One of the most important milestones in the process of selling a business is an IOI, an indication of interest from a prospective buyer. It is a non-binding document provided after buyers have analyzed the seller’s Confidential Information Memorandum or Deck. At the same time, this document reflects a buyer’s seriousness and basic deal terms.
The complete and effective IOI usually includes the following:
Valuation/Financial Aspects
- A price range or at a minimum a multiple to apply against EBITDA (or SDE)
- Key operational and financial assumptions, with a normal working capital
- Clarity as to purchasing or leasing the real property
Transaction Structure
- Outlines the structure as an asset or stock purchase
- Provides the form of consideration, such as cash at close and other monies such as seller notes, rollover equity, and earnout provisions
- States the source of the funds, especially whether the buyer has committed capital or not
- Assumption of contracts and necessary regulatory approvals
Strategic Alignment
- Background information on the buyer and their transaction history
- Vision for post-closing alignment and culture
- Disclosure whether buyer needs board or investment committee approval