The Scariest Monster in M&A: Why Loss of Trust Haunts Business Deals

As autumn descends and the season of ghosts and ghouls arrives, many business owners are deep into transactions that promise future growth or a comfortable retirement. But in the world of mergers, acquisitions, and major contracts, the true terror isn’t market volatility, it’s the sudden disappearance of trust.

We’ve seen it happen: the relationship between a buyer and seller starts out amicable and professional. Everyone sees the merits of the transaction and is excited to move forward. But as time goes by, trust begins to falter and both sides find it harder and harder to attribute good intentions to the other side’s actions. Every new ask starts to feel more and more like an attempt to take advantage. Even deals that are financially sound and strategically perfect fall apart because one party loses faith in the other. Loss of trust is, without question, the number one killer of business agreements.

The Unmasking: Where Trust Goes to Die

In a successful transaction, trust is the invisible foundation supporting everything from the valuation to the closing timeline. But when the due diligence process begins, the potential buyer or partner is essentially hunting for skeletons. If they find any, the deal can go cold.

Here are the three most common ways this essential trust vanishes:

1. The Hidden Liabilities (Skeletons in the Closet)

The most chilling discovery during due diligence is finding a liability—a looming lawsuit, a violation of regulatory compliance, or unacknowledged debt—that was never disclosed. When buyers uncover these issues, they don’t just recalculate the price; they immediately question the seller’s integrity across the board. If the seller hid a financial issue, what else are they concealing? This suspicion can tank a relationship faster than a poor valuation.

2. The Misrepresented Financials (The Phantom Revenue)

A deal is built on the numbers presented early on. If a seller’s initial representations about revenue, projections, or customer retention turn out to be wildly optimistic or, worse, deliberately misleading, the deal becomes haunted. The buyer begins to see all past assurances as “phantom revenue,” present only in the shadows of the initial proposal. The lack of verifiable, accurate documentation destroys the credibility of the entire transaction.

3. The Erratic Behavior (The Ghoulish Gaps)

Unreliable action, such as missing deadlines or repeatedly attempting to renegotiate settled terms, signals instability or dishonesty in the counterparty. This erratic behavior creates high uncertainty and makes the other party seriously doubt whether a smooth closing is possible.

This lack of trust is critically important if the deal requires the parties to continue working together post-closing (e.g., through a seller consulting agreement or an earn-out). Unstable communication during the diligence phase is a major red flag for future compliance and cooperation.

Building the Protective Shield: The Power of Transparency

The only effective defense against the erosion of trust is unwavering transparency, proactive disclosure, and thorough legal preparation, ideally before the letter of intent is signed. 

Integrity over Optimism: It is always better to disclose minor flaws or operational challenges early in the process rather than allowing the buyer to uncover them later. A pre-emptive, candid explanation maintains your credibility and strengthens your negotiating position.

Detailed Documentation: Ensure every claim you make, about valuation, assets, or compliance, is backed up by clear, organized documentation. When the supporting paperwork is neat and comprehensive, it minimizes the opportunity for suspicion and doubt to creep into the process.

Legal Foresight: Working with experienced commercial counsel ensures that both parties operate under clearly defined terms and that all necessary disclosures are made correctly and on time. We are here to bring clarity to every phase of the contract and business transaction process, helping owners prepare their documentation for buyer scrutiny.

Don’t let a loss of faith send your major business opportunity into the deal graveyard. By prioritizing honesty and relying on robust legal representation, you can ensure your business successfully navigates the complexities of due diligence and moves confidently toward a profitable exit.

If you’re preparing your business for sale or a critical business transaction, contact us at Franklin & Frankel LLC today. We help you establish the legal framework for success.