12 Things to Ask - Indication of Interest

12 Things to Ask - Indication of Interest

Matt Gilbert

February 21, 2023

As a rule, the Owner of a business should never meet with a potential Buyer of that business until the Buyer’s intentions are known. However, initial conversations between the two parties often take place – whether the Owner wishes to sell the business outright or just bring in an institutional partner. In these conversations, the Owner should allow a potential Buyer to review financial performance and other major facets of the business but then should pause the process and ask the buying party to put their cards on the table by presenting a written Indication of Interest (IOI).

An IOI is a non-binding way for the Seller to know how interested the Buyer is and to understand the terms being proposed for the deal. It serves as the basis for identifying which potential Buyers should be invited further into the process to meet with management and to perhaps submit a formal letter of intent (LOI) to purchase the company.

In our professional experience, there are a few standard items Sellers always want to know about a Buyer’s intentions prior to going deeper into the process. These are the items typically requested in an IOI.

Price, Valuation, and Form(s) of Consideration

These indicate the Buyer’s valuation for 100% of the business on a cash-free, debt free basis. This should be included even when the deal only involves bringing on a partner to acquire a portion of the equity. It should reveal whether the proposal is stock-based or asset-based because that choice makes a big difference in liability assumptions and tax implications. Also, a Seller can ask a Buyer to indicate the form, timing, and associated payment terms, if applicable. Read Purchase Considerations in M&A to learn more about the different Forms of Consideration.

Real Estate

Indicates whether the Buyer intends to purchase the existing facilities used to run the business. If the facilities will not be purchased, the IOI should include proposed lease rates and terms.

Key Assumptions

Buyers should list in detail the assumptions used regarding working capital expectations, disposition of receivables, employees, customer matters, etc. Typically, a Seller should require a clear description of methodologies used and how the conclusions impact the Buyer’s opinion of business value.


An acquiring entity should provide background information and rationale for pursuing the specific transaction. A Seller can look at a Buyer’s website for basic information, but including this information in the IOI will often lead to key insights a Seller might not otherwise ascertain.

Capital Structure and Financing

Listing anticipated sources and uses of funds will indicate whether a proposal is contingent on financing. If financing will be required, the IOI should indicate its anticipated timing, required steps to fully secure the debt, and details regarding discussions with lender(s).

Funding Sources

A Seller’s advisors should request commentary on funding sources and their respective terms, restrictions, and limitations. Most Buyers need to be encouraged to include working capital requirements and planned capital expenditure upgrades in their IOIs.

Strategic Vision and Operational Intentions

This provides a description of the preliminary plans a Buyer has regarding post-closing strategy, market approach, and if applicable, integration of the company and its employees into the Buyer’s existing operations.

Management Arrangements and Employee Offers

A summarized plan for transitioning employees into the new organization. Sellers want to know whether their employees will transfer into the acquiring organization with their current tenure or no tenure at all. Management and senior employees are often required to sign employment agreements and maybe even non-compete agreements.

Reviews and Approvals

Discloses the level of review and approval the proposed transaction has received within the Buyer’s organization. Further approval steps required to consummate the transaction and any considerations affecting timing should also be listed.

Due Diligence Timing

Lists the requirements and timing needed to satisfy due diligence, including that of outside parties such as lenders. Also provides assumed time to draft the Purchase Agreement(s) and number of days required to definitively close the Transaction.

Earnest Money

Indicates any earnest money a Buyer is willing to escrow in order to lock in a Seller and enjoy a period of exclusivity during which due diligence will be conducted and the deal closed. (Note: This is more common in smaller transactions.)

Other Considerations

Buyer candidates should provide additional information relevant to a Seller evaluating their organization, plan, and IOI.

A best practice is to have prospective Buyers submit IOIs simultaneously. A Seller’s advisory team will use this event to ask clarifying questions and then to present the Seller with a pro and con analysis of each IOI. The Seller and advisors should keep their guard up throughout the entire process, and under no circumstances should any potential Buyer contact any of the Seller’s employees, vendors, or customers. All interactions between parties should be requested through and coordinated by a competent M&A transaction advisor.

In summary, the IOI process is designed to provide the Seller with an accurate depiction of how a final offer might look, to ensure that certain defined criteria are met, and to prevent negative, substantive items from emerging during due diligence. Even though the IOI isn’t a binding offer, the mere existence of this written document helps elevate a Buyer’s offer to a form far more substantial than discussions and brings formality to the process – which often motivates potential Buyers to put their best foot forward early.

If any of this resonates with you, we encourage you to take our M&A Discovery Questionnaire and talk with us to see if your business makes the cut as one who can still command a great exit in this M&A environment. We will be in touch quickly to discuss the results. Click here to take the assessment.

Gilbert & Pardue Transaction Advisors (GaP) is a Houston-based business advisory firm serving lower middle market and middle market business owners from coast to coast through representation for Mergers & Acquisitions (M&A).

Matt Gilbert and Bret Pardue established GaP to provide owners of lower middle market and middle market businesses – those businesses generally enjoying annual revenue of $10-$80 million – with the quality of M&A representation and value-enhancement services previously only available to upper middle and large businesses. GaP brings highly experienced executives, sophisticated financial and marketing products, proven-effective processes, and fully-integrated expertise to every engagement. No other M&A firm serving the lower middle and middle markets provides the quality of representation and transactional expertise that we do.

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