When Deals Go Sideways: Navigating Diligence Findings, Lender Repricing, Property Issues and Policy Shocks

When Deals Go Sideways: Navigating Diligence Findings, Lender Repricing, Property Issues and Policy Shocks

James Dixey — Founder and Managing Director    ·    8 min read    ·    James Dixey Limited

Most sale processes that complete at the heads-of-terms price run without a significant hiccup. Most have had at least one. Knowing what to do when something goes wrong — and, crucially, what to insulate against in advance — is most of what differentiates a deal that closes well from one that gets retraded or falls apart entirely.

EXECUTIVE SUMMARY

•  Most live sale processes encounter at least one significant problem between heads of terms and completion. The main categories are late diligence findings, lender repricing or withdrawal, property search issues, regulatory delays, macro shocks, and sector policy changes.

•  The key variable in resolution is anticipation. Issues flagged early are negotiated; issues discovered late are priced.

•  Buyer funding in 2026 is structurally more fragile due to independent sponsors, direct lending growth, and tighter bank regulation.

•  Macro and policy volatility (tariffs, UK fiscal changes, interest rates, CMA activity, sector regulation) has become a structural feature of deal timelines, not an exception.

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Why deals hit hiccups: the structural picture in 2026

Deals encountering issues after heads of terms is normal rather than exceptional. Most mid-market transactions face at least one material issue in that phase. The difference between smooth and difficult closings is not problem avoidance, but problem management.

In 2026, the environment is more volatile than a decade ago for three reasons:

First, buyer funding is more fragile. Independent sponsors, direct lenders, and a tighter UK banking framework mean funding certainty at indicative stage does not guarantee completion on the same terms.

Second, regulatory scrutiny is higher. CMA activity in consolidated sectors, the Health and Social Care (Wales) Act 2025 (restricting for-profit care registrations from April 2026), VAT changes in education, and BADR rate increases all create policy risk inside deal timelines.

Third, macro volatility remains elevated, with interest rates, tariffs, and geopolitical dynamics influencing valuation and credit appetite during live processes.

None of this prevents transactions. It simply means processes must assume friction and structure for it.

Diligence findings — the most common category

Late-stage diligence findings remain the most frequent source of deal disruption — and the most preventable.

They fall into three groups:

Financial findings include disputed EBITDA adjustments, undisclosed off-balance-sheet items, customer concentration revealed through granular mapping, or working capital deviations from the agreed peg.

Legal and commercial findings include restrictive change-of-control clauses, property lease issues, regulatory consents required on transfer, or unresolved disputes and claims.

Sector-specific findings include CQC enforcement actions, accreditation non-conformances (BAFE, NSI, ISI), or UKAS schedules requiring re-issuance under new ownership.

The outcome depends almost entirely on timing. Issues disclosed early are negotiated. Issues discovered late are priced. The difference often ranges from 6–15% of deal value.

Vendor due diligence and proper clean-up of financial and legal structures (DLAs, intercompany balances, unsupported adjustments) are therefore not optional — they directly preserve value.

When the buyer's lender changes their risk profile

Of the structural changes in mid-market M&A over the last decade, the one that affects sellers most directly is the increasing fragility of the buyer's funding. The picture is not that funding has become harder to access — it has not. The picture is that funding terms agreed at the outset of a process are increasingly likely to shift before completion.

This happens through several mechanisms. The buyer's lender may complete credit committee earlier in the process on indicative terms, then re-test the credit case with full diligence findings later — and tighten on quantum, structure or covenants. The buyer may have multiple debt providers competing at the outset, then find that the preferred provider drops out late and the back-up terms are less attractive. The macro environment may shift — a Bank of England rate move, a credit-spread widening, a sector-specific risk repricing — and the lender may apply that shift to the deal terms even though the underlying business hasn't changed.

The consequence for the seller is usually a request to flex on one of three variables: a price reduction, a structure shift (more deferred consideration, more earn-out, less cash at completion), or a covenant package that increases the seller's residual exposure to post-completion performance.

Three things insulate the seller against late-stage lender repricing:

•   Qualify the buyer's debt fully at the indicative offer stage. Ask for a debt commitment letter, not just an arranger's interest. Understand which provider, on what terms, with what conditions precedent. Sellers who don't do this work at IOI stage carry the funding risk into exclusivity, which is the wrong time to discover it.

•   Build a credible alternative-buyer position. The strongest insulation against late-stage repricing is the visible presence of a back-up bidder. A buyer who knows the seller has a credible alternative is much less likely to push for retrade, because the cost of losing the deal is real.

•   Structure heads of terms to make repricing painful. A heads of terms with explicit conditions on funding (debt commitment by a specific date, break fee if the buyer's lender withdraws, etc.) is harder to retrade than one that is silent on funding mechanics.

Property searches and title issues mid-deal

Property is a frequent late-stage disruption point, particularly in regulated sectors where premises are older and structurally complex.

Common issues include planning restrictions, environmental findings, restrictive covenants, easement limitations, lease defects, or unregistered title gaps that prevent lender funding.

The most effective mitigation is early independent property review before buyer diligence begins. Costs are modest relative to value preservation, and findings can often be resolved or restructured in advance.

Where issues cannot be resolved, solutions include indemnity insurance, structured SPA protections, completion conditionality, or price adjustment.

Regulatory consent delays

Regulatory approvals sit between signing and completion and often cause timing slippage.

Key approvals include CQC change of provider, Ofsted re-registration, accreditation transfers (BAFE, NSI, SSAIB, UKAS), and FCA Section 178 approvals where relevant.

Two risks dominate: underestimating regulator timelines and encountering unexpected issues during review.

Mitigation requires early submission, realistic timelines in legal documentation, and properly built long-stop dates that reflect regulatory reality rather than best-case assumptions.

Macro-economic shocks

Macro conditions now regularly affect live deals.

Interest rate movements directly impact debt cost and can trigger lender repricing. Direct lenders typically adjust terms mid-process; banks more often tighten covenants.

Tariffs and trade policy shifts (notably US regimes through 2025–2026) affect businesses with international exposure, particularly those with US revenue or supply chains.

Currency movements introduce FX risk in cross-border deals unless explicitly hedged through structure.

None of these shocks can be prevented, but all can be anticipated through proper drafting around MAC clauses, currency terms, and funding protections.

Government policy changes on the sector

Sector-specific policy risk has become one of the most material deal variables.

Recent examples include VAT on private school fees (January 2025), the Health and Social Care (Wales) Act 2025 restricting for-profit care provision, BADR rate increases (14% to 18% by April 2026), and CMA scrutiny of consolidation in care, veterinary and dental sectors.

These changes have directly impacted ongoing transactions and valuation assumptions mid-process.

The implication is that deal timelines should be compressed in policy-sensitive sectors, and heads of terms should explicitly address regulatory or policy change risk.

The general principle: insulating in advance vs handling mid-flight

Pulling the patterns together, one principle emerges across all the categories above. The cost of a deal problem to the seller is materially lower if the problem is anticipated and structured for at heads of terms than if it is discovered cold mid-process.

This is not a counsel of paranoia. It is an observation about bargaining position. At heads of terms, the seller is in the strongest negotiating position they will ever have in the process — multiple bidders competing, the buyer eager to lock in exclusivity, the deal terms still in flux. After exclusivity is granted, the balance shifts heavily to the buyer; the seller can no longer credibly threaten to take the deal elsewhere, and every concession is asymmetric. The work to anticipate problems and structure protections is therefore best done at the moment when the seller's hand is strongest, not at the moment when the buyer's is.

In practical terms, that means: comprehensive vendor due diligence before going to market; full debt qualification of buyers at indicative offer stage; explicit heads-of-terms drafting on funding, regulatory consent, MAC, currency and policy risk; a process timetable that builds in regulatory friction rather than assuming smooth processing; and a credible alternative-buyer position maintained until exclusivity is granted. None of these is cheap, but each is materially cheaper than the cost of a retrade six months later.

When to walk away

Some deals cannot be salvaged on acceptable terms.

Clear exit signals include: loss of buyer funding with no replacement, refusal to take regulatory risk, or repeated retrading across multiple dimensions that materially erodes economics.

Walking away is difficult due to sunk cost bias, but continuing a deteriorating process often results in worse outcomes than restarting.

Most deals that pass through a difficult phase ultimately complete — provided issues are managed rationally rather than emotionally.

Related: The five things most likely to kill a sale before it even gets to market — the companion piece on pre-process risk.  (/insights/five-things-that-will-kill-your-business-sale)

Considering a sale, or in the middle of one that has hit a problem?

The first call is always confidential. Whether you are nine months out from launch or three months in and facing a retrade, a second opinion from someone outside the existing process often makes the difference.

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SOURCES

[1] Regulatory consent timelines: public processing guidance from the Care Quality Commission, Ofsted, Independent Schools Inspectorate, BAFE, NSI, SSAIB, UKAS and the FCA (Section 178 change-of-control).

[2] Sector-specific policy framework: VAT on private school fees (HMRC, effective January 2025); Health and Social Care (Wales) Act 2025 (Royal Assent 24 March 2025; from 1 April 2026 only not-for-profit providers may register with CIW for restricted children's services — children's homes, fostering services, secure accommodation; full phase-out to 1 April 2030); Business Asset Disposal Relief rate (HMRC, 14% from April 2025; 18% from April 2026); CMA "Welltower / multiple care homes merger inquiries" (gov.uk/cma-cases): initial enforcement orders served February 2026 under section 72(2) Enterprise Act 2002; Phase 1 review concluded 7 May 2026 with substantial-lessening-of-competition finding across all four deals; Phase 2 referrals pending acceptable undertakings.

[3] Macro and currency dynamics: cross-referenced against Bain & Company Global Private Equity Report and BDO 2026 M&A Outlook.

GLOSSARY

Back-up bidder: A second buyer kept in reserve in case the main deal fails.

BADR (Business Asset Disposal Relief): A reduced UK capital gains tax rate for qualifying business sellers.

CMA (Competition and Markets Authority): The UK regulator that reviews mergers and protects competition.

Covenants: Conditions a borrower must meet under a loan agreement.

Credit-spread widening: An increase in the extra interest lenders charge for risk, raising borrowing costs.

Currency risk / FX risk: The risk that exchange-rate movements change a deal's value.

Diligence findings: Issues uncovered during the buyer's investigation of the business.

Enterprise Act 2002: The UK law under which the CMA reviews mergers.

Health and Social Care (Wales) Act 2025: A Welsh law restricting for-profit children's care provision from 2026.

Indication of Interest (IOI): A buyer's early, non-binding signal of interest and likely price.

MAC clause (Material Adverse Change): A term letting a buyer exit if the business is seriously harmed before completion.

Macro shock / Macro volatility: Sudden, large changes in the wider economy affecting deals.

Off-balance-sheet items: Obligations or assets not shown on the main balance sheet.

Peg (working capital peg): An agreed target level of working capital used to adjust the final price.

Phase 1 review: The CMA's initial merger assessment.

Phase 2 review: The CMA's in-depth investigation of a merger that may harm competition.

Section 72(2) (Enterprise Act 2002): A power letting the CMA order firms to hold separate during a merger review.

Section 178 (FCA change-of-control): The approval the Financial Conduct Authority must give when control of a regulated firm changes.

Sunk cost bias: The tendency to keep going with something because of money already spent.

Tariffs: Taxes on imported goods that can affect businesses trading internationally.

Working capital: The day-to-day cash a business needs to fund operations.

James Dixey Limited — Specialist M&A for regulated, owner-managed businesses in Care, Education, Fire & Security and Other Regulated Services.