Imberium Insights - Glossary

Indication of Interest (IOI)

An indication of interest is an underwriting expression showing a conditional, non-binding interest in
buying a security that is currently in registration and awaiting approval by the Securities and Exchange
Commission (SEC). The investor’s broker must provide the investor with a preliminary prospectus.

However, IOIs have similar intent but are done differently when it comes to mergers and acquisitions
(M&A).

  • Indications of interest are nonbinding agreements to acquire a company or buy a security once
    available.
  • These securities are expressed during IPO registration.
  • Stockbrokers put the IOI in place for investments.
  • Even though these are nonbinding, IOIs constitute serious inquiries only.
  • Expressing interest in an IOI does not provide any guarantee once the security reaches the IPO stage.

An indication of interest in mergers and acquisitions is similar in intent to an IOI for an initial public
offering. But there are some different components involved. Once again, it is a non-binding agreement,
but this kind of IOI usually comes as a prepared letter written by a buyer and addressed to the seller.

The purpose is to communicate a genuine interest in purchasing a company. Among other things, an IOI
should provide guidance on a target valuation for the acquisition target company, and it should also
outline the general conditions for completing a deal. Elements of a typical IOI for M&A often include, but
are not limited to:

  • The approximate price range. This can be expressed in a dollar value range, such as $10 million to
    $15 million. In other cases, it can be stated as a multiple of EBITDA like 3 to 5x EBITDA. A buyer’s
    general availability of funds and sources of financing.
  • Management retention plan and the role of the equity owner(s) post-transaction.
  • Necessary due diligence items and a rough estimate of the due diligence timeline.
  • Potential proposed elements of the transaction structure (asset vs equity, leveraged transaction,
    cash vs equity, etc.).
  • The timeframe to close the transaction