Key takeaways
- The average IOI-to-LOI price gap is 8–12%, with LOI lower. On a $3.2M EBITDA business at 7.2x, that's $2.24M, not recovered through negotiation after the LOI is signed.
- IOI valuation ranges are built on CIM assumptions, not tested data. Every add-back, customer contract, and retention assumption that doesn't survive the diligence preview call becomes a retrade trigger.
- The LOI's binding provisions, exclusivity, no-shop, and working capital methodology, determine your negotiating position through close. Generic LOI language becomes buyer-favorable SPA language.
- 34% of deals experience a formal retrade between IOI and LOI. The protection isn't preventing diligence from finding issues, it's surfacing them yourself before buyer assumptions are set.
- Push for 45-day exclusivity, not 90. Buyers who get 90 days use weeks 10–12 to raise findings when the seller can't restart the process.
In this article
How to use this before a process
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 2025). 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 <a href="/insights/letter-of-intent-ma-founder-guide" class="subtle-link">letter of intent</a>, 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.
Readiness Snapshot
What buyers will ask
What is ordinary-course working capital for this business?; Which months are distorted by seasonality, inventory, or collection timing?; How does the proposed peg change cash received at close?
What to prepare
24-month month-end working capital schedule.; Account-by-account inclusion and exclusion memo.; Seasonality, inventory, receivable, and payable normalization bridge.
Founders who have received a strong IOI reasonably feel that the process is going well and the price is close to set. A buyer who submitted 7.2x might be expected to close at something near that number. What that view understates is how structurally different the information is between IOI and LOI. The IOI was built on the CIM, which is a curated presentation. The LOI is built on diligence, which is adversarial verification. Every assumption in the IOI that does not survive diligence preview becomes a retrade opportunity.
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, <a href="/insights/earnouts-ma-why-founders-dont-get-paid" class="subtle-link">earnout</a> 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, <a href="/insights/customer-concentration-problem-transaction-risk" class="subtle-link">customer concentration</a>, 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. On a $16M revenue business with $3.2M EBITDA, the difference between an IOI at 7.2x and an LOI that settles at 6.5x is $2.24M in deal value. That gap is not negotiated away after the LOI is signed, and it is determined by whether the seller prepared to defend assumptions before the diligence preview call that preceded the LOI.
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, <a href="/insights/representations-warranties-insurance-guide" class="subtle-link">representations and warranties insurance</a> 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 2025)
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.
AI diligence angle
Run a short scan to identify reporting, data room, and workflow gaps that could affect diligence confidence.
Run an AI readiness scan →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
Reading a wide range of IOIs: what the spread signals
When a banker runs a competitive process, IOIs often come in across a wide valuation range, sometimes 2–3 turns of EBITDA separating the high and low bidders. Most founders fixate on the highest IOI. The more important analysis is understanding what the spread tells you and how to use it to create pressure on the serious bidders.
A wide IOI range signals one of three things: buyers have significantly different views of your EBITDA (look for differences in addback acceptance), buyers have significantly different leverage assumptions (which reflects their financing confidence), or one or more buyers are placeholder bidders who have submitted a high IOI to get into diligence without genuine underwriting conviction.
IOI Spread Analysis
The highest IOI and the best LOI are often different buyers. The buyer who bids most aggressively at IOI stage to get into diligence, then finds issues in diligence and retrudes, produces a worse outcome than the buyer who bids conservatively at IOI and never moves. Your banker should assess which buyers are "price-to-diligence" bidders versus buyers who have genuinely underwritten the number before submitting. The former are dangerous.
Do not share IOI valuations across buyers
Confirming prices between buyers reduces competitive tension and may constitute antitrust risk in some circumstances
Let each buyer believe they are competing against at least one other serious party
The perception of competition is as powerful as actual competition
Banker's job
To confirm that multiple credible buyers are moving to LOI; your job is to give them that ammunition
Common mistakes founders make on IOI and LOI negotiations.
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.
Start a Conversation →AI diligence angle
See where AI can clean up readiness before buyers ask.
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Run an AI readiness scan →Research sources
Disclaimer: Financial figures and case-study details in this article are anonymized, composite, or representative examples based on middle market operating situations, and are not guarantees of outcome. Statistical references are drawn from cited third-party research; individual transaction and operational results vary based on business characteristics, market conditions, and deal structure. This content is for informational purposes only and does not constitute legal, financial, or investment advice. Consult qualified advisors for guidance specific to your situation.
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