The IOI and the LOI sit at different points on the commitment curve. An indication of interest is exploratory: 1 to 3 pages stating a valuation range ("$2.5M–$3.2M subject to diligence"), a high-level structure (asset versus stock, cash versus earnout split), conditions (book retention, diligence, financing), a timeline, a confidentiality reference, and explicit non-binding language. A letter of intent is a commitment to negotiate: 5 to 10 pages for a typical agency deal, stating a specific total price rather than a range, the payment split, the structure and entities with included and excluded assets, the earnout metric and measurement, key covenants, diligence scope and timeline, conditions precedent, break-up mechanisms, exclusivity, a confidentiality reaffirmation, and explicit binding/non-binding section markers.
§ 01 · The two documentsExploratory vs. committed.
| Dimension | IOI | LOI |
|---|---|---|
| Length | 1–3 pages | 5–10 pages for a typical agency deal |
| Price | A range | A specific number, not a range |
| Binding? | No | Partially — six provisions bind |
| Signals | Competitive auction | Bilateral commitment |
The document choice is itself information. The IOI is the filter in a broker-run multi-bidder process — buyers submit, the seller selects two or three finalists, finalists get full diligence and are invited to submit LOIs. In a direct bilateral deal with one buyer and one seller and no broker, the IOI is optional, and the buyer may proceed straight to a more-developed LOI after initial diligence. A buyer asking "IOI or LOI?" reveals both whether they see the deal as competitive and whether they think the seller has other live options — a tell worth reading.
§ 02 · The six binding provisionsWhat "non-binding" doesn't cover.
Six LOI provisions bind despite the "non-binding" label: exclusivity / no-shop (60–90 days standard), confidentiality (reaffirming the NDA), expenses (each bears its own), good-faith negotiation (often binding — courts have enforced it), break-up payments (binding if included), and governing law / forum. The "non-binding" label covers the economics, not these — read the section markers, because the teeth are real.
The practical consequence is that signing an LOI is not a low-stakes act even though the price isn't legally locked. Exclusivity takes the seller off the market for the window; the good-faith covenant has been enforced; and a break-up payment, if included, is a real obligation. The binding/non-binding section markers are the map — a buyer who treats the whole document as "just an LOI" misreads which commitments are already live the moment it's signed.
§ 03 · ExclusivityThe windows and the terms.
Exclusivity comes in three windows: 60 days for smaller, cleaner deals with pre-negotiated terms; 90 days as the standard for agency deals; and 120 days for larger or complex deals, often with interim milestones. Four exclusivity terms are worth a buyer's insistence: an automatic extension for seller-caused delays, so the clock doesn't run against the buyer when the seller is slow; walk-away rights on material breach or missed milestones; a true no-shop covenant that bars active solicitation, not merely no-close; and a limited fiduciary out where applicable, for corporate sellers or trust-held agencies. Without a pause trigger, the exclusivity clock runs during seller-caused delays — which is exactly the buyer-unfavorable default the extension term fixes.
§ 04 · Push in, push outWhat belongs in the LOI.
Four terms belong pushed into the LOI rather than deferred: the specific earnout mechanics (metric, measurement period, offset rights — don't leave them for the purchase agreement); the key rep expectations (fundamental reps at a 100% cap, a materiality scrape, 18-plus-month survival); specific indemnities for any diligence-identified issue; and the working-capital target methodology (trailing-twelve-month average, point-in-time, or negotiated). Three belong pushed out, deferred to the purchase agreement: the disclosure schedules (built during drafting), the transition-services detail (scope and pricing in the definitive agreement), and the specific closing conditions (high-level in the LOI, detailed later). And two common pitfalls bracket the whole exercise — a too-early LOI that locks price before diligence reveals problems (solve by ranging via the IOI first, then locking via the LOI once key diligence clears), and an unclear exclusivity clock that runs during seller delays without pause language.
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Terminology on this shelf
- Indication of interest (IOI)
- An exploratory, non-binding 1–3 page expression of interest at a valuation range, written before diligence.
- Letter of intent (LOI)
- A partially binding 5–10 page commitment to negotiate in good faith toward a specific deal on specific terms.
- Six binding provisions
- Exclusivity, confidentiality, expenses, good-faith negotiation, break-up payments, and governing law — binding despite the label.
- No-shop covenant
- A bar on active solicitation of other buyers, not merely a no-close — the stronger exclusivity form.
- Materiality scrape
- A provision that reads materiality qualifiers out of the reps for indemnification purposes — a key rep expectation.
- Working-capital methodology
- The agreed basis (TTM average, point-in-time, negotiated) for the working-capital target — push it into the LOI.