New Drug Application (NDA)

Indication of Interest (IOI)

An Indication of Interest (IOI) is a non-binding expression that signals a buyer’s intent to purchase a security or acquire a company. IOIs appear in two main contexts: securities offerings (most commonly before an initial public offering, IPO) and mergers and acquisitions (M&A). They communicate serious interest and outline preliminary terms but do not create a legal obligation to transact.

IOIs in securities and IPOs

• Purpose: Show conditional interest in buying shares that are still in registration and awaiting regulatory approval.
• Characteristics:
• Non-binding — selling is prohibited while a security is in registration.
• Typically includes the security name, buy/sell indicator, approximate number of shares, and sometimes a price range.
• Broker-dealers must provide a preliminary prospectus to investors expressing interest.
• Often handled electronically and may be accepted on a first-come, first-served basis.
• Limitations:
• An IOI does not guarantee allocation in high-demand IPOs.
• It provides investors with an early gauge of market and company interest but not a committed purchase.

IOIs in mergers and acquisitions (M&A)

In M&A, an IOI is usually a short, non-binding letter from a potential buyer to a seller that outlines preliminary interest and key deal considerations.

Common elements include:
– A target valuation or price range (e.g., dollar range or a multiple of EBITDA).
– Proposed transaction structure (asset vs. equity, use of leverage, cash vs. stock).
– Management retention plans and the expected role of existing equity owners after closing.
– Required due diligence items and an estimated due diligence timeline.
– Estimated timeframe for completing the transaction.
– Any exclusivity requests or preliminary closing conditions.

An M&A IOI begins negotiations and is typically followed by a more detailed Letter of Intent (LOI) if both parties want to proceed.

IOI vs. Letter of Intent (LOI)

• IOI:
• Informal and higher-level.
• Expresses interest and broad terms (ranges rather than precise figures).
• Precedes detailed negotiation.
• LOI:
• More detailed and specific, though often still non-binding in many provisions.
• Sets out clearer transaction terms and can include exclusivity periods.
• Serves as the framework for drafting the definitive purchase agreement.

Both documents are generally non-binding, and either party can end negotiations at any time unless specific binding provisions are included.

Practical example

A real-world example involved an acquiring company submitting an IOI that:
– Offered a specific per-share cash price.
– Requested a time-bound exclusivity period in exchange for a higher cash offer.
– Included proposed management retention and estimated closing date.
The IOI set out that it was non-binding and outlined what conditions would need to be met to move toward a binding agreement.

Other IOI terms

• Actionable IOI: Contains specific actionable details (security symbol, price at or above the National Best Bid and Offer, size) that allow market participants to act on the interest.
• Natural IOI: Originates from a customer’s interest (rather than being created by a firm) and may reflect agency or proprietary interest established to facilitate a customer order.
• Cancellation: The buyer who submitted an IOI can cancel it; IOIs also expire automatically if not confirmed within the applicable confirmation period.

Key takeaways

• An IOI is a preliminary, non-binding statement of interest used in both securities offerings and M&A transactions.
• It helps initiate negotiations and provides early insight into valuation and deal structure, but it does not commit either party to close a deal.
• IOIs are typically followed by more detailed documents (such as an LOI) if negotiations continue.