Page 10 - NBIZ October 2023

To use a dating and marriage anal- With the IOI(s) in hand, the seller It is important to remember that
ogy, the IOI is like the moment when can gauge interest in continuing the IOIs are informal, non-binding, and
a romantically involved couple openly process and will communicate his/ non-exclusive. They are not an offer
declare to each other how interested her interest level back to the potential to buy the company. They create a
they each may be in deepening their buyer(s). If multiple IOIs have been moment in the process for both the
relationship toward a potential engage- submitted, the seller may opt to con- potential buyer and seller to determine
ment or marriage. They are not en- tinue the process with only the most if there is sufficient mutual interest and
gaged yet, but they both want to know favorable IOIs. broad agreement on price to proceed
if they share sufficiently compatible before going further down the road.
objectives before going much further.
Similarly, the IOI is a chance for the Example: Dwayne owns Acme Distrib- The LOI
potential buyer and seller to determine utors Inc. and is considering a sale of If the seller has received one or
if they are mutually interested and his company. He seeks to get at least more attractive IOIs, then the sale
aligned around pursuing a purchase/ $20 million for his business. Dwayne’s process resumes. Now that the seller
sale at a given price and set of terms. investment bankers marketed the and potential buyer(s) believe there is
Usually, the IOI is issued by the company to a pool of several dozen sufficient interest and agreement to
potential buyer. If multiple potential potential buyers, and have received six possibly reach a purchase/sale, at this
buyers are involved, such as when an IOIs for the following valuations: point the conversations accelerate
investment banker is running a pro- o “$30 million to $35 million” and deepen.
cess to market the company, all the po- o “$30 million” The potential buyer(s) now expands
tential buyers may be asked to submit o “$28 million” efforts to understand and verify the
their IOI by a certain deadline. The IOI o “$20 million but with 50% cash paid target company’s financial perfor-
provides a preliminary, non-binding at closing” mance, operations, team, business
statement of how interested that o “$18 to $20 million” plans, market potential, customer
potential buyer is in acquiring the o “$15 million” mix, and products and services. The
company for sale and what they might potential buyer may put more of their
pay. The IOI is usually communicated Based on these results, Dwayne team on the project and involve outside
in writing via email or letter, but it and his investment bankers agree to resources and expertise to evaluate the
may be only verbal. The IOI usually continue discussions with the first acquisition opportunity. The seller often
states the price the potential buyer is three potential buyers because they sub- must expand the time and resources
contemplating paying for the com- mitted the strongest IOIs. The bottom he/she spends supporting the process.
pany based on what he/she knows at three potential buyers are informed that A major milestone during this stage is
this point. Or, in some cases, the IOI they are out of the process. the management meeting, at which the
may include a price range that the potential buyer’s team and the seller’s
potential buyer is considering offering Of course, it is possible that a team meet, usually in person and for at
based on what he/she knows at this business owner seeking to sell the least a half-day or longer.
point. The potential buyer’s IOI can company might receive no attractive Typically, after the management
include other details such as deal IOIs or no IOIs at all. If that should meetings the potential buyer(s) are
terms, financing information, and a occur, that owner needs to reconsider invited to submit an LOI—the Letter
suggested timeline to close. his or her options and situation. of Intent. The LOI is a true offer to
acquire the company and usually
contains binding and exclusive provi-
sions. If multiple potential buyers are
involved and submit LOIs, the seller
The IOI usually must pick one LOI to accept
and sign. Returning to the dating and
is a chance marriage analogy, the LOI is compa-
rable to the couple getting engaged.
Remember that the IOI is broadly
for the potential buyer and worded, lacks many details, and
seller to determine if they only provides a preliminary price or

are mutually interested and price range that the potential buyer
is willing to pay. In contrast, a well-
aligned around pursuing a crafted LOI from a serious potential
purchase/sale at a given buyer is a carefully prepared legal
document that states the price the
price and set of terms. buyer is committed to paying and

10 NBIZ ■ October 2023