What Is an Indication of Interest (IOI)? The 2026 Founder’s Guide to Pre-LOI Buyer Letters

“An IOI isn’t a binding offer — it’s a buyer’s first written statement of how seriously they’re approaching your business. The best sale processes generate 4-8 IOIs, use them to triangulate valuation, and narrow the field to the strongest 2-3 buyers before LOI.”

Key Takeaways

• An IOI is a non-binding written letter from a buyer expressing interest in acquiring your business at a specified price range.
• IOIs come before LOIs and are the buyer’s first written commitment to engage in serious diligence.
• Typical IOI components: valuation range, deal structure, financing source, basic conditions, timeline.
• Sellers typically receive 3-10 IOIs in a competitive process; advance the top 2-4 to management presentations and LOIs.
• Strong IOIs are specific; weak ones leave too much room for retrades later.
• IOIs are how sellers triangulate fair-market valuation across multiple buyers without committing to any.
• IOIs are not legally binding — but they’re a meaningful signal of buyer seriousness and capital readiness.

Indication of Interest Defined

An indication of interest (IOI) is a written letter from a prospective buyer to the sellers’ representatives (usually an investment bank or M&A advisor) expressing interest in acquiring the business. It includes the buyer’s preliminary valuation range, deal structure preferences, and high-level conditions.

IOIs are non-binding. The buyer is not committed to pursuing the transaction. The seller is not committed to selling to that buyer or at the price indicated. Either party can walk away with no legal consequences.

The purpose of an IOI is twofold: (1) to give the seller enough information to decide whether to advance this buyer to the next stage (management presentations, deeper diligence access), and (2) to give the buyer a way to signal seriousness without making a binding offer.

What’s in an Indication of Interest: The Standard Components

A well-prepared IOI typically includes seven elements. The presence and specificity of each tells you a lot about how serious the buyer is.

1. Valuation Range

Usually expressed as a range (e.g., ‘$22-26M enterprise value’) or as a multiple of EBITDA (e.g., ‘6.5-7.5x trailing EBITDA’). The narrower the range, the more committed the buyer; vague ranges signal early-stage interest.

2. Deal Structure Preference

Asset sale vs. stock sale preference. Cash vs. seller note vs. earnout vs. rollover mix. Specifies what kind of consideration the buyer plans to offer.

3. Sources of Capital

Where the buyer’s money is coming from: committed equity from a specific fund, debt financing arranged, family-office capital, etc. The more specific, the more credible the IOI.

4. Conditions and Contingencies

What needs to be confirmed for the buyer to advance: financial diligence, customer concentration analysis, key employee retention commitments, regulatory approvals.

5. Required Diligence Access

What the buyer needs to see next: management presentation, more detailed financials, customer-level data, IP review, technology demos.

6. Proposed Timeline

Buyer’s expected timing from IOI to LOI, LOI to close. Most LMM IOIs propose 2-4 weeks to LOI, then 8-12 weeks to close.

7. Closing Conditions Highlights

Major conditions: financing contingency, due diligence satisfaction, no material adverse change, key employee retention. These typically get refined further in the LOI.

IOI vs LOI: The Critical Difference

Both IOIs and LOIs are non-binding. Both are written letters from buyers. Both include a price. So what’s the difference?

Why an Indication of Interest Matters More Than You Think

Sellers sometimes treat IOIs as throwaway documents — non-binding, so what’s the value? In reality, IOIs serve three critical functions:

1. Price Discovery

Multiple IOIs reveal where the market is pricing your business. If you receive 6 IOIs in a $22-28M range, you have a much stronger sense of fair value than any single buyer’s number would provide. The IOI cluster IS the market test.

2. Buyer Qualification

IOIs let you sort serious buyers from tire-kickers. Specific valuations, named capital sources, and clear timelines all signal a serious buyer. Vague language, no capital identification, and broad timelines signal a tire-kicker.

3. Competitive Tension

Having multiple IOIs gives you leverage in LOI negotiations. The lead buyer knows you have backups warm. This pressure can be worth 5-15% of headline price.

What a Strong Indication of Interest Looks Like

Strong IOIs share certain characteristics that distinguish them from weak ones. As you receive IOIs, evaluate them against these standards:

• Specific valuation — a tight range ($22-24M) is stronger than a broad range ($18-28M)
• Named capital source — ‘Committed equity from Fund III’ beats ‘Equity from our investors’
• Identified key conditions — explicit list of what needs to be diligenced
• Realistic timeline — 8-12 weeks to close is typical; faster may be unrealistic, slower may be unserious
• Reference to the CIM — shows the buyer actually read it (e.g., references specific revenue or EBITDA figures)
• Named deal team — partners, principals, and analysts who will work the deal
• Specific structure preference — asset vs stock, rollover percentage, earnout willingness
• Indication of working capital convention — cash-free, debt-free assumed

Red Flags in Weak IOIs

Conversely, certain patterns signal a weak or opportunistic IOI:

• Very broad valuation range (>30% spread)
• No specific capital source mentioned
• Vague language about diligence requirements
• Unrealistically fast or slow timelines
• Heavy emphasis on contingencies that could justify later retrades
• Generic language not specific to your business
• Lack of named partner or principal on the deal team
• Excessive financing contingencies (suggests buyer isn’t actually capitalized)
• Caveats and qualifications that effectively make the price meaningless

How to Read an Indication of Interest’s Price

The IOI price is not a final number. It’s a starting point that will move based on what diligence reveals. Most IOIs land within a familiar pattern:

Initial IOI → Management Presentation → Refined IOI (sometimes) → LOI → Diligence → PSA/APA/SPA → Close.

Typical movement: from initial IOI to LOI, expect 5-15% downward movement as buyers refine their model with more information. From LOI to close, expect another 0-10% retrade. So an initial IOI at $24M might land at $20-22M at close — about 8-15% below initial.

Smart sellers anticipate this drift and select buyers whose initial IOI is high enough that even with normal drift, the final price meets your minimum.

How to Use IOIs Strategically

The strategic use of IOIs is the difference between a process that finds the highest price and one that settles.

1. Run a Competitive Process

Target 10-15 quality buyers; expect 5-10 to engage; expect 3-8 IOIs back. Anything less leaves money on the table.

2. Use IOI Cluster as Valuation Floor

The median IOI valuation is your floor. Don’t accept any LOI below that. If 6 IOIs cluster at $20-25M, your LOI floor is $20M.

3. Advance Top 2-4 to Management Presentation

Don’t try to keep 8 buyers warm through LOI — too much process load. Narrow to 2-4 strongest IOIs and invest your management presentations there.

4. Maintain Backup Optionality

Even after LOI is signed, the other 1-2 strong IOI holders should remain warm. Communicate the deal is moving but don’t kill them entirely.

5. Use IOI Specificity as a Filter

Buyers with specific, well-prepared IOIs tend to follow through. Buyers with vague IOIs tend to retrade or walk. Weight your selection accordingly.

The Indication of Interest Process: Timeline and Steps

A typical sell-side IOI workflow:

1. Week 0: Investment banker / M&A advisor approaches 10-20 qualified buyers with anonymized teaser
2. Weeks 1-2: NDAs signed; CIM distributed to engaged buyers
3. Weeks 2-4: Buyers review CIM, ask preliminary questions, finalize their own modeling
4. Weeks 4-5: IOI submission deadline; buyers submit written letters
5. Week 5: Sellers and their advisor review IOIs; rank buyers; select advance group
6. Weeks 5-7: Top 2-4 buyers receive management presentation invitations
7. Weeks 7-9: Management presentations held; final IOI refinements; data room access opened
8. Week 9-10: Top buyers asked for LOIs based on management presentation experience
9. Week 10-12: LOIs received; lead buyer selected; exclusivity period begins

When to Decline an IOI

Not every IOI deserves advancement. Reasons to decline:

• Valuation materially below your target floor — even with diligence drift, won’t get to acceptable price
• Buyer lacks credible capital — too much execution risk
• Strategic fit poor — wrong industry, wrong stage, wrong culture
• Buyer has reputation for retrades — your industry knows them; you’ve checked references
• Process structure problematic — wants exclusivity from IOI stage (too early for that)
• Timeline misaligned — wants 6-month close when you need 3-month close, or vice versa

How Buyers Approach Writing an Indication of Interest

Understanding the buyer’s perspective on IOIs helps you interpret them. Buyers face their own constraints:

PE firms write IOIs after their investment committee approves a preliminary indication. The price they put in the IOI is bounded by their fund mandate, return targets, and committee approval. Too high a price gets rejected by IC; too low and they lose the deal.

Strategic acquirers write IOIs based on board approval. Their pricing reflects synergy assumptions baked into the model.

Search funds and independent sponsors write IOIs based on their personal capital, investor commitments, and debt market conditions. Their pricing tends to be tighter but also more dependent on financing.

Family offices write IOIs based on patient-capital criteria — they care less about IRR than long-term ownership fit. Their pricing tends to be more flexible but with non-financial conditions.

What Comes After the IOI

Once you select advance buyers from your IOI pool, the next stages are:

1. Management Presentation — buyers visit your business, meet leadership, see operations firsthand
2. Refined IOI (optional) — some processes have a second IOI round after management presentations
3. Data Room Access — full data room opened to top buyers for deeper diligence
4. LOI — the lead buyer (or top 2-3) submit binding LOIs with exclusivity
5. Exclusivity Period — typically 45-60 days for buyer to complete diligence and negotiate definitive agreement
6. Purchase Agreement — APA or SPA negotiated and signed
7. Closing — funds wire, equity transfers, business changes hands

Conclusion

Frequently Asked Questions

What is an indication of interest in M&A?

An indication of interest (IOI) is a non-binding written letter from a prospective buyer to the seller expressing interest in acquiring the business, including a preliminary valuation range, deal structure preference, and high-level conditions. It’s the buyer’s first written commitment to engage in serious due diligence.

What’s the difference between an IOI and an LOI?

An IOI is earlier in the process and entirely non-binding — it’s a preliminary indication of interest. An LOI comes after management presentations and includes specific (rather than range-based) pricing plus some binding clauses (exclusivity, confidentiality). LOIs are more specific and more committed.

Are IOIs binding?

No. IOIs are entirely non-binding. Neither buyer nor seller is committed to proceeding. Either party can walk away at any time with no legal consequences.

What’s typically included in an IOI?

Seven components: (1) valuation range, (2) deal structure preference (asset/stock, cash/rollover/earnout), (3) sources of capital, (4) conditions and contingencies, (5) required diligence access, (6) proposed timeline, (7) closing condition highlights.

How many IOIs should I get in a sale process?

A competitive sell-side process typically generates 3-10 IOIs. Fewer than 3 signals weak buyer interest or poor process execution. More than 10 may signal the process is too broad. Aim for 5-8 strong IOIs as a healthy cluster.

How do I know if an IOI is strong?

Strong IOIs have specific valuations (tight ranges), named capital sources, identified key conditions, realistic timelines, references to your specific business in the CIM, named deal teams, and clear structure preferences. Weak IOIs are vague, broad, and use generic language.

How much does the IOI price drift to closing?

Typical drift from initial IOI to close: 8-15% downward. From IOI to LOI: 5-15% down. From LOI to close: 0-10% down (retrades). Smart sellers target buyers whose initial IOI is high enough to land at acceptable price after normal drift.

Should I run a competitive IOI process or negotiate with one buyer?

Almost always run competitive. A competitive process delivers 15-30% higher final prices than a single-buyer negotiation. The IOI cluster gives you price discovery; competitive tension gives you LOI leverage. Single-buyer processes leave money on the table.

How long is the IOI stage?

Typically 4-6 weeks from initial buyer outreach to IOI submission deadline. Add 1-2 weeks for review and advance decisions. Total IOI stage: 5-8 weeks before management presentations begin.

Can a buyer change their IOI?

Yes. IOIs are non-binding, so a buyer can revise their IOI based on new information, change in market conditions, or feedback from their investment committee. Strong sellers anticipate this and structure their process to absorb IOI revisions.

Do I need to respond to every IOI?

Yes, professionally. Even buyers you decline should receive a respectful ‘thank you for your interest; we’re not advancing your IOI at this time’ note. Burning bridges costs you future deals.

How do I select which IOIs to advance?

Five criteria: (1) valuation must clear your floor; (2) capital source must be credible; (3) buyer must have execution capability; (4) strategic/cultural fit must work; (5) timeline must align with your process. Advance top 2-4 to management presentations.