IOI in M&A: A strategic playbook for buyers and sellers

A well-crafted Indication of Interest (IOI) in mergers and acquisitions (M&A) immediately signals a buyer’s experience and credibility.

That early signal matters: 30 years of M&A data from Bain & Company show that experienced, serial acquirers generate positive one-year relative total shareholder returns even in periods of high uncertainty.

For sellers, this is precisely why a well-structured M&A IOI is a critical filter that separates value-creating buyers from the rest.

This article explains exactly what an IOI contains, its pivotal role in the M&A process, how it differs from a Letter of Intent (LOI), and the key strategic considerations buyers and sellers should apply to navigate this phase successfully.

Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or professional advice. The content is intended to provide general guidance on the subject matter. You should not act upon this information without seeking advice from a qualified professional advisor. No attorney-client relationship is created through your access or use of this content. The author and publisher disclaim any liability for actions taken or not taken based on any or all of the contents of this article.

What is an IOI in M&A?

An Indication of Interest (IOI) in M&A is a letter from a prospective buyer expressing formal interest in acquiring a company. It outlines the buyer’s proposed valuation range, preliminary transaction structure, and key conditions. The term originates in capital markets, where it denotes a non-binding expression of interest to purchase securities during an Initial Public Offering (IPO).

In the mergers and acquisitions context, its core IOI meaning is to demonstrate genuine buyer interest and open the door to detailed negotiations and due diligence.

Why are IOIs important in the M&A process?

Here is why an Indication of Interest is a vital tool in early M&A interactions:

Streamlining the process and saving valuable time

An IOI ensures that before a seller commits to management presentations and deep due diligence, the buyer has provided a concrete valuation range and an outline of the structure. It filters out “tire-kickers” who lack financing capacity or strategic alignment.

Assessing buyer credibility and seriousness

By detailing sources of funds, a preliminary due diligence plan, and an estimated timeline, the buyer shows a legitimate offer grounded in the Confidential Information Memorandum (CIM). Sellers can evaluate intent and the likelihood of closing.

Creating competitive tension

The M&A funnel is inherently selective. As per dedicated M&A research by ArkMalibu, a seller might contact 100–500 potential acquirers, but only a small fraction submit an IOI.

Multiple M&A IOI submissions give sellers leverage to compare price, terms, speed, and strategic fit. The stakes are high—pursuing a single opportunity can cost professional acquirers $100,000 to $1 million in diligence and advisory fees, and they often pursue ~10 opportunities to close one deal. Serious buyers use compelling IOIs to stand out early and earn a spot among the 3–10 invited to management presentations.

Key components of an IOI

A well-structured IOI should include the  specific M&A documentation that sellers and their investment bank need to assess it credibly:

M&A valuation range and purchase price

The foundation of any IOI terms is a clear statement of the business valuation, typically expressed as a price range. This valuation, usually presented on a cash-free, debt-free basis, reflects the buyer’s preliminary assessment derived from the CIM.

A narrower range demonstrates stronger conviction. It sets a firm starting point for negotiations and allows the seller to quickly determine whether the buyer’s expectations align with their own before investing further time.A sector focus also plays a role. According to Deloitte’s 2025 M&A trends survey, 88% of corporate respondents have recently concentrated their deal targeting on fewer industries. An IOI that articulates a defined sector thesis and clearly states risk assumptions signals that the buyer is aligned with this increasingly focused approach.

Proposed M&A deal structure

This section outlines how the buyer intends to structure the transaction, including the legal form (stock or asset purchase), the form of consideration (cash, equity, or a mix), and the anticipated funding method (e.g., leveraged financing).

Detailing these points upfront shows that the buyer has already considered the legal and financial mechanics of the deal. Just as importantly, it allows the seller to confirm that the proposed structure aligns with their expectations, paving the way for a smoother M&A negotiation.

Sources and proof of funds

An IOI should demonstrate the buyer’s ability to finance the deal. This typically involves outlining the proposed equity and debt mix — for example, committed capital from a private equity fund or a pre-approved loan facility.

Providing evidence of funding sources establishes credibility and helps distinguish serious, qualified buyers from those lacking the financial capacity to close.

Due diligence requirements

The IOI should also present a high-level roadmap for due diligence. This typically covers areas such as financial records, customer contracts, operations, and intellectual property.

A prioritized list demonstrates seriousness and organization while giving the seller clarity on what information will be required. This allows the seller to anticipate potential disruptions and prepare their team accordingly.

Estimated transaction timing

An indicative timetable builds seller confidence in the buyer’s execution capability. A typical schedule might include milestones such as completing due diligence, signing a definitive agreement, and reaching the target closing date.

A realistic timeline signals that the buyer is pragmatic and understands the steps involved — a critical reassurance for sellers concerned about prolonged or stalled processes..

Plans for management and employees

For most sellers, the future of their team is a top concern. This section of the IOI should address management retention, employee integration, and the intended role of existing equity holders post-transaction.

Whether the buyer plans to retain the leadership team or integrate new management directly impacts cultural continuity. The buyer’s stated approach — including how they intend to handle the acquisition announcement to employees — demonstrates their sensitivity to organizational culture and change management.

Buyer qualifications and strategic fit

The IOI is also the buyer’s opportunity to highlight their credentials. Outlining company background, prior acquisition experience, and, most importantly, the strategic rationale for pursuing the target helps strengthen the proposal.

A well-articulated strategic fit reassures the seller that the buyer values the business for more than just financial metrics and intends to be a long-term steward of its growth and mission.

IOI vs LOI in M&A

Although often conflated, the Indication of Interest (IOI) and Letter of Intent (LOI) serve distinct roles in the M&A process. The key difference lies in their level of detail and binding provisions.

An LOI is a more formal document that frequently includes binding commitments, most notably an exclusivity period. Exclusivity prohibits the seller from negotiating with other potential buyers for a defined timeframe and signals the buyer’s serious intent to advance toward a definitive agreement.

The binding provisions [of the LOI] relate to how the process is to be governed, such as maintaining confidentiality, exclusivity, buyer’s access to information to conduct due diligence, payment of expenses, and termination
Jacob Orosz
President of Morgan & Westfield

Understanding this distinction is critical. Mistaking an IOI for a firm offer and legal obligation can lead to missed opportunities, while prematurely signing an LOI can halt a competitive auction.

Key distinctions between an IOI and an LOI

Feature	Indication of Interest (IOI)	Letter of Intent (LOI)
Timing	Early in the process. Submitted after initial review of the CIM, before detailed negotiations.	Later in the process. Presented after initial IOI-based negotiations and before exclusive due diligence.
Binding nature	Strictly a non-binding offer in M&A transactions.	While the core deal terms are non-binding, clauses like exclusivity and confidentiality are legally enforceable.
Purpose & stage	An early-stage screening tool used to open negotiations and gauge seller interest.	A later-stage framework that concludes preliminary negotiations and sets the roadmap for the definitive agreement.
Level of detail	High-level overview, often with a valuation range and general terms.	Detailed and specific, outlining agreed-upon terms for price, structure, and closing conditions.
Exclusivity	No M&A exclusivity. The seller can freely negotiate with other potential buyers.	Almost always includes an exclusivity period (a “no-shop” clause), binding the seller to negotiate only with that buyer for a set time.
Impact on process	Starts the competitive bidding process.	Ends the competitive bidding process for the duration of the exclusivity period.

How IOIs fit into the M&A timeline

The mergers and acquisitions process is a carefully choreographed sequence of events, and understanding the placement of buy-side IOI within this lifecycle is key for both buyers and sellers to navigate the journey effectively.

Steps leading up to an IOI

An IOI is typically expressed before a structured process that identifies and qualifies serious buyers:

The IOI submission and evaluation phase

Sellers and bankers compare valuation ranges, structure, timing, buyer quality, and funding credibility. The IOI phase is about qualification—narrowing the field to the top candidates invited to management presentations and limited data-room access.

What happens after the IOI: The path to LOI

Selected buyers meet management, ask deeper questions, and refine their views. They are then asked to formalize terms in an LOI. The LOI typically sets price mechanics and introduces a binding exclusivity period. Once executed, the auction pauses, and the buyer proceeds with exclusive diligence.

From LOI to purchase agreement

Following the execution of the letter of intent M&A phase, the buyer conducts a comprehensive due diligence process to verify all the information provided. If diligence confirms the buyer’s assumptions, the parties proceed to draft and negotiate the definitive merger and acquisition contract. After final approvals, the transaction gets funded and closed.

Common mistakes in IOIs

For a buyer, the goal of an IOI is to stand out as a serious, capable, and attractive acquirer. The following mistakes can raise red flags for a business owner:

• Presenting an overly broad price range, signaling weak conviction.
• Failing to specify credible sources of funds or lender support.
• Committing to unrealistic timelines that erode trust.
• Focusing solely on price without addressing people, culture, or post-close plans.
• Omitting key terms (funding details, contingencies, post-closing commitments) that affect feasibility.

Seller mistakes that limit value and options

Sellers must also navigate the IOI phase strategically to maximize value and maintain control of the process, but sometimes make these mistakes:

• Treating an IOI as binding and making premature decisions..
• Ignoring non-price terms (structure, earnouts, management retention) that drive long-term outcomes.
• Granting early exclusivity and killing competitive tension.
• Skipping buyer background checks and risking failed closings.
• Running a disorganized timeline that causes top bidders to disengage.

Key takeaways

• An IOI in M&A is a non-binding document submitted before the LOI and formal diligence.
• The primary value of IOI lies in qualifying serious buyers and creating competitive tension before exclusivity.
• Narrow valuation ranges, clear IOI terms, credible funding, and thoughtful diligence plans signal buyer conviction.
• The IOI opens the competitive process; the LOI—with binding exclusivity—effectively pauses it.
• Buyers must justify offers with proof of funds and strategic rationale; sellers should avoid granting exclusivity based on a strong IOI alone.