Breaking Down the Bidding Process: IOIs and LOIs

In the selling process, you’ll likely receive both IOI (Indication of Interest) letters and LOI (Letters of Intent) from interested buyers. While it’s easy to assume they’re the same thing, each has a specific purpose and role in the process of an M&A sale.

Let’s start by defining each of these bidding documents.

An indication of interest, or IOI, is generally considered to be the first step in the bidding process. It signals serious intent to proceed with a transaction. Before sending an IOI, potential buyers will go through early diligence processes. Sellers can compare several IOIs and choose a few to proceed to the next step in the process.

A letter of intent, or LOI, is the next step. The sell-side will typically drive this process, indicating required topics for buyers to include in their LOI. Where ranges and generalities were permitted in the IOI, the LOI will require specifics.

Here are some key differences between IOI and LOI bids.

Level of detail of the offer

IOI: Think of an IOI as a starting bid. Often the offer will include a purchase price range, an estimated timeline for completing the remaining diligence, and proposed transition details. Sellers can negotiate any points in the IOI.

LOI: An LOI is a bid with the final deal terms, specific funding details, and an agreed-upon management transition plan. An LOI is iterative, which is a great way for sellers to make the sale more competitive and earn a better offer.

Bid structure

IOI: Often, buyers will give ranges for key points, such as the proposed purchase price and the transaction structure. Based on seller feedback, they can adjust these elements as needed.

LOI: Buyers will give a specific purchase price in this round of bidding. They may update their offer based on their findings from diligence exercises.

Legal implications

IOI: This round of bidding is not legally binding. It represents an opening of the conversation about a transaction.

LOI: Some components, like exclusivity and break fees, are legally binding in an LOI.


IOI: Generally, sellers wouldn’t agree to exclusivity in the IOI phase. They can receive and entertain several IOIs.

LOI: Typically, buyers will request exclusivity in an LOI. This is common at this stage in lower-middle market transactions. When a seller accepts a buyer’s LOI, the buyer is going to start incurring meaningful expenses to complete their diligence and execute on the transaction. That being said, the buyer will want to ensure the seller is working exclusively with them during this period and not out shopping other offers.

These steps in the bidding process are key to sellers selecting the best offer that meets not only their financial interests but also key transition factors like management roles, timeline, and other terms. After the LOI, the buyer and seller will go through diligence with the ultimate goal of executing a purchase agreement with the finalized terms of the sale.

After establishing your company, how you sell it might be the most important process you go through. There are many nuances, and we would be happy to discuss your current situation with you in a confidential conversation. Give us a call! 

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