IOI vs LOI: WHAT EVERY BUSINESS SELLER AND BUYER NEEDS TO KNOW
- Sri Malladi
- 1 day ago
- 3 min read
Two key acronyms often surface early in the M&A process:
IOI (Indication of Interest) and LOI (Letter of Intent).
Whether you're buying or selling a business, understanding the differences between these two documents - and how they shape the path to closing - is important to navigating the M&A process effectively.
What is an IOI?
An Indication of Interest (IOI) is a non-binding letter submitted by a prospective buyer to express early-stage interest in acquiring a business.
It typically comes after a buyer has reviewed the Confidential Information Memorandum (CIM) and preliminary financials, but before they speak with the seller or gain access to more sensitive information.
What an IOI Includes:
A proposed purchase price range (e.g. $60M to $70M)
An outline of the deal structure (e.g., 60% cash, 30% seller financing, 10% earnout)
Basic information on funding sources
High-level transition expectations
Conditions to closing (e.g., financing, licensing, lease assignment)
A timeline to closing
Key Purpose: The IOI serves as a gatekeeper.
If the buyer’s valuation and deal structure align with the seller’s general expectations, the process advances—usually to a seller meeting or further document access.
What is an LOI?
A Letter of Intent (LOI) is a more advanced, still non-binding agreement that outlines the core terms of a proposed transaction.
It is typically submitted after more engagement, such as initial calls or information exchanges, and marks a more serious commitment to moving toward a formal agreement.
What an LOI Includes:
Exact purchase price and payment structure
Legal structure of the deal (e.g., asset sale vs. stock sale)
Transition support and seller involvement
Detailed timeline for due diligence and closing
Contingencies (e.g., financing approval, landlord consent, licensing)
Exclusivity and confidentiality terms
A formal expiration date
Key Purpose: The LOI sets the stage for due diligence and legal drafting of the SPA (Sale and Purchase Agreement)
The LOI is an agreement that both sides are committed enough to begin spending real time and money on diligence and deal execution.
Key Differences Between IOI and LOI
Why the Difference Matters
For sellers:
IOI filters serious buyers from tire-kickers
LOI signals real commitment, and typically comes with exclusivity - both of which indicate a buyer’s readiness to transact
Knowing the difference ensures you don’t waste time on unqualified buyers or get locked into weak offers
For buyers:
IOI lets you enter the game early, without heavy legal costs or commitments.
LOI requires more effort and precision, but also grants you access to sensitive information and priority in negotiations.
Understanding when to use each ensures you don’t overcommit too soon or miss your window to show seriousness.
When Should Each Be Used?
Use an IOI when you're still evaluating fit and need more information or access before committing fully.
Use an LOI when you’re ready to move forward, negotiate final terms, and enter due diligence.
Final Thoughts
Many business owners and buyers underestimate how much structure, timing, and nuance exist before even getting to a definitive agreement.
An IOI is a foot in the door.
An LOI is the start of the real work.
Confusing the two - or skipping one altogether - can lead to missed opportunities, wasted time, or deals falling apart.
