Key Takeaways
- Many healthcare M&A transactions fail due to misaligned expectations, weak communication, or diligence surprises uncovered late in the process.
- Financial diligence — particularly quality of earnings (QofE) analysis — is one of the most common reasons deals collapse after a letter of intent is signed.
- Inaccurate financial reporting, inflated EBITDA add-backs, and undisclosed liabilities can quickly erode buyer confidence during diligence.
- Running a structured healthcare M&A process with multiple buyers helps maintain leverage and improve valuation outcomes.
- Sellers who prepare early, organize financials, and work with experienced healthcare M&A advisors significantly increase the likelihood of a successful transaction.
Healthcare mergers and acquisitions (M&A) can create tremendous growth opportunities, but the healthcare M&A process is also complex and prone to failure when deals are not properly structured or prepared.
At least seven out of 10. That is often cited as the low end of how many mergers and acquisitions fail to meet expectations. The high end? Nine out of 10.
These numbers are not misprints. They stem from research cited by publications such as Harvard Business Review and others that have examined large pools of transactions across industries. While the precise statistics are frequently debated, the broader conclusion is widely accepted: a significant number of mergers and acquisitions either fail to close or fail to achieve the strategic or financial goals that motivated the transaction in the first place.
Recent transaction data reinforces how fragile many deals remain even after serious negotiations begin. A 2025 report from Axial examining broken letters of intent (LOIs) found that diligence-related issues were the leading cause of failed deals after the LOI stage. Non-QoE diligence findings accounted for approximately 25% of broken LOIs, while discrepancies uncovered during quality of earnings reviews accounted for more than 21%. In other words, nearly half of the deals that collapsed after the LOI stage did so because diligence uncovered issues that materially affected the economics or risk profile of the transaction.
This reality should not necessarily discourage healthcare business owners from pursuing a transaction. Rather, it highlights the importance of preparation and transparency throughout the healthcare M&A process.
Healthcare transactions often involve additional layers of complexity compared to other industries. Regulatory requirements, payer relationships, reimbursement structures, physician ownership dynamics, and compliance considerations all add complexity to the diligence process. As a result, healthcare mergers and acquisitions require particularly careful preparation and guidance.
At VERTESS, we have found that the healthcare M&A process can be navigated successfully when sellers have the right information, realistic expectations, and a team of experienced advisors guiding them through each stage of the transaction. It also helps to understand what can go wrong and how to avoid those pitfalls before the process begins. Personally, I have been fortunate to maintain a closing rate of approximately 82%.
Common Reasons Healthcare M&A Deals Fail
Below are 10 of the most common factors that can lead to failed healthcare mergers and acquisitions and what can be done to prevent them.
1. Not knowing the motivations of buyers and sellers
One of the most overlooked elements of the healthcare M&A process is understanding what each party truly wants from the transaction. Sellers often fall into two broad categories. Some prioritize maximizing the purchase price and financial outcome of the transaction. Others are equally concerned — or sometimes more concerned — about finding the right buyer to protect the long-term future of their organization, employees, patients, and community.
Buyers, meanwhile, come in many forms. Strategic buyers may be seeking geographic expansion, service line growth, or market consolidation. Private equity investors may be building platforms that can scale rapidly through acquisitions. Other buyers may be pursuing add-on acquisitions to strengthen an existing platform company.
When these motivations are not clearly understood at the outset, problems can emerge later in the process. A buyer focused primarily on financial returns may have very different priorities than a seller who is deeply invested in preserving the culture and mission of the organization.
At VERTESS, we spend significant time early in the process helping sellers identify their priorities. We also screen potential buyers carefully to determine their investment strategy, timeline, and long-term plans for the business. These steps allow us to narrow a potentially long list of buyers to those that appear aligned with the seller's goals.
Without that alignment, the likelihood of reaching a successful transaction decreases significantly.
2. Unrealistic expectations
Another common reason healthcare mergers fail involves unrealistic expectations surrounding valuation. Business owners naturally place a great deal of personal value on companies they have spent years or decades building. It is common for sellers to estimate what their company might be worth based on anecdotal information about other deals in their market, articles discussing high transaction multiples, or casual conversations with potential buyers who float preliminary numbers.
Unfortunately, those expectations often do not reflect how buyers ultimately evaluate a business during a formal transaction process. Valuation in healthcare M&A is influenced by many factors, including growth trends, payer mix, referral relationships, physician productivity, compliance history, and operational efficiency. Even small issues uncovered during diligence can materially affect the valuation that buyers are willing to offer.
A professional financial analysis and valuation grounded in comparable transactions provides a more objective perspective on what the market is likely to support.
Ultimately, a company is worth what a qualified buyer is willing to pay for it. The most effective way to maximize valuation is to run a structured transaction process that invites multiple buyers to participate simultaneously. Competition among buyers creates leverage and often leads to stronger offers.
Informed healthcare M&A advisors help sellers develop realistic expectations before going to market and position the business in a way that maximizes value.
3. Hidden debt and financial instability
Companies are sold for many reasons. Some owners are pursuing growth opportunities through partnership with a larger organization. Others are planning for retirement or succession. In some cases, financial pressures or operational challenges also influence the decision to sell.
Buyers understand that businesses have ups and downs. What they do not appreciate is discovering major financial problems late in the transaction process. If a buyer learns midway through due diligence that a company is undergoing serious financial instability, declining revenues, or undisclosed liabilities, confidence in the transaction can quickly deteriorate. These discoveries often result in aggressive renegotiation of the purchase price or the termination of the transaction entirely.
Transparency with your healthcare M&A advisor is essential. Provide a complete picture of the organization, including both its strengths and its challenges. Advisors can often help stabilize the situation, position the business appropriately, or accelerate the process if necessary.
In many cases, early awareness of financial challenges allows sellers and advisors to address them before buyers begin diligence.
4. Inaccurate financials
Accurate financial reporting is one of the most critical elements of a successful healthcare transaction. Early in the process, we at VERTESS work with sellers to present the financial picture of their organization the way buyers will ultimately evaluate it. This often involves organizing financial records, normalizing accounting practices, and developing projections that reflect realistic future performance.
However, even with careful preparation, problems can arise if the underlying financial data provided by the seller is incomplete or inaccurate. Many healthcare organizations operate using accounting systems that were designed primarily for operational management rather than transaction-level scrutiny. When buyers conduct diligence, they frequently convert financial statements to an accrual basis and analyze them according to generally accepted accounting principles. This process can reveal inconsistencies in revenue recognition, expense allocation, or financial reporting.
Recent transaction data illustrates how often financial discrepancies derail deals. Axial's analysis of broken LOIs found that EBITDA discrepancies uncovered during quality of earnings reviews accounted for more than 21% of failed transactions after the LOI stage.
When reported financial performance does not align with what buyers discover during diligence, the result is often a renegotiated purchase price or the collapse of the deal entirely.
5. Quality of earnings
Quality of earnings analysis has become one of the most important aspects of modern healthcare M&A transactions. Buyers rely heavily on QofE reports to validate reported financial performance, normalize earnings, and identify potential risks in the business. In some cases, buyers even use the findings of a QofE review as leverage to renegotiate transaction terms.
Because of this, I increasingly recommend that sellers complete a sell-side QofE review before bringing their company to market. In another column, I described quality of earnings as a potential "deal killer" when issues are discovered late in the transaction process. However, when conducted proactively by the seller, a QofE review can become a powerful preparation tool.
The buyer will almost always conduct its own QofE review at its own expense. However, when a seller has already completed a sell-side QofE, the buyer's review typically proceeds more efficiently and with fewer disruptions to the transaction timeline.
More importantly, a sell-side QofE allows the seller to identify and address financial reporting issues before buyers begin diligence. This reduces the likelihood that those issues will later be used as negotiation leverage.
Data from Axial's report on broken LOIs reinforces the importance of this step. QoE-related EBITDA discrepancies accounted for more than one-fifth of failed transactions after the LOI stage, highlighting how frequently financial diligence becomes the turning point in a healthcare M&A deal. An experienced M&A advisor can help guide sellers through the QofE process and coordinate with accounting professionals to ensure that financial diligence proceeds smoothly.
6. Change of ownership
Healthcare transactions must also navigate complex regulatory requirements surrounding ownership changes. In many industries, changing the owner of a business is relatively straightforward. In healthcare, however, ownership changes can trigger regulatory reviews, payer notifications, and licensing updates.
Agencies such as the Centers for Medicare & Medicaid Services (CMS) require that any change of ownership be formally reported. In addition, CMS rules often limit how frequently certain ownership changes can occur. Organizations generally cannot undergo a change of ownership more than once within a 36-month period.
If a seller recently changed ownership — perhaps by transferring ownership to a family member or restructuring corporate ownership — that change could delay a future transaction. State regulations and payer contracts may also impose additional requirements related to ownership changes. These rules can affect how a transaction must be structured and when closing can occur.
Understanding regulatory considerations early in the healthcare M&A process helps prevent unexpected delays later.
7. Inflated add-backs
During the valuation process, we calculate both EBITDA and adjusted EBITDA for the organization. Adjusted EBITDA removes expenses that the current owner incurs but that a future owner would not necessarily incur. These adjustments — often referred to as add-backs — may include discretionary expenses such as personal vehicle costs, certain travel expenses, or other owner-related expenditures. When reasonable and properly documented, these add-backs are commonly accepted by buyers.
Problems arise when sellers include adjustments that cannot be supported or that buyers consider inappropriate. During diligence, buyers examine these adjustments carefully. If buyers reject some of the add-backs used to calculate adjusted EBITDA, the effective valuation of the business can change dramatically.
It is not uncommon for sellers to receive an attractive initial offer based on adjusted EBITDA only to see the purchase price decline when buyers challenge those adjustments during diligence. Careful documentation and realistic adjustments help ensure that valuation discussions remain grounded in financial reality.
8. Lack of communication
The healthcare M&A process is complex and often lengthy. Transactions can take many months from initial conversations through closing. Clear communication is essential throughout the process. Buyers and sellers must maintain open dialogue regarding expectations, timelines, diligence findings, and transaction structure.
Breakdowns in communication can create confusion, erode trust, and ultimately derail negotiations. Recent transaction data highlights how frequently negotiations break down after diligence discoveries change the economics of a deal. Axial's research found that renegotiation challenges accounted for nearly 15% of broken LOIs. When buyers and sellers cannot reach agreement on revised pricing or transaction structure following diligence findings, deals frequently collapse.
Experienced healthcare M&A advisors play an important role in facilitating communication between the parties and helping navigate difficult conversations when challenges arise.
9. Poor representation
Healthcare M&A transactions involve complex legal, regulatory, and financial considerations. Some sellers rely on trusted personal attorneys who may not have significant familiarity with healthcare transactions. While these attorneys may provide excellent general legal advice, healthcare M&A transactions often require specialized expertise.
Buyers typically approach transactions with legal teams and advisors who have completed many acquisitions. Sellers who lack comparable representation may find themselves at a disadvantage during negotiations. Healthcare M&A attorneys understand common deal structures, typical contract language, and the regulatory considerations unique to healthcare transactions. Without that knowledge, sellers may spend time negotiating provisions that are standard while overlooking more meaningful risks.
Having advisors who understand the nuances of healthcare transactions helps ensure that the seller's interests are properly protected.
10. All eggs in one basket
Finally, one of the most common strategic mistakes sellers make is relying too heavily on a single buyer. When a prospective buyer approaches with an attractive offer and a compelling vision for the future of the organization, it can be tempting to move forward quickly.
However, relying on a single buyer can create significant risk. If that buyer believes it is the only option being considered, it may gain leverage during negotiations. The buyer may present an appealing initial offer but later renegotiate the terms once diligence begins.
We have seen situations where sellers accepted an LOI with a strong valuation only to see the buyer begin dismantling the financial assumptions during diligence. Without other buyers involved in the process, the seller had limited alternatives. Running a structured healthcare M&A process that involves multiple qualified buyers provides sellers with flexibility and leverage. If negotiations with one buyer fall apart, the seller can pivot to other interested parties.
Maintaining multiple potential buyers also helps ensure that the final transaction reflects fair market value.
Making the Best of the Challenging Healthcare M&A Process
The statistics surrounding M&A failures should not discourage healthcare business owners from pursuing transactions. Instead, they highlight the importance of preparation, transparency, and experienced guidance.
Many deals fall apart because diligence uncovers issues that could have been addressed earlier or because expectations between buyers and sellers were never fully aligned. Healthcare organizations that prepare carefully for the transaction process — by organizing financial reporting, understanding regulatory requirements, completing appropriate diligence preparation such as a quality of earnings review, and engaging healthcare M&A advisors — significantly improve their chances of reaching a successful closing.
With the right preparation and the right team, sellers can navigate the healthcare M&A process more confidently and position their organization for a successful transaction.
To learn how the expert VERTESS healthcare M&A advisors can help guide your organization through the healthcare transaction process, contact us today.
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Frequently Asked Questions About Healthcare M&A Failures
Why do healthcare mergers and acquisitions fail so often?
Healthcare M&A transactions often fail because of diligence discoveries, unrealistic valuation expectations, financial reporting discrepancies, regulatory issues, or misaligned expectations between buyers and sellers. Many deals collapse after the letter of intent stage when buyers uncover financial or operational risks that materially affect the economics of the transaction.
What is a quality of earnings (QofE) review in healthcare M&A?
A quality of earnings review is a financial diligence process that evaluates the sustainability and accuracy of a company's reported earnings. Buyers use QofE analysis to normalize EBITDA, validate revenue sources, and identify financial risks. If the review uncovers discrepancies, buyers may renegotiate the purchase price or withdraw from the transaction.
Why do deals fall apart after the letter of intent (LOI)?
Many transactions break down after an LOI because diligence uncovers issues that were not apparent earlier. These may include inaccurate financial reporting, customer concentration risks, compliance concerns, or operational challenges that affect valuation or deal structure.
How can healthcare business owners reduce the risk of a failed transaction?
Preparation is critical. Sellers can reduce risk by organizing financial reporting, completing a sell-side quality of earnings review, understanding regulatory requirements, and running a structured transaction process that involves multiple qualified buyers.
About the Author
Bradley M. Smith, ATP, CM&AA, is a managing director and partner at healthcare M&A advisory firm VERTESS. He has more than 20 years’ experience in executive positions in DME, pharmacy, health IT and home healthcare companies, with considerable expertise consulting on mergers & acquisitions in private equity recapitalizations, hospice, medical devices, health IT/digital health, lab services and more in the U.S. and internationally. He’s a regular columnist for HomeCare Magazine and HME News.