Today, a significant number of M&A transaction processes end without the execution of a share or asset purchase agreement. Why do more than half of negotiated M&A deals fail to reach completion? This article looks at the practical reasons behind failed transactions, changes in the behaviour of investors and sellers, and how legal advisors and their clients are adapting to this reality.
The M&A market in Central Europe has certainly not gone dormant. Transactions are being prepared, due diligence processes are conducted, term sheets are signed, and at first glance, deal processes appear to be progressing without major obstacles. Yet many advisors share the experience that a substantial portion of negotiated transactions never make it to signing.
Even a well‑advanced process can come to a halt at almost any stage and often does. The reason is rarely a single cause. More typically, it is a combination of changed market conditions, investor behaviour and sellers’ expectations. Experience from recent years shows that reaching signing is no longer a given, even at an advanced stage of the transaction.
One of the main reasons transactions fail remains the gap between the seller’s expectations and market reality. Many owners continue to rely on valuations from around 2020, when EBITDA multiples were high across sectors and financing was readily available thanks to low interest rates.
At the same time, investor behaviour has changed significantly. In the era of cheap money, investors often felt pressure to act quickly, fearing that any hesitation would allow a competitor to acquire the target. That sense of urgency has largely disappeared.
Buyers now approach transactions far more cautiously. Valuations reflect higher costs of capital, more conservative lending practices and a reduced willingness to assume risk. The result is a valuation gap that often becomes fully apparent only after completion of due diligence.
For sellers, accepting a reduction from the originally expected price can be difficult. This is particularly common among first generation founders, who tend to have a strong emotional attachment to their business, which inevitably influences price negotiations. Buyers, on the other hand, see price adjustments as a rational consequence of risks identified during due diligence. If these perspectives cannot be reconciled, the transaction will usually fall apart.
The role of due diligence has changed markedly in recent years. What was once primarily a tool to confirm a deal has increasingly become a decisive mechanism for determining whether the transaction should proceed at all.
In practice, the most common deal breakers identified during due diligence include:
The growing use of technological and AI driven tools also means that due diligence now reveals more detail in a significantly shorter time. As a result, sellers are increasingly well advised to conduct an internal pre transaction review in advance. This allows potential issues to be identified early, remedied where possible, or at least addressed through a clear strategy during the sale process.
Many transactions also fail due to inadequate preparation on the seller’s side. Typical issues include:
Cleaning a group structure usually involves a combination of legal, financial and operational steps aimed at removing unnecessary entities, relationships and risks. The goal is to make the group easier to understand, more transparent and more attractive to investors. In practice, partial restructuring is often required. This may include carving out non core assets or subsidiaries, buying out minority shareholders or implementing similar measures.
This form of corporate housekeeping should include in particular a review of compliance with statutory obligations, contractual relationships, internal processes and, where appropriate, reporting structures. Poor preparation on the seller’s side, combined with heightened buyer caution, can lead to a loss of trust, downward pressure on the purchase price, extended negotiations and ultimately termination of the transaction.
These developments have a significant impact on M&A advisors. The role of the M&A lawyer is shifting away from being merely a drafter of transaction documentation towards acting as a trusted advisor in the client’s decision making process.
Key areas of added value now include the ability to:
The fact that a substantial number of M&A transactions do not reach signing is not a sign of a weak market. Rather, it reflects a natural result of market maturation, more disciplined investor behaviour and a fundamental shift in decision making processes.
Fewer automatic signatures and more carefully considered decisions now represent the new reality of the Central European M&A market and a key challenge for everyone involved in these transactions.
