Table of Contents
- What Is an Indication of Interest (IOI)?
- Key Takeaways on IOIs
- How an Indication of Interest (IOI) Works
- IOIs in Mergers and Acquisitions (M&A)
- Indication of Interest (IOI) vs. Letter of Intent (LOI)
- Example of an IOI
- What Is an Actionable Indication of Interest?
- Who Can Cancel an Indication of Interest?
- What Is a Natural Indication of Interest?
- The Bottom Line
What Is an Indication of Interest (IOI)?
Let me explain to you what an Indication of Interest, or IOI, really is. It's an underwriting expression that shows a conditional, non-binding interest in buying a security that's currently in registration and waiting for approval from the Securities and Exchange Commission (SEC). Your broker has to provide you with a preliminary prospectus if you're the investor. That said, IOIs carry a similar intent in mergers and acquisitions (M&A), but they're handled differently there.
Key Takeaways on IOIs
You need to know that Indications of Interest are nonbinding agreements to acquire a company or buy a security once it's available. These are typically expressed during IPO registration, and stockbrokers set them up for investments. Even though they're nonbinding, IOIs are serious inquiries only. Expressing interest through an IOI doesn't guarantee anything once the security hits the IPO stage.
How an Indication of Interest (IOI) Works
In the world of securities and investing, I see IOIs typically expressed ahead of an initial public offering (IPO). They demonstrate a conditional, non-binding interest in buying a security that's awaiting regulatory approval—securities in the U.S. must be cleared by the SEC. The IOI is non-binding because it's illegal to sell a security while it's still in registration. Your stockbroker must give you a preliminary prospectus, and the IOI stays open-ended without any commitment to buy.
An IOI includes expressions of trading interest with elements like the security name, whether you're buying or selling, the number of shares, capacity, and price. Firms and broker-dealers can communicate these electronically or advertise them through their systems or dedicated platforms. For IPOs, IOIs are accepted on a first-come, first-served basis, but since demand might exceed supply, placing one doesn't guarantee you'll get into the IPO.
Remember, an IOI isn't a legal obligation to purchase, but it does give you a general idea of the company's financial health, which helps in deciding whether to buy in or not.
IOIs in Mergers and Acquisitions (M&A)
When it comes to mergers and acquisitions, an IOI has a similar intent to those in IPOs, but with different components. It's still non-binding, usually coming as a prepared letter from the buyer to the seller. The goal is to communicate genuine interest in purchasing the company. It should provide guidance on a target valuation and outline general conditions for the deal.
Typical elements in an M&A IOI include an approximate price range—maybe a dollar value like $10 million to $15 million, or as a multiple of EBITDA such as 3 to 5x. You'll also see details on the buyer's funds and financing sources, management retention plans and roles for equity owners after the transaction, necessary due diligence items with a timeline estimate, proposed transaction structure like asset vs. equity or cash vs. equity, and the timeframe to close.
Indication of Interest (IOI) vs. Letter of Intent (LOI)
Let me distinguish for you between an IOI and a Letter of Intent (LOI). An IOI is an informal notice of interest in purchasing or acquiring an asset—it's non-binding and less definitive than an LOI, with value ranges and fewer specific details. The IOI comes before the LOI and kicks off negotiations.
At the end of those negotiations, you get the formal LOI, which defines specific transaction details. Like the IOI, it's not legally binding but expresses commitment and forms the basis for the formal contract. If the seller accepts the LOI terms, an agreement can be made, and the seller enters an exclusive deal with the buyer, blocking talks with others for a period. Either party can terminate since both are non-binding.
Example of an IOI
Take this real example from May 2008: Blackbaud's CEO Marc Chardon submitted a revised IOI to Richard LaBarbera, president and CEO of Kintera, expressing interest in acquiring 100% of the company. He asked for a time-bound exclusive deal in exchange for a higher all-cash offer.
The IOI detailed a purchase price of $1.12 per share, commitment to all-cash, approvals and closing conditions, a management retention plan, and an estimated closing date of July 1, 2008. In the retention plan, it proposed employment agreements for Kintera's CEO and some executives. It also outlined exclusivity conditions, prohibiting Kintera from dealing with third parties until the agreement was executed or negotiations ended. The notice ended with binding provisions like the termination date of May 21, 2008, and noted it was a non-binding precursor.
What Is an Actionable Indication of Interest?
An actionable IOI provides specific details about the purchase, such as the security symbol, a price at or above the National Best Bid and Offer (NBBO), size, and so on.
Who Can Cancel an Indication of Interest?
The buyer who submitted the notice can cancel the IOI. If it's left unconfirmed past the confirmation period, it cancels automatically.
What Is a Natural Indication of Interest?
A natural IOI originates with the customer, not the firm. FINRA defines it as referring to customer interest a firm represents on an agency basis or proprietary interest established to facilitate a customer order or as part of executing a customer order on a riskless principal basis.
The Bottom Line
To wrap this up, an Indication of Interest is a brief letter or notice expressing a buyer's interest in a security in registration or in acquiring another company. For investments, it precedes the IPO, and in finance, it comes before the LOI. Though not a formal agreement, it carries weight by showing serious buyer interest.
Other articles for you
Deferred compensation allows employees to delay part of their salary until later, often retirement, for tax advantages, with qualified and non-qualified types differing in regulations and risks.
The Ultimate Oscillator is a technical indicator developed by Larry Williams to measure asset price momentum using multiple timeframes for reduced volatility and fewer signals.
Bait and switch is a deceptive sales tactic where sellers lure customers with attractive offers that are unavailable to push more expensive alternatives.
Marketing involves all activities a company uses to promote and sell its products or services to target audiences.
The Clayton Antitrust Act of 1914 regulates unethical business practices to promote fair competition and protect labor rights in the U.S.
A round lot is a standard trading unit of 100 shares or multiples for stocks, or $100,000 for bonds, facilitating efficient and cost-effective trading on exchanges.
Gharar refers to prohibited uncertainty and risk in Islamic finance transactions.
A distribution-in-kind is a non-cash payment using securities or property, often for tax benefits in investments, inheritances, and retirements.
eCash was an pioneering anonymous digital payment system created by David Chaum in 1990 that failed to gain traction and led to DigiCash's bankruptcy in 1998.
The Omani Rial is Oman's currency, subdivided into baisa, managed by the Central Bank, introduced in the 1970s to replace older currencies, and pegged to the US dollar.
Other articles for you
Indexation is a method to adjust prices, wages, or values based on a price index to counter inflation or other economic changes.
An undivided account, or eastern account, is an IPO setup where multiple underwriters share responsibility for unsold shares.
Competitive intelligence is the process of gathering and analyzing information on competitors and market factors to inform strategic business decisions and gain a competitive edge.
A Barrel of Oil Equivalent (BOE) is a standardized unit that equates the energy content of natural gas and other resources to that of a barrel of oil for easier comparisons in the energy industry.
A compliance officer ensures a company adheres to external regulations and internal policies to manage risks effectively.
Liquidity premium compensates investors for the risks of holding assets that can't be quickly converted to cash at fair value.
Convertible bonds are hybrid securities that combine fixed-income features with the option to convert into company stock for potential equity gains.
Parity price is a financial concept denoting equal value between assets, used in various markets like bonds, currencies, and commodities.
Quid pro quo refers to a reciprocal exchange of goods, services, or favors between parties, often with legal and ethical implications in business and politics.
This text explains what a taxpayer is, including individuals and businesses, their tax obligations, filing statuses, thresholds, rates, and related forms.
Other articles for you
Euro Medium Term Notes (EMTNs) are flexible debt instruments issued outside the US and Canada, providing funding options for various entities with diverse currencies and maturities.
Black Monday refers to the 1987 stock market crash where the DJIA dropped 22.6% in one day, leading to global declines and subsequent market safeguards.
A realized loss happens when you sell an asset for less than what you paid, allowing tax benefits unlike paper-only unrealized losses.
A vanishing premium is a life insurance feature where accumulated cash value and dividends eventually cover the policy's premiums, eliminating the need for out-of-pocket payments.
The unlimited marital deduction allows spouses to transfer unlimited assets tax-free, deferring taxes until the second spouse's death.
Macaulay duration measures the weighted average time for a bond's cash flows to equal its purchase price.
Hypothesis testing is a statistical method to evaluate assumptions about a population using sample data.
The Dutch tulip bubble was a 17th-century market crash driven by speculation in tulip bulbs, often cited as a classic example of financial mania but possibly exaggerated.
The January effect is a supposed seasonal rise in stock prices during January, often attributed to tax-loss harvesting, but evidence for it is inconclusive and it has diminished over time.
Other articles for you
Long-tail liabilities are insurance claims with extended settlement periods that often lead to high unreported claims and significant financial impacts on insurers.
Working capital loans provide short-term funding for businesses to cover daily operations and manage seasonal fluctuations without investing in long-term assets.
This text lists and details the best high-yield savings account rates for September 2025, highlighting top options up to 5.00% APY from various banks and credit unions.
The multiplier effect describes how an initial change in spending or investment leads to a proportionally larger change in overall economic income and output.
The 1%/10 net 30 payment term offers a 1% discount for paying an invoice within 10 days, with the full amount due in 30 days otherwise.
A debenture is an unsecured debt instrument issued by corporations or governments, backed solely by the issuer's creditworthiness and reputation.
The Expected Loss Ratio (ELR) method helps insurers estimate future claims reserves based on earned premiums when historical data is limited.
Leveraged loans are high-risk financing options for borrowers with heavy debt or poor credit, offering higher interest rates to compensate lenders.
PIMCO is a major American investment firm specializing in fixed-income securities and managing over $2.2 trillion in assets.
The American Opportunity Tax Credit (AOTC) provides up to $2,500 in partially refundable tax relief for qualified higher education expenses during the first four years of postsecondary study.