Tampa Bay’s deal market has a good problem. Private equity appetite, retiring owners, and consolidation in healthcare, the construction trades, and IT services have kept lower-middle-market deal flow strong. But a competitive market sets a quiet trap: the same pressure that helps you win a deal is what makes you overpay for it, and the bill often arrives after closing.
The costly surprises in an acquisition are rarely things nobody knew. Far more often, someone found the issue in diligence and simply failed to deal with it in the purchase agreement. Most surprises are mechanics failures, not discovery failures. Diligence is not a memo exercise; it is underwriting. Every meaningful finding should change something concrete in the deal – the price, the working capital peg, an escrow, an indemnity, a covenant, or a closing condition. If it doesn’t, the diligence was theater.
The EBITDA you are buying is not the EBITDA in the deck. Nearly every founder-led business is marketed on adjusted EBITDA. S&P Global’s recurring addback studies have found that addbacks run roughly a quarter of management-adjusted EBITDA at deal inception, and aggressive ones tend to predict missed projections. The usual offenders: owner-compensation “normalizations” with no market support and one-time expenses that reappear yearly. Finding a soft addback is only half the job. It has to become a deal term: a price reduction, an EBITDA normalization that resets the multiple, a special indemnity if the exposure is contingent, or a closing condition if it must be cured first. A quality-of-earnings review is the cheapest insurance in a deal, and a sell-side QoE keeps the buyer’s accountants from finding it first and re-trading the price.
Customer concentration is a structure problem, not a footnote. When one client drives a large share of revenue, common among founder-built companies, that is not merely a risk to disclose. It changes the deal and can justify a holdback tied to customer retention, an earnout that shifts the bet onto the seller, rollover equity that keeps the owner invested, or a financing assumption conservative enough to survive that customer walking. The same logic governs key-person risk, where the owner is the relationships: the answer lives in employment agreements, restrictive covenants, transition services, and rollover or seller financing.
Working capital is where good deals quietly leak. A peg set off a trailing twelve-month average can punish a seasonal business, and most disputes are about method, not honesty. Diligence here has to drive the language: the peg methodology, the stated accounting principles, an explicit seasonality adjustment, a sample calculation attached as an exhibit, and a clear dispute process with a neutral accountant. Get those right and a six-figure post-closing fight is less likely.
Earnouts fail on mechanics more than anything. Earnouts are where diligence findings most often go to die. When diligence surfaces earnings volatility, customer concentration, or a valuation gap, the parties frequently bridge it with an earnout – and that is exactly where both sides get careless. The ABA’s 2025 Private Target Deal Points Study found earnout use has fallen to 18% of private deals, but the revealing number is what’s inside them: in only 14% did the buyer agree to run the business consistent with past practice during the earnout, and in just 5% to operate so as to maximize the payout. Sellers spot the risk in diligence and then sign away the very controls that protect it. An earnout tied to EBITDA means little when the buyer sets the accounting method, the expense allocation, and the capital spending. If a finding pushes a deal toward an earnout, diligence isn’t finished until those covenants are negotiated into the agreement – otherwise the number becomes whatever the other side decides.
Cyber is now a valuation item, not an IT footnote. More than half of M&A professionals report discovering significant cybersecurity issues only after closing, and nearly three-quarters say an undisclosed breach would be a deal-breaker, with the average U.S. data breach now exceeding $10 million. The marquee example is older but still instructive: Verizon cut its Yahoo price by $350 million after breaches surfaced in diligence. The lesson scales straight down to a mid-sized IT-services or healthcare target. Cyber findings should shape the reps and disclosure schedules, a dedicated special indemnity, escrow or RWI exclusions for known issues, remediation covenants, and specific closing deliverables. A breach you inherit silently always costs more than one you priced.
Regulatory and employment diligence is local. In Florida healthcare deals, for example, licensure and change-of-ownership approvals can dictate the closing sequence; miss that early and the timeline collapses. On covenants, the FTC’s national noncompete rule is no longer in effect, so enforceability is again primarily a state-law question – and Florida’s 2025 CHOICE Act made covered noncompetes strongly enforceable for up to four years. But don’t assume: verify enforceability, confirm the covenants are assignable and survive the deal structure, check that employees are properly classified, and note that the CHOICE Act expressly excludes healthcare practitioners, so physician and clinical noncompetes still run through the older statutory framework.
None of this requires more diligence than a competitive timeline allows. It requires better diligence that ends in contract language, not a binder. Diligence findings are worthless unless they flow into the purchase agreement itself. Buyers who treat diligence as a checklist inherit problems. Buyers who treat it as underwriting buy businesses, not lawsuits. And sellers who prepare, with clean financials, organized records, a sell-side QoE, and legal issues resolved, close faster, at better prices, with fewer surprises.
Author Bio:
Adam D. Kravatz is an attorney with Johnson Pope’s Healthcare and Business Practice Groups, focusing on mergers and acquisitions, corporate transactions, and strategic business matters. He represents healthcare organizations, private equity firms, middle-market companies, and entrepreneurs in complex transactions, bringing both law firm and in-house counsel experience to help clients achieve practical, business-focused solutions.
