No matter how buttoned-up your process is, surprises during due diligence are almost inevitable. And not all of them are deal-breakers.
You might uncover a tax issue that was glossed over. A key customer might turn out to be more at risk than expected. Or maybe the seller wasn’t as forthcoming as you thought.
So what do you do when something unexpected shows up late in the game?
In this post, we’ll break down a framework for how to think through late-stage surprises — including how to assess the risk, re-engage the seller, adjust terms if needed, and decide whether to move forward or walk away.
Expect Some Level of Discovery
First, let’s normalize the idea that surprises are part of the process.
Even in clean deals, final diligence often reveals things that were missed earlier — either because they were buried in the data room, misrepresented (intentionally or not), or simply not fully understood by the seller.
That’s not a failure. It’s exactly why you run a rigorous diligence process.
What separates experienced buyers from the rest is how they respond when something unexpected surfaces.
Don’t Panic, Get Context
When you uncover a surprise, it’s easy to jump straight to worst-case thinking.
Instead, take a breath and get the full story:
- How material is the issue? Does it affect cash flow, operations, or compliance?
- Is this new information, or just something you misunderstood earlier?
- Was this something the seller knew and failed to disclose, or were they unaware too?
Often, what looks like a red flag at first glance is either explainable or fixable. The key is to stay calm, ask the right questions, and get a full picture before reacting.
Loop in Your Advisors
Bring your diligence team into the loop early. That might include:
- Your financial and QoE advisors
- Legal counsel
- Industry experts, if needed
They’ll help you quantify the risk and understand your options. For example:
- Can the issue be mitigated with a contract revision?
- Does it warrant a price adjustment or indemnity?
- Is it common in deals of this type, or truly unusual?
A good advisor won’t just identify the problem — they’ll help you game out how to solve it.
Re-Engage the Seller (Tactfully)
This is where buyer psychology really matters.
Going back to the seller with “We found a problem” is rarely productive. Instead, frame it collaboratively:
“As we’ve dug deeper, we came across X. Can we talk through how it’s typically handled? We want to make sure we’re both protected post-close.”
Keep the tone:
- Professional, not accusatory
- Focused on shared outcomes
- Solution-oriented
If you keep it constructive, most sellers will work with you to find a path forward — especially if they’re emotionally or financially tied to the transition.
Quantify the Impact
This is where many buyers fall short. They find a red flag and react emotionally, without modeling how it actually impacts the deal.
Ask:
- Does this change projected EBITDA or working capital needs?
- Is this a one-time issue or a recurring cost?
- Can it be addressed through operational fixes or does it require structural changes?
Being able to say, “This issue adds $30K of annual cost and creates $50K of liability exposure” is much more actionable than simply saying, “This looks bad.”
Adjust the Deal If Needed
Once you understand the risk, decide how (or if) the deal terms should change. Common options:
Price Adjustment
If the issue impacts earnings or growth potential, you may renegotiate price — either a lower cash-at-close or adjusted total value.
Seller Holdback or Escrow
For risks that might not materialize immediately, a holdback can protect the buyer while giving the seller incentive to resolve the issue.
Indemnification
In cases where the risk could have legal or financial fallout, you may request a specific indemnity clause in the APA.
Reps and Warranties
You might tighten or add reps around the issue — putting the onus on the seller to confirm there’s no broader problem.
Decide Whether to Move Forward
Not every surprise is a deal-killer. But some are.
You should be willing to walk away if:
- The issue undermines core assumptions about the business
- The seller becomes evasive or uncooperative
- The solution requires more risk or capital than you can afford
Buyers get into trouble when they let sunk cost bias or momentum push them into closing a deal they’re no longer comfortable with.
A better option: pause, regroup, and make the best decision with the full picture in front of you.
Common Late-Stage Surprises to Watch For
These aren’t always deal-breakers — but they should trigger further review:
Underreported Liabilities
Unpaid taxes, misclassified contractors, or pending litigation.
Customer Concentration You Didn’t Catch Early
Turns out one client makes up 60% of revenue.
Inventory Issues
Stale, overvalued, or unsellable inventory that inflates the balance sheet.
Payroll Surprises
Undisclosed bonuses, misaligned comp plans, or outdated employee agreements.
Deferred Maintenance
You thought the equipment was fine — then you find out it’s held together with duct tape and good intentions.
Final Thoughts
Surprises in diligence aren’t a failure. They’re a feature.
The best deals often involve some last-mile problem solving — as long as both parties stay collaborative and solutions-oriented.
Stay calm, get context, loop in your team, and approach the seller with clarity and professionalism.
And if it still doesn’t feel right, don’t be afraid to walk. Better to lose a deal than buy a problem you didn’t sign up for.
Contact us today or book a free consultation and learn how we can be a trusted partner on your next deal!
