Indications of Interest (IOI) vs LOI

An Indication of Interest (IOI) and a Letter of Intent (LOI) are both non-binding expressions of intent to acquire a business, but they serve different purposes in the deal process and contain different levels of specificity and commitment.

Indication of Interest (IOI): An IOI is an early-stage expression of interest submitted in response to a CIM or initial process contact. It establishes that a buyer is interested in the business and provides a preliminary valuation range — without the detail, diligence, or commitment level of an LOI. IOIs are typically 1–2 pages, submitted at the beginning of a sale process to qualify buyers for the next stage. Key elements: preliminary valuation range (often expressed as a range of EV or EBITDA multiple), brief description of the buyer and their financing approach, and an indication of intended deal structure. IOIs are explicitly non-binding, non-exclusive, and preliminary — they enable sellers to gauge initial buyer interest and narrow the field before investing in management presentations and deeper diligence.

Letter of Intent (LOI): An LOI is a more detailed and specific expression of intent submitted after management presentations and preliminary diligence — setting the foundation for the formal purchase agreement. An LOI typically specifies: the proposed purchase price (specific number, not a range), deal structure (asset vs. stock, enterprise vs. equity value), key terms (working capital target, escrow amount, earn-out if any), financing sources, diligence timeline, exclusivity period, and break-up fee provisions. LOIs are non-binding with respect to the deal itself (either party can walk), but certain provisions are typically binding: the exclusivity provision (seller agrees not to talk to other buyers for the exclusivity period), confidentiality, and expense allocation provisions.

The process: IOI → Management Presentation → LOI → Exclusivity → Definitive Agreement: In a formal sale process, IOIs narrow the field to a management presentation group; management presentations provide information for informed LOI bids; LOIs establish the deal framework; exclusivity provides protected time for due diligence and documentation; and the definitive agreement is the binding contract.

IOI/LOI in proprietary deals: In proprietary (off-market) transactions, the process is less formal. A buyer and seller may move directly from an initial conversation to an LOI without a formal IOI stage, or the IOI and LOI stages may merge into a single preliminary offer.