Indication of Interest (“IOI”)

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What It Means

An Indication of Interest, commonly called an “IOI”, refers to a Buyer’s written non-binding expression of interest in purchasing a company. It is one of the very first steps in the Acquisition process and is an opportunity for Buyers and Sellers to explore whether a ZOPA exists on key Acquisition terms, including:

• Business Valuation - The headline term for the IOI is Business Valuation, which often expressed as a range. When a valuation range is given, the IOI should also state the criteria for determining the final valuation, such as an EBITDA Multiple, because it is likely the criteria will change between the time the IOI is offered and when the transaction closes.

• Funding Conditions - An IOI should clearly outline the sources of the proposed funding for the Acquisition, especially if a portion of that funding is expected to include Seller Financing.

• Due Diligence Expectations - An outline of the Due Diligence process and timeline gives the Seller an idea of how the Buyer expects the process to progress.

• Seller Rollover Options - Details whether the Seller will have an option to rollover or buy-in a portion of equity in the post-Acquisition entity.

• Estimated Closing Date - A Buyer’s ability to efficiently manage the Due Diligence process and close a deal on time is an important characteristic.

• Other Key Terms - An IOI may also outline other important terms that could become potential deal breakers down the road, such as Net Working Capital expectations or terms regarding any associated real estate.

Why It’s Important

There are still many unknowns at this early stage in an Acquisition process, but the sooner a Buyer and Seller can begin having difficult discussions and coming to agreement on critical terms, the more likely a deal is to close successfully down the road. Sellers should be wary of offers that seem too good to be true or that avoid nailing down key terms of the deal structure. Due Diligence is time consuming and distracting, and it’s in the best interest of both parties to “get to no” fast if there is no ZOPA.

Related Terms

• Business Valuation

• Due Deiligence

• EBITDA Multiple

• Letter of Intent (“LOI”)

• Purchase Agreement

• Seller Financing

• Zone of Possible Agreement

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