An indication of interest (IOI) is a buyer’s early, non-binding written statement of a preliminary price range and deal structure for a target, submitted after a teaser and confidential memorandum but before diligence begins — a screening tool a seller uses to decide which buyers move forward, not a commitment from either side to close.
An IOI is deliberately thinner than what follows it. Unlike a letter of intent, where treadstonelaw.ca finds “certain provisions (such as confidentiality obligations, exclusivity provisions, or a commitment to negotiate in good faith) may be enforceable even if the main transaction terms are expressed as non-binding,” an IOI typically carries none of those partially-binding provisions on its own — confidentiality is usually already in place through a separate NDA signed earlier in the process, and exclusivity is something a seller grants only once it accepts one buyer’s IOI and moves to a letter of intent.
When a target is a Canadian corporation, its directors owe the duty in CBCA s. 122(1) to “act honestly and in good faith with a view to the best interests of the corporation” in deciding which of several IOIs to advance — which is why a seller weighing multiple IOIs in a similar price range is not simply taking the highest number, but also weighing financing certainty and the buyer’s process risk.
A search-fund investor submits an IOI for a Manitoba manufacturer at $6.0 to $6.8 million enterprise value, structured as 80% cash at close and 20% seller note, subject to satisfactory diligence and financing, and stated explicitly as non-binding with no exclusivity attached. The seller compares it against two other IOIs in a similar range and uses the comparison, along with each buyer’s stated financing plan, to decide which single buyer to invite to management meetings and a signed, exclusivity-granting letter of intent.
See also: Letter of intent (LOI) · Non-disclosure agreement · Triaging inbound deal flow without missing the good ones.
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