Definition
An indication of interest, or IOI, communicates a buyer's preliminary view of a possible transaction. It may describe a valuation approach, proposed structure, financing assumptions, information needs, and conditions for further engagement. Its purpose is to help parties assess whether a more detailed discussion is worthwhile before committing substantial diligence effort.
An IOI should be read as the actual document presented, not as a standard bundle of terms implied by the acronym. The proposed price can depend on information that has not yet been verified. Process requirements vary, and the document's treatment of obligations depends on its wording. Preliminary interest is different from a signed acquisition agreement, committed financing, or a completed transaction.
In origination work
Origination records should show that an IOI was submitted, the date, the recipient, and the information basis without treating it as a closed deal. Keep a versioned copy and record subsequent changes to assumptions. Company research can explain why a buyer is interested, but financial and commercial questions may remain unresolved. If the seller advances the conversation, update process status separately from the evidence supporting target fit.
What an indication of interest usually contains
Sale processes typically ask for an indication of interest after a buyer has seen a teaser and signed a confidentiality agreement, and before management presentations. The document is short. Common contents are a proposed value or range and the basis on which it was calculated, the form of consideration, how the buyer expects to finance the transaction, the approvals it would need, the diligence it expects to perform, and the people who would lead the work. Sellers use the responses to decide whom to invite to the next round.
Studies of private sale processes in takeovers describe this pattern of narrowing: an initial group of potential buyers is approached, a smaller group submits preliminary bids, and a final group negotiates. That is why an indication is better understood as a ticket to the next stage than as an offer that the seller could accept. It is built on information that has not yet been tested, so its numbers are expected to move.
Reading an indication correctly
The label does not settle what a document means. Some indications are expressly non-binding, some state that only specified paragraphs bind, and some processes call a firm proposal an indication. Disputes over whether a preliminary document created obligations have reached courts, including those in Delaware, which is why parties read the exact words and usually take legal advice before signing anything described as preliminary. A researcher should record what the document says about its own status and not paraphrase it.
Be careful with ranges. A range from a bidder can reflect real uncertainty or can be set to be competitive in a round and revised later. Comparing the midpoint of one bidder's range with a single number from another says little unless the assumptions are equivalent, for example in debt-free and cash-free terms, in treatment of working capital, and in what is being acquired. Record the assumptions with the figure.
Record-keeping and pitfalls
For each indication, retain the version submitted, the date, the recipient, the stated assumptions and any process letter that set the requirements. Keep any later clarification as a dated addendum. If a bidder is asked to revise, preserve the earlier version and the reason for the change. This history shows how a bid evolved, and it prevents later disagreement about what was originally said.
The usual pitfalls are over-reading and under-recording. Over-reading treats a high indication as a likely outcome, when the next stage may change it. Under-recording loses the assumptions, so a figure survives without the conditions that made it meaningful. Statements made to a counterparty in connection with a securities purchase are also subject to antifraud rules, so factual claims in a submission should be supportable.
Related terms
- Letter of intent — A document recording proposed transaction terms and the framework for further negotiation and diligence.
- Teaser — A brief introduction to a potential transaction, often withholding the target's identity until further access is agreed.
- Deal flow — The stream of potential transaction opportunities entering a defined acquisition process over a stated period.
Further reading
- Understand process stages
- Research around sale processes
- Intermediated versus proprietary sourcing compared
- Confidential information memorandum
- Article: origination pipeline stages and metrics
- Article: the research handoff checklist
- Evidence standards for pipeline status
Sources and further reading
- How Are Firms Sold?, The Journal of Finance (2007). The canonical study of how takeover targets actually reach a buyer: full auctions, limited auctions and negotiations, hand-collected from SEC filings.
- Delaware Court of Chancery opinions, Delaware State Courts. Where the duties a board owes when running a sale process are actually litigated and defined.
- 17 CFR 240.10b-5: Employment of manipulative and deceptive devices, Legal Information Institute, Cornell Law School. The antifraud rule that attaches to statements made in connection with a securities purchase, including those in sale materials.
To apply these distinctions to your own acquisition criteria, discuss your research brief or inspect the demo platform.