Most transactions do not reach the finish line, not because the deal was bad but because the legal and financial issues that doom even the best deals were not frontloaded and dealt with early. For mid-sized firms without a dedicated legal team, that final stretch between signing and closing is where serious money gets left on the table, or where the deal collapses entirely. Somewhere between 10% and 30% of signed letters of intent never reach a definitive agreement, often because legal and financial issues surface too late to fix.
The good news is that most of those failure points are predictable. Avoiding them requires treating business law as a strategic function, not an afterthought.
The structure decision you can’t undo
Before entering into any serious negotiation, it is important for both buyers and sellers to be on the same page about a fundamental issue: are we looking at assets or are we looking at buying the company lock-stock-and-barrel?
In an asset purchase, the buyer can be quite specific about the property, real and personal, that it is acquiring. Contracts, customers, the seller name and employee obligations can stay with the seller. In a stock deal, the buyer takes the corporation with all of its unknown and undisclosed problems. The lawsuit that has not been served, the employee dispute, the environmental damage, the unpaid taxes – it’s all there, and it’s all coming with the company.
Generally, purchasers prefer asset deals so that the seller (as the current owner) remains responsible for its own debts. The purchasing company can also get a stepped-up basis for tax purposes on its newly acquired assets. Sellers often prefer stock transactions to get the cleaner capital gains rate. The actual structure is always negotiated but, since the legal consequences go so far, it is not something that should be punted down the field until after term sheets are signed. Counsel needs to be brought in early to advise on the advantages and disadvantages of each sort of deal.
Due diligence is where deals actually get made
The letter of intent establishes what you and the seller agreed to. Due diligence separates fact from fiction.
For mid-market companies, the due diligence phase is often seen as a to-do list. It shouldn’t be. The purpose is to identify issues that would cause a price correction, generate responsibilities after closing, or invalidate the statements and guarantees of the seller in the purchase contract.
Sellers must review their business 12 to 18 months in advance of a sale. This includes having up-to-date cap tables, clean board records, and a clear chain of title for patents, trademarks, software, and other intellectual property. If contractors that signed weak IP assignments were the developers for your company’s main product, a buyer’s attorney will find that and it will cost you in value or in transaction failure.
Buyers must also look beyond the numbers. Litigation not shown to you, key employees’ non-compete agreements, employment agreements, or lack of compliance in regulated sectors such as healthcare or fintech are examples of post-closing responsibilities that often show up. Firms working with Pierce & Kwok LLP on complex purchase agreements benefit from counsel that identifies these issues early, not just at the closing date.
Contract language that protects both sides
Once due diligence clears, the purchase agreement carries most of the legal weight. The representations and warranties section is where sellers make formal assertions about the business – and where buyers get legal recourse if those assertions turn out to be false.
Indemnification provisions define what happens when something goes wrong after the deal closes. Escrow agreements hold back a portion of the purchase price for a defined period to cover potential claims. These mechanisms only work if the language is specific – vague indemnification caps and ambiguous survival periods create disputes that end up in litigation.
Earn-out provisions deserve particular attention in mid-market deals, where buyer and seller valuations frequently diverge. An earn-out lets the seller capture upside based on post-closing performance. But without clearly defined metrics – revenue thresholds, EBITDA targets, timelines – earn-outs become a source of conflict, not a bridge.
Restrictive covenants are also easy to underestimate. Non-compete and non-solicitation clauses protect the goodwill the buyer just paid for, but courts scrutinize their enforceability carefully. Overbroad geographic or time restrictions can render them unenforceable entirely.
Regulatory exposure mid-market firms often miss
Bigger transactions can activate antitrust filing responsibilities that mid-sized organizations don’t feel are always on their radar. If the deal value crosses certain thresholds, pre-closing regulatory notification may be required – and closing before those requirements are satisfied creates serious legal exposure.
Then you’ve got industry-specific regulations. For instance, a healthcare acquisition might trigger state-level assessment and regulatory approval of a change of control for licensed companies. A fintech acquisition might address a change or extension of control regarding money transmission licenses. These kinds of issues don’t resolve quickly, and they can pose a threat to the timely completion of any transactions if overlooked in the early stages.
Post-closing isn’t the finish line
The deal closing is not the end of legal risk – it’s the start of a different kind. Employment agreements, benefits harmonization, and retention structures for key talent need to be addressed before the ink dries. Losing critical personnel in the first six months because their contracts weren’t thought through isn’t a people problem. It’s a legal planning problem.
Mid-sized firms that treat legal counsel as a strategic partner throughout the transaction – not just a signature requirement at the end – tend to close cleaner, integrate faster, and keep more of the value they negotiated for.