# Understanding Indication of Interest (IOI): How They Work and Examples

## What Is an Indication of Interest (IOI)?

An indication of interest is an [underwriting](https://www.investopedia.com/terms/u/underwriting.asp) expression showing a conditional, non-binding interest in buying a security that is currently in registration and awaiting approval by the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp).

An IOI typically includes the name of the security, the transaction type, and the number of shares the investor might be interested in. The investor's broker must provide the investor with a preliminary prospectus after they have indicated interest.

Indications of interest are also used in mergers and acquisitions (M&A), but the specifics are different.

### Key Takeaways

*   An Indication of Interest (IOI) is a non-binding expression of intent to buy a security during its registration phase.  
    
*   IOIs are prevalent before IPOs and can provide insight into a company's financial situation.  
    
*   In mergers and acquisitions, an IOI is a formal letter expressing interest, often detailing target valuation and transaction conditions.  
    
*   IOIs do not guarantee allocation in high-demand IPOs and are typically first-come, first-served.  
    
*   Unlike IOIs, Letters of Intent (LOI) specify transaction details and follow negotiations.

## Understanding the Functionality of an Indication of Interest (IOI)

In the securities and investing world, an indication of interest is typically expressed in advance of an [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp). It demonstrates a conditional, non-binding interest in buying a security that is currently awaiting regulatory approval as securities in the U.S. must be cleared by the SEC.

The IOI is non-binding because it is illegal to sell a security while still in the registration process. The investor's [stockbroker](https://www.investopedia.com/terms/s/stockbroker.asp) must provide the investor with a [preliminary prospectus](https://www.investopedia.com/terms/p/preliminaryprospectus.asp). The IOI remains open-ended and is not a commitment to buy.

An IOI comprises expressions of trading interest that contain one or more of the following elements:

*   The security name
*   Whether the participant is buying or selling
*   The number of shares, capacity, and/or
*   Price of the purchase or sale

Firms and [broker-dealers](https://www.investopedia.com/terms/b/broker-dealer.asp) can communicate electronically. They can also advertise proprietary or client trading interests in the form of IOIs to the marketplace, either through their own systems or through dedicated trading platforms.

Indications of interest for IPOs are usually accepted on a first-come, first-served basis. Because the demand for securities may exceed the supply available to distribute, placing an indication of interest does not guarantee you'll be able to buy into an IPO.

> **Important**
>
> An indication of interest is not a legal obligation to purchase. However, it does give the investor a general idea of how the company is doing financially. This will help the decision process of buying in or not.

## The Role of Indications of Interest (IOIs) in Mergers and Acquisitions (M&A)

An indication of interest in [mergers and acquisitions](https://www.investopedia.com/terms/m/mergersandacquisitions.asp) is similar to an IOI for an initial public offering. But there are some different components involved. Once again, it is a non-binding agreement, but this kind of IOI usually comes as a prepared letter written by a buyer and addressed to the seller.

The purpose is to communicate a genuine interest in purchasing a company. Among other things, an IOI should provide guidance on a target valuation for the acquisition [target company](https://www.investopedia.com/terms/t/targetfirm.asp), and it should also outline the general conditions for completing a deal. Elements of a typical IOI for M&A often include, but are not limited to:

*   The approximate price range. This can be expressed as a dollar range, like $10 million to $15 million, or as a multiple like 3x to 5x EBITDA.
*   Management retention plan and the role of the equity owner(s) post-transaction.
*   Necessary [due diligence](https://www.investopedia.com/terms/d/duediligence.asp) items and a rough estimate of the due diligence timeline.
*   Potential proposed elements of the transaction structure (asset vs equity, leveraged transaction, cash vs equity, etc.).
*   The estimated timeframe to close the transaction.

## Comparing Indications of Interest (IOI) to Letters of Intent (LOI)

An indication of interest (IOI) is an informal, non-binding notice showing an investor's interest in purchasing or acquiring an asset. It's less definitive than a [letter of intent (LOI)](https://www.investopedia.com/terms/l/letterofintent.asp). The indication of interest includes value ranges and less specific transaction details. The IOI, coming before the LOI, begins the negotiation process.

At the end of negotiations, the formal LOI is created, defining the specific details of the transaction. Like the IOI, it is not a legally binding agreement. Rather, it expresses the investor's commitment to purchase a security and serves as the foundation for the formal contract.

Upon review, an agreement can be made if the seller accepts the terms of the LOI. Upon execution, the seller enters an exclusive agreement with the buyer, prohibiting them from engaging with other buyers for a period.

> **Fast Fact**
>
> Either party to a transaction can terminate negotiations since IOIs and LOIs are non-binding.

## Real-World Example: Indication of Interest (IOI)

In May 2008, Blackbaud's [chief executive officer (CEO)](https://www.investopedia.com/terms/c/ceo.asp) Marc Chardon submitted a revised IOI to Richard LaBarbera, president and CEO of Kintera. The offer expressed Chardon's interest in acquiring 100% of his company. In the notice, he asked for a time-bound exclusive deal in exchange for a higher all-cash offer.

Details in the IOI included:

*   The purchase price of $1.12 per share
*   Its commitment to an all-cash offer
*   Approvals and closing conditions
*   A management retention plan
*   An estimated closing date of July 1, 2008

In its management retention plan, Chardon proposed that Kintera's CEO and some executives and senior managers would receive employment agreements. The IOI outlined exclusivity conditions, stating that until the purchase agreement was executed or terminated, Kintera could not engage in talks or agreements with third parties about acquisitions.

The end of the notice listed the binding provisions, including the notice's termination date (May 21, 2008) and statements about the IOI being a non-binding precursor to an agreement.

## What Is an Actionable Indication of Interest?

An actionable indication of interest is an IOI that provides specific details about the purchase. Such details include the symbol of the security, a price comparable to or exceeding the [National Best Bid and Offer (NBBO)](https://www.investopedia.com/terms/n/nbbo.asp), size, etc.

## Who Can Cancel an Indication of Interest?

The buyer submitting the notice can cancel the indication of interest. If left unconfirmed beyond the confirmation period, it will be canceled automatically.

## What Is a Natural Indication of Interest?

A natural indication of interest occurs when IOI originates with the customer, rather than a firm. FINRA defines it as referring "either to customer interest a firm represents on an agency basis or to proprietary interest that was established to facilitate a customer order or as part of an execution of a customer order on a [riskless principal](https://www.investopedia.com/terms/r/risklessprincipal.asp) basis."

## The Bottom Line

An indication of interest is a brief letter or notice that expresses a buyer's interest in buying a security in registration or a company's interest in acquiring another company. Although it is not a formal agreement, it communicates the serious interest of the buyer.

During an IPO, an IOI is used to signal intent to buy new shares before they enter the market. In an acquisition, the IOI precedes a formal letter of intent where one company seeks to acquire another.

> **Article Sources**
>
> 1.  Business Transition Strategies. "[Why an IOI can help get a better LOI](https://www.businesstransitionstrategies.com/news/why-an-ioi-can-help-get-a-better-loi.php)."
>     
> 2.  Rose Biz. "[Top 12 Most Common M&A Acronyms you Need to Know](https://rosebiz.com/top-12-most-common-ma-acronyms-you-need-to-know/)."
>     
> 3.  U.S. Securities and Exchange Commission. "[EX-99.(D)(10) 16 dex99d10.htm INDICATION OF INTEREST LETTER](https://www.sec.gov/Archives/edgar/data/1117119/000119312508129978/dex99d10.htm)."
>     
> 4.  Markets Media. "[Banks: SEC Raising Bar on Trade-Order Transparency](https://www.marketsmedia.com/order-transparency-coming-rule-606-move/)."
>     
> 5.  SoFi. "[Can I change or cancel my indication of interest?](https://support.sofi.com/hc/en-us/articles/360059037891-Can-I-change-or-cancel-my-indication-of-interest-)"
>     
> 6.  FINRA. "[Regulatory Notice: Indications of Interest](https://www.finra.org/sites/default/files/NoticeDocument/p124474.pdf)," Page 2.