Key takeaways
- An IOI is an expression of interest, an LOI is a commitment, and the difference is meaningful.
- IOI valuation ranges are marketing signals, not offers, and move materially between rounds.
- The LOI establishes the price, structure, and exclusivity period that define your negotiating position.
- Get competitive IOIs from multiple buyers before granting any exclusivity.
- Read the LOI carefully, because most deal terms are set here, not in the purchase agreement.
The average gap between the price indicated in an IOI and the price set in the LOI is 8 to 12 percent, with the LOI price typically lower (SRS Acquiom 2024). This gap is sometimes called retrade, and it is structural rather than exceptional.
34 percent of deals experience a formal retrade between IOI and LOI stage. The most common cause is a diligence preview call that reveals an EBITDA adjustment, concentration issue, or customer attrition not fully disclosed in the CIM.
Average exclusivity period granted in the LOI: 60 days, ranging from 45 to 90 days depending on deal complexity, buyer type, and seller negotiating leverage.
When a buyer submits an indication of interest, they are signaling that the business is interesting and providing a preliminary view on value. When they submit a letter of intent, they are committing to a specific structure, price range, and process. Founders who treat the two as equivalent, or who give away too much in the IOI response, often arrive at the LOI stage having negotiated against themselves without realizing it.
What an IOI contains and what it signals
An IOI is typically one to two pages, submitted after a buyer has reviewed the confidential information memorandum and completed an initial call with management. It contains a preliminary valuation range (usually expressed as an EBITDA multiple or enterprise value range), a proposed deal structure (cash at close, rollover, earnout if any), a high-level description of the buyer's thesis, and a request for next steps.
The IOI is non-binding. It signals interest, not commitment. Buyers submit IOIs with relatively limited information, which means the valuation range reflects assumptions about EBITDA quality, customer concentration, growth trajectory, and management retention that have not been tested. When those assumptions shift during diligence, the IOI price does not hold.
The IOI is a bid for access, not a commitment to price. Treating it as a firm offer is the most common mistake founders make in early-stage process management.
What an LOI contains and what it actually locks in
An LOI is more detailed: 5 to 15 pages, often covering price and structure, working capital methodology and target, treatment of cash and debt, representations and warranties insurance expectations, management retention requirements, exclusivity period and no-shop provision, and key diligence conditions.
Non-binding
IOI, preliminary interest only
Binding
LOI exclusivity, no-shop, and confidentiality
60 days
Average exclusivity period (SRS Acquiom 2024)
8-12%
Average IOI-to-LOI price gap
The binding provisions in an LOI are limited, but they are important. Exclusivity means the seller agrees not to engage other buyers during the defined period. No-shop provisions are often broader than founders expect. Working capital methodology sets the target that will determine whether the seller owes money at close through a post-close adjustment. These provisions should be negotiated, not accepted as standard.
The retrade gap and how it happens
A $16M professional services company ran a full sale process with 8 buyers. The leading buyer submitted an IOI at 7.2x EBITDA. After the management presentation, the buyer requested a diligence preview call. The CFO disclosed during that call that two customers representing 28% of revenue were month-to-month without long-term agreements. The LOI came in at 6.5x. The seller's advisor pushed back, commissioned a quality of earnings review in advance of LOI negotiation, and documented the contract renewal history for both customers. After two rounds of negotiation, the LOI was executed at 6.9x with a $400K earnout tied to contract renewals. The difference between 6.5x and 6.9x on $16M of revenue at a 20% EBITDA margin was approximately $640K.
Retrades happen because IOIs are submitted on limited information, and diligence reveals something that changes the buyer's view of risk. The most common retrade triggers are EBITDA adjustments (a normalized add-back that does not hold up to scrutiny), customer concentration issues, revenue quality problems (one-time revenue counted as recurring), and key person risk.
The best protection against retrades is not trying to prevent diligence from surfacing issues. It is surfacing and addressing issues proactively, before the IOI, so that buyer assumptions at IOI stage are grounded in accurate information rather than optimistic assumptions that will later be corrected.
What to negotiate at IOI stage vs. LOI stage
Frequently asked questions
What does exclusivity mean in an LOI?
Exclusivity means the seller agrees to negotiate exclusively with the LOI buyer for a defined period, typically 45 to 90 days. During this window, the seller cannot solicit other buyers or share the CIM with new parties. Exclusivity is binding and should be negotiated, most sellers accept 60 days as standard when 45 is often achievable.
Can I negotiate an LOI after signing?
Technically yes, but practically difficult. Once signed, the LOI sets the frame for the purchase agreement. Buyers will treat the LOI as the agreed baseline and resist moving backward. Changes are possible when new material information emerges during diligence, but they require leverage and documentation. The time to negotiate is before signing, not after.
Work with Glacier Lake Partners
Request the IOI and LOI Negotiation Checklist
Useful before submitting to a buyer process or reviewing incoming offers, particularly at the IOI stage when founders most commonly give away negotiating leverage.
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