The Buyer Is Already Pricing Your Risk

Much of what a buyer discounts can be addressed long before the first offer arrives.

Every buyer who looks at your company is, in effect, running two calculations at once. The first is what the business earns. The second is how much of those earnings will still be there after you step away. In our view, the distance between those two numbers is where much of the value in a sale is won or lost.

What buyers are really underwriting

That second calculation rarely appears in an offer letter, but it shapes the number. In the business-risk scoring of Pepperdine’s 2026 Private Capital Markets Report, private equity investors rated customer concentration (4.38 out of 5) and the management team (4.21) among the most important factors they weigh, behind only the company’s future prospects (4.54). Neither shows up as a line on an income statement. In our view, both show up in the price.

Where deals come apart

Once a letter of intent is signed, what diligence finds can still undo the deal. Axial, a lower-middle-market deal platform, reviewed 75 deals sourced through it that fell apart in 2025 after a letter of intent had been signed. Diligence findings outside the quality-of-earnings review, including customer concentration concerns, were the most common cause, at 25.3% of those broken deals. Discrepancies in quality-of-earnings EBITDA were next, at 21.3%. Combined, those two diligence-related categories account for nearly half of the broken deals.

Finding the problems first

GF Data, which tracks private equity–sponsored transactions, found that nearly half of the 360 deals it tracked from the third quarter of 2024 through the second quarter of 2025 included a sell-side quality-of-earnings review. At $100 million to $250 million of enterprise value (a measure of the whole business, not revenue), deals that used one averaged a full turn higher valuation. At $10 million to $25 million, the pattern reversed: 5.9x trailing 12-month EBITDA with a sell-side review against 6.6x without, which GF Data suggested may reflect add-on structure and platform status outweighing a formal review. In our view, a report is no substitute for the underlying work: what matters is finding the issues before a buyer does, and having time to fix them.

Four questions worth asking now

• If you stepped away for 90 days, would your largest customers notice?
• What share of revenue walks out the door if your top two accounts leave?
• Could your monthly numbers survive an outside accountant’s first week of questions?
• Who on your team would a buyer most want to keep, and do they have a reason to stay?

In our view, none of these is fixed in the month before a sale; each takes time to show up in the numbers a buyer will underwrite. The owners best placed for a sale, we believe, treat it as the last step in a process that began well before it, and they understand what their business is worth, and why, while there is still time to change the answer.