LenderHawk analysis. Not affiliated with or endorsed by The Permanent Podcast.
Brent Beshore and Emily discuss how LOIs set the rules for exclusivity, price, deal structure, and diligence, then walk through why diligence is often the hardest and most failure-prone part of a lower-middle-market acquisition. They emphasize that small-company diligence is slowed by weak reporting systems, limited staff access, emotion, and the risk of retrading after the buyer learns more. The episode also highlights Permanent Equity’s choice to keep diligence in-house so the team can control timelines and learn the business directly.
Buyers, sellers, and ETA investors who want a practical view of how LOIs and diligence actually work in small-business acquisitions and why many deals break after signing.
An LOI usually locks in price, deal structure, exclusivity, and diligence milestones before the buyer commits real legal and financial effort.
In the lower middle market, fewer than one in four deals close after LOI, so the post-LOI phase should be treated as a high-risk filter rather than a formality.
Poor accounting systems and unorganized data are a major reason diligence slows down or collapses in smaller companies.
Seller reluctance to expose finance, accounting, and HR leaders early can materially impair diligence because the buyer needs corroboration from operators beyond the owner.
Some buyers use diligence to retrade the deal after signing the LOI, so sellers should evaluate the buyer’s closing track record before granting exclusivity.
Permanent Equity keeps diligence in-house to control timelines, retain institutional knowledge, and avoid losing business insight to outside advisors after closing.
The buyer’s reaction to diligence requests reveals a lot about its discipline, pace, and seriousness about closing.
Communicative sellers who set realistic document timelines reduce friction and make it easier for the buyer to stay in a closing mindset.
The LOI is the commitment-to-investigate stage: parties agree on core economics and exclusivity, then use diligence to verify the facts and decide whether to close.
When to use: Use this when evaluating whether a signed LOI is truly a near-final deal or just the start of a long verification process.
Exclusivity periods in LOIs are typically 60 to 120 days.
Brent describes the standard window that prevents open-ended probing after an LOI is signed.
In companies under $15 million of EBITDA, fewer than 25% of deals close after LOI.
The episode cites lower-middle-market close rates to explain why diligence is so consequential.
That implied post-LOI failure rate is greater than 75%.
The hosts restate the close-rate data in probability terms.
Due diligence on a transaction can take as little as four weeks or more than a year.
Brent frames the range based on deal complexity and party speed.
Permanent Equity’s diligence checklist in the back of the book runs about 20 pages.
The hosts point to their published internal question set as a transparency tool.
The checklist has been built over more than 10 years of doing acquisitions.
Emily describes the origin of the diligence question bank.
Ask the buyer how many of the last 10 LOIs actually closed before granting exclusivity.
Why: Past conversion rates reveal whether the buyer is serious or likely to retrade or stall.
Ask who will actually conduct diligence, not just who is sponsoring the deal.
Why: Adding outside accounting, legal, and consulting parties slows information flow and increases the chance of delays.
Set realistic document timelines early if records are not readily organized.
Why: Clear expectations reduce conflict when diligence prep takes longer than a buyer would like.
Involve finance, accounting, and HR leaders in diligence when possible.
Why: The owner alone usually cannot answer the detailed operational questions buyers need to verify the business.
Keep your head and avoid emotional escalation when diligence questions feel intrusive.
Why: Both sides tend to interpret requests as unfair or evasive, and losing patience only makes the process harder.
Treat the LOI exclusivity period as a working window, not an artificial deadline unless the buyer is clearly stalling.
Why: Good-faith diligence often needs extensions, and rigid deadlines can create unnecessary deal stress.
Emily says the firm chose to internalize accounting and legal coordination even though it was expensive and required additional staff. The tradeoff was more control over timelines and direct knowledge of the business, instead of letting outside advisors learn the company and then pass that knowledge through layers after closing.
Lesson: Buying teams can justify higher overhead if the result is better speed, better learning, and stronger post-close ownership.