In competitive M&A processes, you submit an IOI before an LOI. Understanding when each is used-and what each commits you to-is critical.
A preliminary, non-binding expression of interest in acquiring a target company. Submitted early in a sale process, usually based on limited information (teaser, CIM). Used to express preliminary valuation range and gain access to more detailed information.
A more detailed document outlining specific deal terms after initial due diligence. Submitted later in the process, typically after management meetings. Usually includes binding exclusivity provision and non-binding economic terms.
Where IOI & LOI Fit in the Deal Timeline
Anonymous overview
Detailed info book
Preliminary bid
Meet the team
Detailed terms
Deep dive + close
IOIs are common in competitive auctions run by investment banks. In proprietary deals (direct approach to a seller), you typically skip the IOI and go straight to LOI after initial conversations. The process depends on how the deal is being marketed.
IOI vs LOI: Key Differences
| Factor | IOI | LOI |
|---|---|---|
| Purpose | Express preliminary interest, get to next round | Lock up deal, begin exclusive negotiations |
| Timing | After CIM review, before management meetings | After management meetings, before DD |
| Information Basis | Limited (CIM, public info) | More detailed (mgmt presentations, Q&A) |
| Valuation | Range (e.g., $40-50M) | Specific price (e.g., $47M) |
| Deal Terms | High-level (structure, synergies) | Detailed (reps, indemnity, conditions) |
| Binding? | No (fully non-binding) | Partially (exclusivity usually binding) |
| Exclusivity | None-competing with other bidders | Usually 30-90 days exclusive |
| Length | 1-3 pages | 4-10+ pages |
| Legal Review | Light (often none) | Essential (negotiate terms carefully) |
The Indication of Interest (IOI)
Typical Contents:
Sample Valuation Language:
"Based on our review of the CIM, we are prepared to offer an enterprise value in the range of $40-50 million, subject to confirmatory due diligence and the negotiation of a definitive agreement."
IOI valuations are ranges because you don't have enough information yet. You've only seen the CIM-you haven't met management, verified financials, or done any real due diligence.
Strategy: Go High-But-Credible
To get to management meetings, your IOI needs to be competitive. But don't bid so high you can't support it later-that's "re-trading" and damages your reputation.
Seller Tip: Read the Range
Serious buyers put the real number in the middle of the range. If they say $40-50M, expect $45M. If they come in at $40M later, they were never a $50M buyer.
An IOI is completely non-binding. You can submit an IOI and walk away with no legal consequences. The only cost is relationship/reputation damage if you're seen as wasting the seller's time.
The Letter of Intent (LOI)
Non-Binding Terms:
Binding Provisions:
The LOI is partially binding. While deal terms (price, structure) are non-binding, exclusivity and confidentiality are enforceable. During the exclusivity period, the seller cannot shop the deal, and you cannot walk away without consequences to bound provisions.
Not every signed LOI results in a closed deal. Industry data suggests 20-40% of LOIs fail to close. Common reasons:
Due Diligence Issues
Material findings that change the deal
Financing Falls Through
Can't close bank or investor funding
Definitive Agreement
Can't agree on final terms
IOI & LOI Strategy Tips
IOI Structure
Who you are, why you're interested, your experience in the industry. 1-2 paragraphs establishing credibility.
Enterprise value range based on CIM review. Be specific about basis (EBITDA multiple, revenue multiple) and key assumptions.
Asset vs stock purchase, cash vs stock consideration, treatment of debt, key assumptions about working capital.
How you'll fund the acquisition. Include proof of funds, bank commitment letters, or investor backing documentation.
What additional information you need, proposed timeline to LOI and close, key conditions.
Why this acquisition makes sense. Synergies, growth opportunities, employee/management plans. Sellers care about legacy.
Whether you're submitting an IOI, negotiating an LOI, or trying to understand what you've signed, we can help you navigate the M&A process.
Acquisition Stars • acquisitionstars.com • alex@acquisitionstars.com
The LOI is where terms become binding. Before you sign, have M&A counsel review the language that will govern your deal. 24-48 hour turnaround.
Request LOI Review →