Private Equity7 min readMay 26, 2026

The Deal That Died

One Email. Premium Value. Gone.

I had a deal under exclusivity earlier this year. Off-market CDMO. Great business. Real EBITDA. Clean books. Sellers who wanted out and knew it.

It fell apart in 72 hours because a founder sent an email to the FDA.

Let me explain.

The Setup

The company was a pharmaceutical contract manufacturer. Founded 2021, FDA-registered, cGMP-compliant. They did OTC and Rx drugs, high-speed packaging, suppositories, full-scale liquids. Niche capabilities, sticky customers, and a team that actually knew what they were doing.

The numbers were real: $16.1M in revenue, $5.9M in EBITDA. Margins pushing 49%. In the lower middle market, that kind of margin profile in a regulated manufacturing business gets your attention fast.

We were at $60M enterprise value. 10x EBITDA. For a CDMO with this asset profile, that is not a stretch. These businesses trade at 12 to 15x when they are clean. The sellers wanted a fair exit. We wanted a platform. The fit was there.

I had a plan to take it from $6M to $16-20M in EBITDA over three to five years. Expand the facility from 44,000 to 96,000 square feet. Add capabilities. Run the SGOS playbook. Pursue tuck-ins. I was going to chair the board myself.

I have spent years operating in this space at the institutional level. I know what a good CDMO looks like from the inside. I know what breaks them. This one looked like a keeper.

Until it wasn't.

What Happened

Here is something most people outside pharma manufacturing do not know: a meaningful portion of drugs on the market today are technically unapproved. They exist in a category where FDA has made a policy decision to exercise enforcement discretion. The agency is aware of these products. It chooses not to act. Manufacturers operating under this framework can run their businesses, serve their customers, and build real value. But they do so entirely at FDA's pleasure.

This company was one of them.

That is not a disqualifying fact. Plenty of well-run businesses operate under enforcement discretion. The framework exists because forcing every legacy or niche product through a full NDA process would create more harm than it prevents. FDA is pragmatic about this.

But here is what it means if you are operating under non-enforcement: you do not have a legal protection. You have a relationship. Your entire right to manufacture those products depends on FDA continuing to look the other way. Which means the absolute last thing you can afford to do is give them a reason to look again.

The company also had an open warning letter. Not unusual for CDMOs of this size. Warning letters happen. The question is always: how is management handling it? What is the remediation plan? Are they communicating with FDA in good faith?

Those answers matter more than the letter itself.

One of the founders decided to make them matter a lot more than anyone expected.

He sent a direct email to the FDA. Not through counsel. Not coordinated with the company's regulatory team. Alone. His idea was to use the pending warning letter clearance as leverage. He thought he could negotiate. Accelerate the resolution. Maybe get something in return.

What he actually did was wave a red flag at the one agency that had the power to end his business with a single enforcement action.

FDA does not negotiate through unsolicited founder emails. They document them. That communication went into the file. It raised questions about who was actually in control of quality decision-making at the company. It signaled exactly the wrong posture from a management team that was supposed to be operating quietly under enforcement discretion. And it put the deal in a position where no serious buyer could get comfortable on regulatory risk without a complete re-underwriting of the FDA relationship.

That takes months. We did not have months. Exclusivity has an end.

The deal died.

Why This Matters for CDMO Investing

I have seen this pattern before. Not the exact email, but the underlying behavior. Founders at smaller CDMOs who built great manufacturing operations but never internalized what it means to be in a regulated industry.

The FDA relationship is not a vendor relationship. It is not a negotiation. It is not something you manage through charisma or pressure.

Quality is a culture. Either the leadership team has it or they do not. And at businesses doing $10-20M in revenue, the founder's instincts are the culture. There is no institutional layer beneath them absorbing the impact when they make a bad call.

This is what I call the Quality CDMO problem. You can look at a cGMP certificate. You can review the SOPs. You can walk the facility and check the logs. You can confirm that the company is FDA-registered, that the facility is compliant, that the remediation plans are written. But what you cannot see on a site visit is whether the founder actually understands the environment they are operating in.

Enforcement discretion is not a loophole. It is a grant of continued tolerance. The companies that keep it are the ones who treat it with the seriousness it deserves. The ones who lose it are the ones who forget, or never understood, that they are operating at the discretion of a federal agency, not a right.

That distinction is the entire ballgame in pharma manufacturing.

The financials on this deal were strong. The operations were solid. The market position was real. But when one founder's judgment under pressure produced an unauthorized email to a federal regulator, every assumption I had built about the business had to be revisited. What else would he do alone? What other calls might he make without telling the team?

In operator-driven PE, you are betting on the people as much as the asset. If the people cannot be trusted to handle regulatory risk correctly, you do not have a platform. You have a liability.

The Takeaway

Warning letters are not automatic deal-killers. Enforcement discretion is not an automatic deal-killer. I have seen businesses with open letters and complex regulatory frameworks that were managed professionally and came through cleanly. Those are often the more interesting investment opportunities, not the less interesting ones, because the regulatory complexity scares off unsophisticated buyers and compresses the multiple.

What kills deals is management behavior under pressure.

Watch how founders talk about FDA. Watch whether they understand the difference between a regulatory relationship and a legal entitlement. Watch whether they see compliance as a cost of doing business or as the condition on which their business is permitted to exist. Watch whether they reach for counsel when things get hard or whether they get creative in ways that create more problems than they solve.

The best CDMO operators I have worked with, including people who ran facilities at scale during some genuinely difficult regulatory moments, shared one trait: they never tried to outsmart the process. They fed it. They documented everything. They communicated clearly and consistently. They treated quality as the business, not as an overhead line.

That is the standard I am looking for in every CDMO I underwrite.

Project Alchemy had a lot going for it. But one email reminded me why quality culture is always the first diligence question, even when everything else looks clean.

If you are in the CDMO space or adjacent to it, I want to hear from you. I am actively sourcing pharma services platforms in the lower middle market. If you know of a business, a situation, or a founder looking for a thoughtful partner, reach out directly: paul@swaneygroup.com

If you are a capital provider thinking about the pharma services space, I am happy to walk through how I underwrite quality risk in this sector and what the return profile looks like when you get it right.

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