Most home services sales that fall apart after a signed letter of intent don't die over price. They die in due diligence, when the buyer's attorney reads the paperwork and finds something nobody planned for. In a 2025 study of 75 failed lower middle market deals, diligence findings were the number one reason deals broke. The good news is that almost everything a buyer finds is already sitting in your files, which means you can find it first.
The call that changes the timeline
Picture a 14-truck HVAC company with 800 maintenance customers. A buyer calls, the numbers look good, and both sides sign a letter of intent. Then the buyer's attorney asks three questions. Can the maintenance agreements transfer to a new owner? Who holds the contractor license? Where are the signed subcontractor agreements?
The owner knows the business is solid. But the answers live in a filing cabinet, a few inboxes, and the owner's memory. What felt like a closing date turns into weeks of digging, and sometimes into a lower offer or a buyer who walks away.
None of those three questions means something is wrong with the business. They mean the paperwork hasn't been read with a sale in mind.
Due diligence is where deals break
Axial's Dead Deal Report looked at 75 failed deals involving companies valued between $2.5 million and $250 million. Here's what it found:
The top cause of failure in 2025 was what the buyer found in diligence: undisclosed legal or compliance risks, customer concentration, and contract issues. That category made up 25.3% of failed deals.
It has grown three years in a row, from 19.1% in 2023 to 21.5% in 2024 to 25.3% in 2025.
Add earnings discrepancies found in the quality-of-earnings review (21.3%), and diligence findings caused 46.6% of the failed deals, nearly half.
When the buyer was a private equity firm, those deals spent an average of 106 days in exclusivity before they fell apart.
That's more than three months of the owner's attention, legal fees, and hope, spent on a deal that ends on something fixable.
Why buyers look so closely at the trades
Home services is one of the busiest markets for buyers right now. According to Cherry Bekaert, there are about three times as many buyers with active investments in home services as there were five years ago.
At the same time, McKinsey reports that independent and local companies still hold more than 80% of market share in key home services segments. That's a lot of experienced buyers meeting owners who have never been through due diligence. The buyer has done this dozens of times. For most owners, it's the first and only time.
What a buyer's attorney checks in a home services company
In the trades, a few documents carry much of the value. These are the ones we see buyers ask about first, organized by the six areas of a Clean Legal Bill of Health:
Customer contracts. Whether your maintenance and service agreements can transfer to a new owner. Recurring revenue is often a big part of what the buyer is paying for.
Ownership and governance. Clean ownership records, and whether the contractor license depends on one qualifying person, often the owner.
Subcontractors and vendors. Written subcontractor agreements, current certificates of insurance, and supplier terms.
Employment and safety. How technicians are classified, safety records, and agreements with key employees.
Insurance. Coverage history for vehicles, completed work, and job sites.
Records and digital. Warranty obligations on past installs, customer data, and files organized well enough to hand over.
Most owners are already solid on a few of these. Most also find two or three that need attention. That's normal.
Why years out is the best time to look
The Exit Planning Institute found that about 7 in 10 owners call exit planning a priority, but only 42% have a written transition plan. Among owners without a plan, 63% say it's too early and 45% say they're too busy.
Those are honest reasons. They're also why the best time to look is when a sale still feels far away. Updating a maintenance agreement at your next renewal cycle is calm and routine. Doing it while a buyer waits on the other side of a letter of intent is not.
What sale-ready looks like
You don't need a buyer lined up to check where you stand. A home services company that's ready for diligence usually has:
Customer and maintenance agreements that address what happens if the business is sold
A plan for the contractor license that doesn't depend on one person's last day
A signed agreement and a current insurance certificate for every subcontractor
Technician classifications that match how the work is actually done
A list of open warranty obligations on past installs
Key documents in one place, not spread across inboxes and a truck console
If a few of those are open, you're in good company. Every item on that list is ordinary paperwork, and paperwork is fixable on your own schedule.
Find it before a buyer does
If you'd rather not guess which areas are open, schedule a free 15-minute legal health call with Eric Jeppson. Eric is a business attorney licensed in California and Utah with more than 25 years of practice. He'll walk through your business with you and tell you which area he'd look at first.
For more on where legal risk tends to hide, read Don't wait for the lawsuit: the 6 places legal risk hides in your business.
This article is general information, not legal advice, and no attorney-client relationship is created by reading or responding. Jeppson Law, LLP.