If you’re a business owner undergoing a sale process of your firm and your M&A investment bank has completed the go-to-market stage, the next step is requesting IOIs from potential buyers. An Indication of Interest (IOI) is just as it sounds: a preliminary, non-binding offer to acquire the business. While preliminary, it is a formal written document which should contain key deal points for sellers to properly assess if a buyer is worthy to bring into the next round.
At Persient, we always push for more detail than less in an IOI, so that sellers can make informed decisions and engage with serious buyers only. The IOI should contain much more than just the price, since terms and fit are just as important in any transaction. The unserious “tire kickers” should be avoided. They’ll just bring sellers unnecessary risk and distraction. An IOI helps weed out those tire kickers.
So, at a minimum, what details should you be requesting within an IOI?
- Prospective buyer identity – Who is the acquirer? Sometimes it isn’t always clear. Sellers need to assess track record and deal rationale.
- Purchase price – Cash? Stock? Combo? Any variables impacting purchase price should be explained.
- Financing sources – Where is the money coming from? Is it committed or are conditions involved?
- Future company plans – What is the future vision of not just the company, but also the operating management team? Will the owner and other employees be retained?
- Closing contingencies – Are any consents or approvals required?
- Timing – How many days will this take to close?
- Advisors and agents – Who else will be involved?
- Any other additional information – Any incremental data requests? What else might be needed for submitting a definitive proposal?
As a seller, if a potential buyer can’t provide this information as part of their IOI, it’s very possible they aren’t serious, and skepticism is warranted.
