How to Avoid the 10 Most Common M&A Deal Traps

By Ryan Kuhn. Since Ryan founded M&A advisor Kuhn Capital, the firm’s principals have initiated 80 mid-market tech industry M&A transactions worth more than $3 billion.

Congratulations. Your M&A advisor has reeled in a particularly promising acquirer for your mid-market company. But negotiations are getting testy and now look to be heading south. It seems to be one thing after another. Nothing’s going right. Before they ruin everybody’s day. learn how to avoid the 10 biggest M&A deal killers — the most treacherous M&A deal traps — that buyers and sellers encounter during the process.

1. Valuation

The Conflict

Valuation disagreements rank first for frequency and impact. Sure, sellers predictably go high and buyers low, but sellers that go too high can very quickly persuade buyers that the future will be nothing but a conga line of unrealistic expectations. (For other M&A negotiation mistakes that sellers are prone to  make, see my Top 5 Ways Business Owners Kill M&A Deals.)

Even assuming the seller’s “ask” isn’t outlandish, both parties have legitimate reasons to disagree on value. For instance, buyers of software and internet companies tend to weigh projected performance heavily, while buyers of traditional companies look to the past. For why that’s true, see Metrics That Sell a Tech Company.

Also, many founders are emotionally attached to their “baby,” so they unconsciously seek compensation for having to say goodbye.

Some Solutions

• Get a third-party valuation before going to market. Retain an M&A advisor or valuation specialist with relevant experience. “Relevant” experience isn’t a tax or estate planning valuation, nor is it having a CPA certificate. To zero in on a defensible range, get a valuation based on the sales of comparable companies, as well as a net present value (NPV) calculation. Note that you’re not commissioning a valuation to prove a value. You’re explaining the reasons for your value.
• Negotiate the period used to value historical performance. Example: for a rapidly growing company, the seller would reasonably want to annualize the most recent six months rather than the prior calendar year, which may have ended 11 months ago.
• Use an earnout that makes part of the purchase price contingent on future performance. If you, as a seller, are convinced that the future looks bright, put money on it – your future money. (But know that creating an earnout formula can lead to conflicts down the road. For example, no seller likes earn-outs based on pre-tax profit when they can’t control corporate overhead charges. Fix that by basing the earn-out on a profit measure that excludes imposed expenditures, often gross margin. (For more information on how earn-outs work and the advantages and risks thereof, see Earn-outs: The Business Owner’s Guide.)

2. Purchase Price Adjustments

The Conflict

Say the seller’s financial performance has deteriorated between when the LOI’s terms were set and the approaching closing date. Specifically, values on the target’s balance sheet are no longer sufficient to sustain operations. If left unaddressed, that would require the new owner to invest additional cash after purchasing the business. Yet when the buyer raises this issue, the seller believes he is reneging on the agreed-upon purchase price.

Alternatively, the seller has built up a large cash surplus in working capital or is paying vendors far faster than their terms require. In this scenario, the owner expects to extract cash from the business before its sale, while leaving the acquirer with sufficient funds to operate it indefinitely. The buyer disagrees that the remaining working capital funds are sufficient.

To avoid either scenario, the parties should have agreed in advance on a formula that automatically adjusts the buyer’s purchase price based on the adequacy of the seller’s working capital (cash, near-cash, accounts receivable, etc.). Ideally, that formula is defined in the LOI.

Failing that, the parties should promptly address the issue before working capital shortfalls or excesses lead to disputes. Even if they agree on a formula, overly complex ones can also lead to disputes. Therefore, whether absent or intricate, disagreements over how to calculate working capital adjustments are a leading M&A deal killer.

Some Solutions

• Create the ideal formula: one that’s transparent (no gotchas), simple and reasonable, settled well in advance, and suggested or at least vetted by your M&A advisor. The goal is fairness and predictability.
• Set caps and floors. Reduce uncertainty by limiting the range of adjusted values.
• When adjustments could be substantial, establish an escrowed cash account that provides quick access for either party, subject to clearly defined conditions. For details on how to adjust NWC fairly, see law firm Shuffield Lowman’s piece.

3. Due Diligence

The Conflict

Buyers need comprehensive M&A due diligence (“DD”) on the seller to reduce risk. But some sellers may find that buyer demands have become duplicative, irrelevant, or a threat to confidentiality. Worse, sellers often have limited resources to respond to a buyer’s exhaustive DD demands.

As a result, we see DD conflicts as the third most common deal-killer. (For more bad buyer behavior, see my Avoid the 7 Most Common Ways Buyers Kill M&A Deals.) DD deal killers are unleashed upon the land when the seller believes the buyer is carelessly complicating an already exhaustive DD process.

Word to the wise buyer: Don’t assign an inexperienced, junior member of your M&A team to manage DD. Successfully conducting the exercise requires an executive who understands what’s necessary and what’s not to dodge this M&A deal killer.

Some Solutions

• Before DD starts, the parties negotiate a tightly efficient “to-do” list. It includes each task, the expected completion date, progress notes, the person responsible for delivery, and their contact information. The only way the list of DD items grows is when somebody uncovers important, unexpected findings. Drawing a line against excessive buyer DD demands is what you can expect from a competent sell-side M&A advisor.
• Release sensitive information in the virtual data room (VDR) in stages, only as mutual trust and interest build. Examples of such staged releases are client lists and employee files.
• Create a seller-centric NDA, with the seller periodically confirming that the buyer is complying. Loose lips sink ships.

4. Representations and Warranties

The Conflict

Buyers seek from business owners’ representatives (statements of fact) about the business and guarantees (warranties) that those facts are true. For more details on reps and warranties, see my The Perfect M&A Purchase Agreement and CRI’s article. Predictably, buyers want more expansive reps and warranties from sellers, while sellers want fewer, more limited ones. (Sellers also seek reps and warranties from buyers, but they’re comparatively minor.)

Some Solutions

• It’s tedious and multi-layered, but both the buyer and seller must closely attend to drafting reps and warranties language:
• Sellers want to limit their liability to only “material” issues, while buyers want “materiality scrapes” to relax or eliminate those limits. Sellers need experienced M&A counsel to parse these terms. They should request their counsel to negotiate these terms with the seller and return with recommendations.
• When negotiating the scope and duration of reps and warranties, the buyer should focus only on the issues where substantial value is at stake to reduce the seller’s burden.
• Use an escrow that allows the buyer to retain part of the purchase price if the seller breaches a rep or warranty.

5. Indemnification

The Conflict

A purchase agreement’s indemnification clause defines the seller’s liability for breach of the representations and warranties after the sale. Buyers typically propose broad indemnification coverage (both by breach type and by amount), while sellers prefer less.

Some Solutions

• Buyer and seller agree to caps and baskets. (Caps are maximum indemnification amounts while baskets are threshold amounts for multiple reps before indemnification obligations kick in.)
• They can also compromise on survival periods — the length of time indemnification obligations remain in effect.
• Lastly, they can define specific versus general claims that narrow liability to matters unique to the seller, such as in a former employee’s lawsuit. In any case, the seller’s total liability should never exceed the transaction value of the deal.

6. Employment and Management Continuity

The Conflict

Sellers typically want job security for their staff. Yet buyers may wish to increase profit by cutting overpaid, ineffective, or strategically irrelevant employees. Or they bridle over the seller’s perceived interference in their operations post-close. Failing to address and timely resolve this issue makes it a leading M&A deal killer.

Some Solutions

Some sellers don’t understand that obstructing buyers’ post-close plans for the company can reduce the purchase price they’re willing to pay. The solutions below assume that the seller understands this trade-off.

• Grant a few key employees golden parachutes in the event they’re fired during a certain period following close. (A second compelling reason to do this: sellers typically need their help during DD.)
• For the sell-side M&A advisor, encourage the buyer to negotiate employee retention agreements before closing. If those discussions fail, attempt to mediate a resolution. In many cases, buyers are already interested in defining a transition period during which the current management team (particularly the CEO) assists with the handover. In fact, private equity groups typically require such agreements. M&A advisors can help sellers structure them to avoid closing risks that arise when buyers are anxious about losing post-purchase support.

7. Transition & Integration Terms

The Conflict

The operating period following close can be contentious for three reasons: 1) The owner/CEO wants out, but the buyer wants him/her to stick around to reduce risk. 2) The buyer wants some controls over the seller’s CEO, who isn’t used to any. 3) Company cultures clash, not uncommon when the buyer is a large strategic.

Some Solutions

• Before the sale closes, buyers and sellers should create a detailed transition plan that’s to be managed by a joint integration team. It includes milestones, responsibilities, and timing expectations.
• It also contemplates a phased integration to allow for adjustments along the way.
• When the seller divests a business unit, it may enter into a transition services agreement (TSA) to support the buyer until integration is complete. Example: the TSA allows the buyer to use the seller’s invoicing system for six months.

8. Non-Compete Agreements

The Conflict

Non-competes protect the buyer from competition by the seller’s former employees. Former employees may view these agreements as unfairly hindering their ability to earn a living.

Some Solutions

• The key to avoiding M&A deal killers like this one is to negotiate detailed, reasonable and specific terms. Limit the geographic scope, duration, industries, and roles covered to protect the buyer’s necessary interests without unduly restricting the seller’s former senior executives.
• The buyer offers the seller’s employees compensation (as in a consulting contract) that recognizes their potential loss of future opportunities.
• Note that some states now restrict the use of non-competes, and California — ever the social pioneer — renders them entirely unenforceable. Talk to counsel.

9. Closing Conditions

The Conflict

Closing conditions are requirements that must be met before the deal is done. Examples: regulatory approvals; third-party consents to a change of control; financing requirements; resolving certain seller liabilities; asset and other financial statement values; confirmation of intellectual property licenses; etc. Buyers and sellers can disagree over the feasibility, timing, and who’s responsible for meeting these conditions.

Some Solutions

• Set down responsibilities and deadlines for each condition.
• Agree to breakup fees (penalties) if the deal fails due to a party’s failure to meet certain conditions.
• Develop contingency plans for when a specific closing condition isn’t met. Examples: extend the deadline, redefine the condition, etc.

10. Escrow Arrangements

The Conflict

Escrows are a portion of the buyer’s purchase price held by a third-party fiduciary until the seller meets the terms of reps and warranties. No surprise, sellers want smaller escrows held for shorter times. Welcome to another M&A deal killer.

Some Solutions

• Buyer and seller agree on an escrowed amount and duration based on the buyer’s reasonable assessment of the risks and the time required to resolve them.
• They appoint a neutral third party to manage the escrow account.
• They implement step-down provisions that release portions of the escrow in stages as milestones are met.
• They establish separate escrow accounts for separate types of potential liabilities, such as tax claims, legal disputes, and environmental liabilities.

Conclusion

Recapping how to avoid the 10 biggest M&A deal killers:

Parting Shots

Deal closing success requires compromise, attention to detail, a little bit of bravado, and flexible—even creative—horse-trading. That means giving up something of lesser value to get something of greater value. You have the right to expect your M&A advisor and legal counsel to excel at this game. Avoiding M&A deal traps becomes much easier when you’ve got a seasoned M&A team.

As they say, value is in the eye of the beholder. You have increased yours by reading this article and learning how to identify the 10 most common M&A pitfalls.

Got questions about how to avoid these 10 deal traps and others? Email us.
Revised 2/3/26. © 2026 Kuhn Capital, Inc. All Rights Reserved