When an owner signs a letter of intent to sell their school, the celebration usually lasts about a day. Then due diligence begins, and that is where the real test starts. In my experience, a signed LOI is not the finish line. It is the starting gun for the most fragile stretch of the entire sale, the 60 to 90 days when a buyer stops listening to your story and starts re-underwriting your numbers line by line. Most private school sales that collapse do not collapse at the negotiating table. They collapse here, in the quiet weeks after everyone thought the deal was done.
The good news is that nearly every post-LOI death is preventable. After 40 years of selling schools, I can tell you the failures are not random. They cluster around five predictable problems, and each one has a fix you can put in place long before a buyer ever asks.
Why does a signed LOI feel safer than it is?
An LOI is mostly non-binding. It sets a price and a framework, but it gives the buyer a window to verify everything you have told them, and a clean exit if what they find does not match. This is not unique to schools. A widely cited MIT Sloan analysis found that forty-six percent of all M&A deals are ultimately undone, and the lower middle market, where most private schools trade, is no kinder. The pattern repeats across industries: the LOI unlocks due diligence, and that is precisely where unprepared deals go to die.
For schools specifically, the buyer is no longer evaluating a prospectus or a campus tour. As one M&A advisor put it bluntly, after the LOI the buyer is re-underwriting the business in detail. Price gets reset when the verified numbers do not match the story. Your job in those 90 days is to make sure they always do.
Reason one: the books don't survive a quality of earnings review
This is the most common killer by a wide margin. When your school crosses into serious valuation territory, buyers do not simply read your tax returns. They bring in forensic accountants to test whether your earnings are real. Deals fall apart in diligence most often because of quality of earnings discrepancies, where personal expenses were mixed with business expenses, or aggressive accounting artificially inflated EBITDA.
In plain terms: if your spouse's car, the family phone plans, or the cottage repairs are running through the school's books, every dollar of that has to be cleanly identified and added back. If it is not documented, the buyer will not give you credit for it, and your adjusted EBITDA, the number your entire price is built on, shrinks in front of your eyes.
The fix is to find your own skeletons before the buyer's accountants do. Move to reviewed or audited financials, separate personal spending, and build a clean schedule of add-backs with receipts attached. Our guide to preparing your school for sale walks through exactly how to do this.
Reason two: the school lives in the owner's head
The second killer is founder dependence. A buyer doing diligence quickly realizes whether the school runs on systems or on you. When the conclusion is that the business is held together by the owner's memory rather than standard operating procedures, confidence drops and so does the offer. Operator buyers in particular discount heavily for this, because they are buying a school that has to function after you walk out the door.
The fix takes time, which is why I tell owners to start 12 to 24 months out. Document your admissions process, your re-enrollment cadence, your vendor relationships, and your academic calendar. The goal is simple: a new owner should be able to run the place from your binders, not your recollection.
Reason three: the data room is a mess
Diligence runs on documents, and a disorganized data room signals risk on every page. The opposite is just as true. A clean data room does more than save time. Advisors note that a clean, single-entity data room can cut diligence costs by 25 to 35 percent, and lower cost almost always means lower friction and faster closings. Transparency compresses diligence risk, and compressed risk protects your price.
Here is the core checklist I have every seller assemble into a secure data room before we go to market:
- Corporate and licensing: incorporation documents, bylaws, current operating permits, accreditation certificates, and three years of board minutes
- Financial and tax: three years of audited or reviewed statements, federal and provincial filings, charity status documents if applicable, tuition rate history, and aged accounts receivable
- Enrollment: rosters by grade for three to five years, re-enrollment and withdrawal rates, and current waitlists by grade to prove demand
- Human resources: employment contracts, the full payroll register with benefits, staff credentials and background checks, and pension or RRSP documentation
- Real estate and facilities: deeds or leases, current fire, health, and safety inspections, zoning confirmation for educational use, and an asset inventory
- Legal and insurance: liability and property policies, active vendor contracts, and a complete litigation history
If you can hand a buyer that, organized and labeled, you have already separated yourself from most of the schools they have looked at.
Reason four: enrollment or accreditation surprises
Schools carry risks no other business does, and diligence is built to find them. Buyers dig hard into enrollment trends and regulatory standing because those two things determine whether the school exists in five years. In education deals, financial diligence around accreditation and pending actions is particularly relevant, and a single undisclosed accreditation warning or a quietly declining re-enrollment rate can end a deal overnight.
The fix is disclosure on your terms. If retention slipped two years ago and recovered, show the buyer the story before they find the gap. If an accreditation review is pending, get ahead of it. Surprises kill trust, and trust is the currency that keeps a deal alive through diligence.
Reason five: the structure no one discussed at the LOI
The fifth killer is structural, and it often hides inside real estate. If you own your campus, the way the deal treats that property can quietly reshape your entire outcome. Buyers may re-trade the price, push more money into earnouts, or restructure around the land between LOI and closing. I covered how property and operations can be separated in my post on PropCo/OpCo structures, and owners who never think this through often leave real money on the table or watch a deal stall over terms that should have been settled up front.
The fix is to model the structure before you sign the LOI, not after. Know whether you are selling the operation, the property, or both, and what each path does to your net proceeds and your tax bill.
Frequently asked questions
How long does due diligence take when selling a private school? Plan on 60 to 90 days from signed LOI to closing for most school sales, sometimes longer if real estate, accreditation approvals, or international buyers are involved. The cleaner your data room, the shorter and safer that window.
What is the single most common reason school deals collapse after the LOI? Quality of earnings problems. When a buyer's accountants cannot verify the earnings you presented, your adjusted EBITDA falls and the price falls with it. Clean, reviewed financials with documented add-backs are the best protection there is.
Should I start preparing documents before I have a buyer? Yes, and ideally 12 to 24 months out. Assembling your data room and cleaning your books before you go to market is the highest-return work you can do. It is far cheaper to find your own problems than to have a buyer find them mid-diligence.
Can a deal be saved once it starts falling apart in diligence? Sometimes, but it is far harder and almost always costs you price or terms. The owners who close at their full number are the ones who prevented the problems rather than negotiated their way out of them.
Ready to make it through the 90 days that matter most?
The LOI is the easy part. The deal is won or lost in the diligence that follows, and the owners who close cleanly are the ones who prepared for it long before a buyer asked a single question. If you are considering a sale in the next one to three years, a confidential conversation now costs nothing and can save you the deal later.
Reach us at info@halladayeducationgroup.com and 1.800.687.1492.