match and execute on a transaction between a seller and a buyer.
Market Dynamics and Valuation Gaps
Post-2022, the M&A market has gone through what many would call a reset. Buyer appetite has softened, and interest rate hikes have depressed valuations, compared to the multiples seen in 2021 and 2022. Sellers expecting multiples in line with those historic years will experience a misalignment of valuation expectations, compared to market averages today.
We’ve seen many transactions collapse when sellers reject reasonable, post-diligence price adjustments, even when those adjustments are grounded in newly discovered margin pressures or revenue dependencies. Unfounded seller pricing expectations can impede progress or inhibit sellers from moving forward on offers that are in line with today’s market averages, but below their internal (and inflated) pricing expectations.
Capital and Complex Deal Structures
The cost of borrowing capital has climbed in recent years and so has deal complexity. Earn-outs, holdbacks, and seller notes are now commonplace in offers that typically were all-cash. These structures can be difficult for sellers to digest, particularly when misaligned expectations haven’t been managed in advance. This can often lead to sellers declining deals that they may not fully understand or simply don’t meet their cash expectations at close.
Time Kills Deals
One metric that has remained consistent, regardless of macro-economic fluctuations, is that time remains the silent killer for transactions. In 2024, we found that lower-middle market healthcare M&A deals took upwards of 20% longer to close than they did in 2022, according to our internal analysis. Each delay invites the opportunity for disruption: a new regulation, staff turnover, revenue dip, and/or buyer fatigue. Maintaining momentum and active communication with buyer parties is a vital component of reaching a successful outcome.
Summary: Why Deals Fail
Healthcare transactions often falter due to compounding factors that create friction for both buyers and sellers. The lack of a defensible EBITDA, weak financial documentation, and unexplainable shifts in performance can undermine credibility early. When strategic buyers are absent, financial acquirers dominate with time-consuming diligence, leading to seller fatigue. Regulatory flags, like CMS audits or UPIC investigations (especially in high-enforcement states) can quickly derail interest. Misaligned valuation expectations and the rise of complex deal structures (e.g., earn-outs, holdbacks) further strain negotiations. And as timelines stretch, external disruptions and buyer disengagement increase.
Understanding these risks is the first step in preparing for a smoother process. By understanding these pitfalls, sellers can better position themselves to maintain buyer interest and close on favorable terms.
Lessons Learned: How to Avoid Deal Breakers
Proactive Preparation with a Due Diligence Checklist
Preparation is the antidote to uncertainty. Prior to entering the market, sellers should assemble a robust set of data before going to market: at least 3 years of financials, operational details, compliance history, payor mix analysis, referral source stability, and employment agreements.
We recommend referencing our Buyer Diligence Checklist as a starting point. Additionally, sellers who invest in a formal Quality of Earnings (QoE) analysis, prior to engaging with buyers, can validate their earnings claims and reinforce buyer confidence from the outset.Rigorous Buyer Vetting
Not every buyer is the right fit. Some aren’t active in your particular segment and are simply exploring investment opportunities. Some don’t have the capital readily available or intend to raise it after identifying a target business. Some are merely fishing to better understand the market. Vetting buyer intent, funding capability, strategic approach, and deal experience is essential to avoid wasted time and should be one of the primary roles of a retained intermediary.
Working with an experienced advisor ensures that any outreach conducted is directed toward aligned and fully vetted parties who can follow through on their stated intentions in any presented offer.Mitigating Regulatory and Legal Risks
Regulatory risk can be managed, but only through transparency and documentation. Sellers should address any outstanding audit findings, ensure licenses are current, and avoid compliance shortcuts.
Engaging healthcare-focused M&A legal counsel can be invaluable. These professionals not only understand transactional mechanics, but also have direct experience navigating CMS inquiries, HIPAA reviews, and state-level scrutiny.
Aligning Valuation Expectations
Mismatched valuation expectations are a top cause of deal failure. Sellers should ground their pricing strategy in current market comps and business fundamentals. Overreliance on anecdotes or hearsay can set unachievable benchmarks.
Our Expert Valuations can provide third-party analyses to help owners understand what their business is worth today — not two years ago, not in theory, but in a real-time transaction environment. Having this defensible detail on hand to readily engage with buyer analysis will increase your chances of maintaining alignment between buyer and seller pricing expectations.
Streamlining the Process to Reduce Time
Efficiency is a differentiator. Organizing materials in a secure, virtual data room, setting a cadence for buyer updates, and maintaining diligence momentum, can be the difference between a stalled and failed transaction and one that successfully reaches a close. Sellers who intermittently disappear, delay requests, or provide inaccurate (or insufficient) data often see buyer interest evaporate quickly.
We recommend building a pre-market timeline with clear milestones: process launch, IOI due date, buyer Q&A windows, LOI selection, and a defined exclusivity period to complete due diligence. Holding all parties accountable to a defined timeline can provide the clarity needed to make significant decisions on short notice.
Summary: Lessons Learned
The strongest deals follow a repeatable blueprint: prepare early, screen buyers carefully, manage regulatory exposure, and move efficiently. Sellers with complete, organized financials and documentation can help to reduce buyer uncertainty. Regulatory concerns should be addressed upfront with M&A-versed legal counsel and an M&A Advisor guiding the entire process – all while maintaining momentum through clearly defined milestones and a structured timeline.
By following these steps, sellers can potentially mitigate deal risk and position themselves for a more favorable outcome. Whether it’s a defensible valuation, a clean compliance record, or a structured diligence process, proactive and prepared sellers can increase their odds of closing and reduce surprises along the way.Conclusion
Failed deals are rarely about bad businesses. More often, they stem from uncertainty, regulatory risk, valuation mismatches, or avoidable process delays. Fortunately, these risks can be mitigated with proper preparation, active alignment, and expert guidance.
At M&A Healthcare Advisors, we specialize in helping healthcare operators prepare, market, and close with confidence. If you’re contemplating a transaction, whether now or in the coming years, our M&A Consulting services and Expert Valuation offerings can provide the clarity and strategy needed to move forward confidently.
Contact us today or download our due diligence checklist to start preparing.
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