Dead Deal Cost

Business, Legal & Accounting Glossary

Definition: Dead Deal Cost


Dead Deal Cost


Full Definition of Dead Deal Cost


A dead deal cost is an expense spent by a buyer or seller in the event that a transaction does not conclude. After a letter of intent (LOI) is signed, dead deal costs can begin to accumulate, as this is when due diligence commences, requiring significant internal and external time to verify the proposed transaction’s assumptions.

While buyers often spend the majority of these costs through due diligence, sellers can incur costs as well and are therefore better off selecting a buyer with a solid track record of finishing agreements (even if the acquisition price is lower than another offer from a more questionable buyer).

While transaction costs are unavoidable, they become “dead” if a transaction proceeds to due diligence but does not close. While they can be regarded as a “cost of doing business” for acquirers, the most sophisticated purchasers seek to avoid them by ensuring that every deal under consideration has a high possibility of closing. Again, costs “die” when deals “die,” therefore in order to keep costs “alive,” the deal must close, at which point the expenses become a component of the enterprise value of the transaction (rather than just being written off).

Along with the internal time spent on a trade, buyers and sellers typically suffer the following third-party transaction costs:

  • Legal costs for due diligence and drafting the purchase and sale agreement and other supporting agreements, such as employment contracts and non-competes, etc.;
  • Financial costs for the quality of earnings review, internal controls review and working capital assessments;
  • Appraisal costs for properties and/or equipment;
  • Environmental assessments if a property is being purchased or leased; and
  • Tax counsel costs to assess the most tax-effective treatment of the transaction for both the seller and buyer.

Related Phrases


Break-up Fee
Hello Fees
Due Diligence
Letter of Intent (LOI)
Enterprise Value
Purchase and Sale Agreement
Employment Agreement
Non-Competition Agreement
Working Capital


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Dead Deal Cost. PayrollHeaven.com. Retrieved April 29, 2022
, from PayrollHeaven.com website: https://payrollheaven.com/define/dead-deal-cost/

Definition Sources


Definitions for Dead Deal Cost are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 27th January, 2022 | 4 Views.