Inside the Deal Room is where I share what’s happening behind the curtain as we source, negotiate, acquire, build and scale businesses through Vyterro and our deal ecosystem.
IOI vs. LOI: Information Before Commitment
Most buyers think an offer is how you tell the seller what the business is worth. In reality, an offer is often how you find out what the seller thinks it's worth. That’s an important distinction.
When buyers move too quickly, they often reveal information before they've collected enough of it. They show the broker their terms, their level of interest, and sometimes even their maximum price before they really understand the seller's expectations or the competitive dynamics around the deal.
The goal isn't to hide information for the sake of hiding it. The goal is to make decisions with as much information as possible before you commit yourself.
That's where understanding when to use an IOI versus an LOI becomes useful.
For readers newer to acquisitions, an IOI (Indication of Interest) is typically a shorter, less formal expression of interest that outlines a potential valuation range and basic deal terms. An LOI (Letter of Intent) is a more formal document that outlines a specific offer and becomes the foundation for diligence and purchase negotiations.
Think of the IOI as a conversation starter. The LOI is where you're starting to put real structure around a deal.
When I submit an IOI before an LOI
I generally prefer to submit LOIs because they’re more formal and feel more real to the seller. The PDF that includes a formal intro, terms and signature blocks will excite a seller more than bullet points in an emailed IOI. They’ll take you more seriously as well. Bonus points if you’re local and can print the offer out and hand it to them personally (especially if it’s an older seller).
For most searchers, if you’re trying to buy a business, an LOI is worth the effort. The extra time it takes vs. an IOI is negligible for the potential reward.
With that said, there are times I intentionally choose to send an IOI instead. If the business is overpriced and I know we’re far from the broker's valuation, I’ll sometimes send an IOI first, with a purchase price range and something to the effect of: “We’re generally thinking of offering the terms below. Is this something the seller would consider?”
Most of the time, the broker will say it’s not in range. Other times, they might tell you it could work. The answer they give here will give you vital information on how competitive the deal is without tying you to a formal offer with a set price. It also saves you a little time, which I know I can always use.
If a deal is competitive, a broker may ask buyers to submit IOIs before proceeding
There are times when submitting an IOI is mandatory. This is usually early in the process and the broker will likely withhold additional information and seller calls until something is received.
The broker’s goal here is to weed out the crowd. If they’re going to have 30 LOIs and 50 people asking for seller calls, why not just narrow it down to the best 10 offers first? This saves their clients time and, by default, creates a bidding war from the start.
Handling this is delicate. Submit too aggressive of an IOI and you tie yourself to a number that might not make sense. Submit something too low and you might get cut before you even have the information to know what a fair valuation is.
How I handle this is simple. I’ll submit the IOI at the asking price to get my foot in the door, even if I think it might be worth less. The reality is I don’t have enough information to properly offer, so I’m guessing anyway. If it’s not an informed offer either way, I might as well guess what the broker wants just to get to the next round. If I need to readjust later, I readjust.
If there's no asking price, I'll usually ask the broker where they think the seller's expectations are. Sometimes they'll give you a range. Sometimes they won't.
If they don't, I'm generally willing to be more aggressive with a blind IOI than I would be with a formal LOI. At that stage, my goal isn't precision. It's staying in the process long enough to gather the information needed to determine what the business is actually worth.
An IOI isn't a commitment to buy. It's simply an indication that I'm interested enough to keep evaluating the opportunity.
How does this look in practice?
Let's say a business is asking $4M and my initial assessment suggests it may be worth closer to $3.5M. At the IOI stage, I don't yet have enough information to know which number is right. If I submit at $4M and later determine it's only worth $3.5M, I can adjust or withdraw. If I submit $3.5M immediately and the process is competitive, I may never get the information needed to make that determination in the first place.
At the end of the day, it’s a game of probabilities. I do what’s necessary to stay in contention for as long as it takes me to gather all the information I need. Once I have that, then I make a decision.
When it comes to making offers, most buyers focus on the number
I focus on the information. Before I submit an offer, I want to understand how the seller thinks, how the broker thinks, whether there are competing buyers, what the bank believes is financeable, and whether the seller's expectations are grounded in reality.
Every conversation before the LOI is a chance to learn something. Sometimes that information confirms your valuation. Sometimes it tells you to walk away. Sometimes it reveals that a deal is much more attractive than you originally thought.
The buyers who consistently make strong offers aren't necessarily the best at valuation. They're usually the best at gathering information before they show their hand.
