IOI vs LOI: What to Do When a Buyer Makes an Offer (2026)

A bigger company in your market gets in touch. They like what you've built, and soon they're asking about price. Then come two letters: an indication of interest (IOI) and a letter of intent (LOI). Both are mostly non-binding. But the LOI usually stops you talking to other buyers, and it sets most of the price.

An IOI, or indication of interest, is a buyer's first offer. It gives a price range and a rough plan, and it isn't binding. An LOI, or letter of intent, comes later. It names one price, the structure and the conditions. It usually also asks you to stop talking to other buyers. Neither is the final contract.

How do an IOI and an LOI compare?

The two letters differ in timing, price, detail and how much they bind you. An IOI comes after a first look and gives a range. An LOI comes after meetings and early checks. It names one price and spells out how it's paid. It also starts exclusivity, which is the real line you cross.

One warning. The label doesn't decide what a letter does. Some IOIs slip in an exclusivity clause, which makes them act like an LOI (Cavitch). So read every letter for what it asks you to stop doing.

A buyer called. What should you do first?

Don't say yes or no on the first call. Thank them, ask why they're interested and who decides on their side. Then call your lawyer about an NDA, tell your board, and get your own view of value. Treat the approach as information about your market, not as a deal.

Here's a fictional company to follow. It sells freight software, has $5M in annual recurring revenue and grows 60% a year. A competitor's head of M&A emails the CEO about "a closer partnership". By the second call, they're asking about price.

Next, find a lawyer who has closed company sales. Our M&A deal team guide covers who else you need. Tell your board early, since it must approve any deal.

Sign an NDA before you talk numbers

An NDA, or non-disclosure agreement, is a promise to keep what you share secret. Buyers often send their own template, which favours them. Ask for 3 changes: a no-poach clause, your files destroyed if talks end, and no "residuals" clause. A residuals clause lets their team reuse whatever they remember from your files.

What should you share with a buyer, and what should wait?

Share in layers. Before the NDA, only your public story. After it, teaser and CIM numbers: revenue, growth, margins and team size. Customer names, pricing, code and contracts wait until after the LOI. If the buyer is a competitor, the most sensitive files go to a small clean team.

The FTC gives the same advice: share only what each stage needs, and hide customer names (FTC). A clean team is a few of the buyer's people, kept away from pricing and strategy.

Two documents do most of this work: a teaser and a CIM. Our teaser examples show what goes in the first.

How do you know what your company is worth?

Get your own number before the buyer gives you theirs. Look at what similar companies sold for, then build a range from your revenue, growth and margins. A valuation from an outside firm makes that range credible with your board. Without one, the buyer's first number becomes your anchor.

Say the competitor floats $25M on the second call. Is that good? You can't tell without your own number. An internal study based on 48 months of client work found founder and market valuations often differ 2–3x. Check where your sector trades in our exit multiples by industry. Say similar deals point to $25–35M. Then get a business valuation your board can stand behind. Ours start from $5,000 and take 2–3 weeks.

With venture investors, check what everyone gets at each price. At a low price, liquidation preferences can take most of it. Some deals then set aside a slice for the team, called a management carve-out. SRS Acquiom found one in 4.3% of deals in 2025 (SRS Acquiom).

Should you talk to other buyers after an unsolicited offer?

Yes, in most cases, and before you sign anything exclusive. One buyer has no reason to raise its price. A second credible buyer does more for your price than any argument. Call a short list of companies that would value you most, under the same NDA. Keep it quiet and quick.

Law firm Goodwin notes that when several buyers compete, sellers often hold back exclusivity (Goodwin). That pushes buyers to bid higher and move faster. You don't need a full auction for some of that effect.

Say the freight-software CEO asks an advisor to call 4 more buyers. Two send IOIs within 3 weeks. Now the first buyer isn't the only price in the room. Finding buyers like these is part of our M&A support.

What is an IOI in M&A?

An IOI is a short, non-binding letter saying what a buyer might pay, and how. It gives a price range and the structure. It also says where the money comes from, what's left to check and how long it will take. In a formal sale, a process letter sets what every IOI must include.

A process letter is a short note from the seller's advisor. It sets the deadline and what each IOI must include. Montage Partners' sample asks buyers for 9 things, including their value, their funding and their plans for management (Montage Partners). Sellers then use the IOIs to cut the field, often to around 5 buyers (Montage Partners).

With one inbound buyer, send a short letter like this anyway, so every offer answers the same questions. Then check 5 things:

• The low end of the range — plan around it, not the top.
• The basis — which revenue, which period, which adjustments.
• Cash at closing — versus shares, earnouts or notes paid later.
• The money — where it comes from, and who must approve it.
• What's left to check — and how long it will take.

Back to the freight-software company. The first buyer offers $28–36M. A software group owned by a private equity fund offers $30–34M, all cash. A third offers $33–38M, partly in shares. Compare the low ends first, then the cash.

What goes into a letter of intent to purchase a business?

An LOI sets out the deal you'll negotiate into the final contract. Expect one price, how it's paid, the structure and the working capital target. It also lists the buyer's conditions, the timeline and an exclusivity period. Most of it isn't binding. Exclusivity, confidentiality, costs and governing law usually are.

Watch the words "cash-free, debt-free". The buyer adds your cash to the price and takes off your debt. But "debt" can include taxes owed, severance and deferred revenue (Orrick). For a SaaS company paid a year upfront, that last one can be large.

For how the price reaches you, in cash, shares or rollover, see how to sell your startup. In the UK, the LOI is usually called heads of terms, and parts of it can bind (Gannons).

What should you negotiate before you sign an LOI?

Negotiate anything that moves money or freedom before you're locked in. In our work on 50+ M&A transactions, five terms come up again and again: exclusivity, working capital, earnout, escrow and key staff. Once you sign, the other buyers drift away. After that, every open point gets settled with one buyer.

Here's why. Say the freight-software company signs an LOI at $34M. Of that, $5M is an earnout, paid only if targets are hit. Another $3.4M sits in escrow for a year, and a working capital shortfall takes $300K. So $25.3M arrives at closing.

Exclusivity: short, with a way out

Exclusivity, or a no-shop, stops you talking to other buyers for a set time. Orrick's lawyers tell sellers to push it as close to 30 days as they can (Orrick). Buyers want more: in Goodwin's 2022 data, nearly 40% of private equity deals with exclusivity ran past 60 days (Goodwin). Asked for 90 days? Offer 45, ending early if they cut the price.

Working capital: agree the target now

Working capital is roughly what customers owe you minus what you owe suppliers. The LOI sets a target for it, called the peg. Deliver less at closing and the price drops by the gap, like our $300K. Leave it "to be agreed" and the buyer sets it later, when you have no other offers.

Earnout: count it as a bonus

An earnout is part of the price paid later, only if targets are hit. Outside life sciences, 24% of 2025 deals in SRS Acquiom's data had one (SRS Acquiom). Fix the metric, the period and what the buyer may change. Revenue targets beat profit targets, since the buyer controls costs. More in our earnout guide.

Escrow: how much, and for how long

Escrow is part of the price held back after closing, to pay claims if a promise about the business proves wrong. In our example, $3.4M waits a year. Ask for less, a shorter window, or warranty insurance, which usually shrinks the escrow.

Key staff: name them now

Buyers often want key people, say your CTO and 2 lead engineers, to sign new contracts before closing. Name them in the LOI. Ask if retention money comes on top of the price or out of it. Mostly buying the team? See our acquihire guide.

Before you sign an LOI: a checklist

• Your own valuation, and a walk-away price your board agrees.
• At least one other buyer has looked, or you chose not to ask.
• One price, with its basis written down.
• A clear figure for cash at closing.
• Exclusivity with an end date, ending early if the price drops.
• A working capital target: a number or a method.
• Earnout, escrow and key staff spelled out, not "to be agreed".
• What each shareholder gets, and which clauses bind you.

What happens after you sign the LOI?

The buyer starts full due diligence, and both sides' lawyers turn the LOI into the purchase agreement. That's the binding contract. Orrick's lawyers target 30 to 60 days from LOI to closing for a private company without regulatory approvals. The price can still move if diligence finds surprises, so prepare before you sign.

Diligence is where signed deals get repriced. Anything you didn't disclose becomes a reason for a lower price or a bigger escrow, so find it first. Build the data room before you sign; our best data rooms for due diligence pick compares the tools. The road to closing is in our sell-side M&A process guide.

Where we fit: we prepare what buyers read, from the teaser and CIM to the model and valuation. We also find other buyers to call. We don't run the final sale; your advisor or lawyer does, or you do. On the buyer's side, we advised a lithium battery company on 2 acquisitions. We also built the information memorandum, deck, model and valuation behind its $20M of financing (case study).

Olena, who wrote this guide, worked in M&A at Lazard and J.P. Morgan. She then led commercial growth and operations at Klevu, a VC-backed AI search company, through its 2025 exit into PSG's portfolio.