In an M&A sale, an indication of interest versus a letter of intent is a question of sequence and commitment: the indication of interest (IOI) is a short, nonbinding first-round bid a buyer submits after reading the seller’s confidential information memorandum, while the letter of intent (LOI) is the longer, partly binding term sheet signed weeks later, after deeper diligence, that sets the price, structure, and exclusivity the definitive purchase agreement will be built on. One gets a buyer into the next round. The other locks the deal’s shape in place.
Where Each Document Falls in the Sale Process
A typical sale starts when the seller’s investment banker circulates a confidential information memorandum to prospective buyers who have signed nondisclosure agreements. Buyers who want to pursue the opportunity submit an IOI. A seller running a competitive auction might receive ten or more, then narrow the field to roughly five finalists.
Those finalists get access to a virtual data room, review deeper financials, and sometimes tour facilities or meet management. Each then submits an LOI. The seller picks one, signs it, and the deal enters an exclusive due diligence and negotiation phase that ends with a definitive purchase agreement.
The full arc from CIM distribution to a signed LOI can run from a few weeks to several months depending on complexity and the number of bidders. The IOI stage can be skipped in off-market deals with a single buyer, but in a structured auction, each document plays a distinct filtering role.
What Goes in an Indication of Interest
An IOI is short, often two to four pages, and nonbinding. The buyer drafts it with limited information: the CIM plus any publicly available data. Because real due diligence hasn’t happened yet, the IOI stays broad on purpose.
A typical IOI includes a valuation range expressed either in dollars (for example, $40 million to $50 million) or as an EBITDA multiple (such as 5x to 7x). The range is deliberately wide because the buyer hasn’t verified the seller’s financials. It also states the type of consideration (cash, stock, a mix, or leveraged financing), a preliminary view on structure (asset or stock purchase), a brief description of the buyer and the strategic rationale, and a high-level statement on how the deal will be funded.
The seller’s banker uses these submissions to compare buyers on price, financing credibility, and strategic fit. A vague IOI with no real valuation range is unlikely to make the cut. The document’s job is to earn the buyer a seat in the next round without overcommitting on price before anyone has looked under the hood.
What Goes in a Letter of Intent
An LOI typically runs five to fifteen pages and reflects a buyer who has already spent weeks reviewing financial data, meeting management, and assessing risk. Where the IOI floats a range, the LOI pins down a specific purchase price or a narrow band with a clear basis for adjustments. It functions as the deal’s term sheet and guides the drafting of the definitive agreement.
An LOI usually addresses:
- A fixed purchase price, with a description of how it was calculated and what adjustments (such as a net working capital target) apply at closing.
- Deal structure, including whether the transaction is an asset or stock purchase and any tax elections the parties intend to make.
- An exclusivity period, commonly 30 to 90 days, during which the seller cannot negotiate with other buyers.
- The scope and timeline for remaining due diligence.
- Conditions to closing, such as board approval, regulatory clearance, satisfactory diligence, and the absence of any material adverse change in the seller’s business.
- Confidentiality obligations, often surviving the LOI by several years even if the deal collapses.
- Earn-out provisions, if any part of the price depends on post-closing performance, including the metrics, payment timeline, and measurement period.
- Termination provisions describing when either party can walk away before a definitive agreement is signed.
An LOI filed with the SEC shows how specific these terms get. The buyer proposed paying $7 million in a mix of cash and stock, deposited $1 million into escrow for twelve months to cover potential indemnification claims, granted the seller a 90-day exclusivity period, and conditioned closing on satisfactory due diligence and the absence of a material adverse change.1U.S. Securities and Exchange Commission. Letter of Intent Each of those terms became a negotiating anchor for the final purchase agreement.
Side-by-Side: How the Two Documents Compare
The practical differences come down to timing, depth, and legal weight.
- Timing: the IOI is submitted after the CIM; the LOI is submitted after the data room.
- Length: the IOI runs two to four pages; the LOI runs five to fifteen.
- Price: the IOI gives a range; the LOI gives a specific number with adjustment mechanics.
- Exclusivity: the IOI does not grant it; the LOI typically does, and it is binding.
- Function: the IOI gets a buyer into the finalist round; the LOI sets the terms the definitive agreement will follow.
Both documents are described as “nonbinding,” but that label applies to the economic terms, not to every provision inside them.
Which Provisions Are Actually Binding
This is where buyers and sellers get tripped up. The core economic terms in an IOI or LOI (purchase price, structure, timeline) are usually nonbinding, but certain provisions become enforceable the moment both parties sign.
The two most common binding provisions are confidentiality and exclusivity. Confidentiality clauses obligate both sides not to disclose the existence of negotiations or any proprietary information exchanged. In the SEC-filed LOI referenced above, the confidentiality obligation survived for three years after the LOI’s expiration, and the seller retained the right to demand the buyer return or destroy all confidential materials at any time.1U.S. Securities and Exchange Commission. Letter of Intent Exclusivity, also called a no-shop, prevents the seller from soliciting or entertaining offers from other buyers during a defined window. This is the provision with the sharpest teeth. A seller who violates an exclusivity clause can face injunctions and monetary damages.
Courts treat the nonbinding and binding portions of these documents differently. The general rule in U.S. law is that there is no standalone duty to negotiate in good faith. When an LOI explicitly commits both parties to negotiate in good faith toward a definitive agreement, however, courts will enforce that commitment. A Delaware Supreme Court decision held that when parties have a binding preliminary agreement to negotiate in good faith, and one side torpedoes the process through bad faith, the other side can recover the full benefit of the bargain they would have reached. That is expectation damages, the same remedy available for breach of a completed contract.
The practical takeaway is simple. Read the binding provisions before signing either document. A “nonbinding” LOI with a binding exclusivity clause, a binding confidentiality clause, and a binding good-faith negotiation requirement has created real legal obligations that survive even if the deal never closes. An IOI is less fraught on this front, but any confidentiality language it contains is still enforceable.
Walking Away: Termination and Break-Up Fees
Either party can typically walk away from the nonbinding terms of an IOI without penalty, because the IOI creates no obligation to continue. The LOI is more nuanced. It usually spells out specific grounds for termination, and violating those terms has consequences.
Common termination triggers in an LOI include the discovery of material problems during due diligence, failure to obtain financing, a material adverse change in the seller’s business between signing and closing, and failure to secure regulatory approvals. Most LOIs also include a drop-dead date by which either side can terminate if the definitive agreement hasn’t been signed.
Seller Break-Up Fees
A break-up fee, also called a termination fee, is paid by the seller to the buyer if the seller walks away from the deal, typically to pursue a higher offer from a competing bidder. Market data from 2024 shows these fees ranged from about 0.2% to 6.0% of transaction value, with the median landing around 2.6%. Courts have signaled discomfort with termination fees above roughly 3% of the purchase price, viewing higher amounts as potentially interfering with a board’s obligation to seek the best available deal for shareholders.
Reverse Termination Fees
A reverse termination fee flows in the opposite direction: the buyer pays the seller if the buyer fails to close, usually because financing fell through. These tend to run higher than seller break-up fees, with a recent median around 3.8% of transaction value. In high-profile deals, the numbers can spike dramatically. When Alphabet agreed to acquire Wiz in early 2025, it committed to a reverse termination fee of roughly $3.2 billion, about 10% of the $32 billion deal value.
Break-up fees and reverse termination fees are negotiated at the LOI stage, not the IOI stage. They function as a credibility signal. A buyer willing to accept a meaningful reverse termination fee is telling the seller their financing is solid, and a seller willing to accept a break-up fee is telling the buyer the board won’t shop the deal after signing.
Deal Structure Gets Locked in at the LOI
Both documents touch on structure, but the LOI is where the choice gets fixed. The distinction between an asset purchase and a stock purchase affects taxes, liability exposure, and contract complexity in ways that can change the economics of the deal by millions of dollars. Switching from one to the other after the LOI is signed can blow up the economics for one side and derail negotiations, which is why both parties press to resolve structure, and any planned tax elections, in the LOI itself. The IOI only needs to flag a preliminary view.
When Antitrust Filings Enter the Picture
Larger transactions trigger federal antitrust review under the Hart-Scott-Rodino Act, and this is something the LOI should acknowledge even though it does not change the IOI-versus-LOI comparison. For 2026, the minimum reporting threshold is $133.9 million in voting securities or assets.2Federal Trade Commission. New HSR Thresholds and Filing Fees for 2026 Any deal at or above that value requires both parties to file a notification with the FTC and the Department of Justice before closing.
Once the filing is complete, a mandatory waiting period begins: 30 days for most transactions, or 15 days for cash tender offers and bankruptcy sales.3Federal Trade Commission. Premerger Notification and the Merger Review Process If the government needs more information, it issues a “Second Request,” which extends the waiting period until both parties have substantially complied. The parties cannot close during this period.4Office of the Law Revision Counsel. 15 USC 18a – Premerger Notification and Waiting Period
Neither party can coordinate competitive behavior or begin integrating operations before clearance. Doing so is called “gun jumping” and violates both the HSR Act and Section 1 of the Sherman Act. The violation is procedural; the government does not need to prove the deal harmed competition. In one case, the DOJ extracted a $900,000 settlement from two companies that exercised control over each other’s operations before closing, even though the deal itself raised no competitive concerns. For reportable deals, the LOI should state that all integration activities are contingent on HSR clearance, and both sides need to be careful about sharing competitively sensitive information like pricing strategies or customer lists during due diligence. Deals below the threshold are not subject to this filing requirement, though state antitrust rules may still apply.
The Short Version
An IOI is a buyer’s opening pitch, written with partial information, meant to earn a place in the next round. It is almost entirely nonbinding. An LOI is a buyer’s committed term sheet, written after real diligence, meant to serve as the blueprint for the definitive agreement. It is partly binding, and the binding parts (exclusivity, confidentiality, and any express good-faith obligation) can create real liability even if the deal collapses. Treating the two as interchangeable is how buyers lose deals and sellers lose leverage.