Often in a competitive or potentially competitive bidding environment, buyers are requested to submit indications of interest (IOI) prior to having the ability to engage in a discussion with a business owner or visit the company’s site. This can be frustrating to buyers who desire to know more about the target before writing an offer, however, it is also an effective way for sellers and M&A advisors to narrow a wide field of potential buyers down to a manageable amount of serious candidates.
Often, buyers ask us to tell them what we would like to see in an indication of interest. The basic elements of a typical IOI often include but are not limited to:
- Approximate price range; can be expressed in a dollar value range (i.e. $2-3 million) or stated as a multiple of SDE or EBITDA (i.e. 3-5x EBITDA)
- Buyer’s general availability of funds and sources of financing
- Necessary due diligence items and a rough estimate of the due diligence timeline
- Potential proposed elements of the transaction structure (asset vs equity, leveraged transaction, cash vs equity, etc.)
- Management retention plan and role of the equity owner(s) post-transaction
- Timeframe to close the transaction
Think of an IOI as the very first written offer for a company. It’s usually based on limited information—the buyer typically hasn’t had a chance to visit the target company or conduct any serious due diligence—the only extensive amount of information that has been shared is usually the from the confidential information memorandum (CIM).