Indication of Interest (IOI): Definition and How It Works

An Indication of Interest (IOI) is a non-binding expression that a buyer intends to purchase a security or acquire a company. IOIs are used in two main contexts:

• Securities markets—commonly before an initial public offering (IPO) while the issue is still in registration and awaiting regulatory approval.
• Mergers and acquisitions (M&A)—as an early, informal letter from a prospective buyer to a seller outlining interest and basic deal parameters.

Because selling is illegal while a security is in registration, IOIs are not firm commitments. They signal intent and help underwriters and sellers gauge demand and negotiate terms.

How IOIs Work in Securities and IPOs

In the IPO context, an IOI:

• Is submitted before shares are publicly available and before final approvals.
• Must be followed by delivery of the preliminary prospectus to the investor by their broker.
• Is non-binding—placing an IOI does not obligate the investor to buy, nor does it guarantee allocation if demand exceeds supply.
• Is often handled electronically by broker-dealers or on trading platforms, and allocations are typically distributed on a first-come, first-served basis or according to the underwriter’s allocation policy.

Typical contents of a securities IOI may include:

• The security’s name or symbol
• Whether the participant intends to buy or sell
• The number of shares or capacity
• A reference price or price range

IOIs help underwriters assess demand and may inform pricing and allocation decisions, but they are not enforceable purchase orders.

IOIs in Mergers and Acquisitions

In M&A, an IOI is usually a short, non-binding letter from a potential buyer to a target company that communicates genuine acquisition interest and outlines preliminary terms. Common elements include:

• An approximate valuation or price range (dollar range or multiple, e.g., 3x–5x EBITDA)
• Proposed transaction structure (asset vs. equity sale; cash vs. stock; use of leverage)
• Major conditions to closing and approvals
• Due diligence expectations and an estimated timeline
• Proposed management retention and roles for existing equity holders
• Estimated timeframe to close
• Any requested exclusivity period (optional)

An IOI frames the negotiating process and leads to a more detailed Letter of Intent (LOI) if both parties wish to proceed.

IOI vs. Letter of Intent (LOI)

• IOI: Early, informal, and non-binding. Provides headline ranges and signals interest to begin negotiations.
• LOI: Follows the IOI and sets out more specific terms and commitments (still often non-binding on price and structure but may include binding confidentiality or exclusivity clauses). The LOI becomes the basis for drafting definitive agreements and detailed due diligence.

Either party can terminate negotiations at the IOI or LOI stage unless specific binding provisions have been agreed.

Real-World Example

A practical example involved an acquisition interest submitted in a formal IOI that:

• Specified a per-share purchase price and committed to an all-cash offer
• Requested a time-limited exclusivity period in exchange for an elevated price
• Described management retention arrangements and closing conditions
• Stated a target closing date and listed limited binding provisions (e.g., termination date for the IOI)

This illustrates how an IOI can combine price guidance, deal structure ideas, and procedural requests while remaining largely non-binding.

Special Types and Practical Details

• Actionable IOI: Provides specific, tradeable details (security symbol, size, and a price at or better than the National Best Bid and Offer) and can be used to facilitate execution.
• Natural IOI: Originates from a customer (customer interest the firm represents) rather than being a proprietary firm-initiated interest.
• Cancellation: The buyer who submitted the IOI can withdraw it. If an IOI is not confirmed within any required confirmation period, it may be canceled automatically.

Bottom Line

An IOI is an early, non-binding signal of intent—used both to indicate demand for a security before it becomes tradable and to express preliminary acquisition interest in M&A. It helps parties and intermediaries assess interest, shape negotiations, and plan due diligence and deal structure, but it does not by itself create a binding purchase obligation.