A first-round indication of interest is a document that wants to be read quickly and discussed slowly. The banker who delivered it will walk through the headline number. The prospective acquirer wrote everything else for a reason.
Below are the five signals we look for when an IOI lands on a client's desk. None of them is a deal-breaker on its own. Read together, they describe what kind of buyer is across the table and how much room exists before the number moves.
The first place to look is not the multiple. It is the breakdown of consideration. Cash at close, rolled equity, seller note, earnout, escrow — each line tells you something about how the buyer is financing the deal and how much of the price they are willing to stand behind on day one.
A sponsor with a 70/20/10 structure — seventy cents cash, twenty cents rollover, ten cents earnout — is telling you their LPs will bear most of the risk but they want the seller incentivized through the hold period. A strategic offering all cash with no earnout is telling you their board has already approved the synergy number and they are done negotiating with themselves. Those are very different conversations.
Every IOI contains a multiple. Fewer than half are clear about what that multiple is applied to. TTM reported EBITDA? TTM adjusted? Run-rate? Forward budgeted? Some 'normalized' version the buyer will define during diligence?
The difference between 8x TTM adjusted and 8x run-rate forward can easily move headline value by fifteen percent. The letter that names its EBITDA base is telling you the buyer has done the work and will defend the number. The letter that doesn't is telling you that work is still ahead — and the adjustments will almost always move in the buyer's direction.
Every IOI is conditioned on something. The question is whether those conditions are specific or elastic. 'Subject to satisfactory confirmatory diligence and definitive documentation' is boilerplate. 'Subject to satisfactory customer concentration analysis, a third-party quality of earnings, and confirmation of working capital normalization methodology' is a map of where the price is actually going to be negotiated.
A buyer who names three specific diligence items has told you exactly where they expect the chisel work to happen. That is valuable information. A buyer who uses only boilerplate has left themselves room to raise any issue they want later — and they usually do.
Length matters less than timing. A request for sixty days of exclusivity starting at LOI signing is aggressive but normal. A request for exclusivity before the LOI is delivered — 'we'd like to understand you're not talking to anyone else before we send our letter' — is a buyer asking the seller to disarm before they commit. We almost never recommend agreeing.
The opposite signal is also worth noting: a buyer willing to proceed with a shorter exclusivity window (thirty or forty-five days) is often a buyer who has financing in place and has already done most of the prep work. Short exclusivity is usually a confidence signal, not a weakness.
The last tell is the timeline the buyer will commit to on paper. 'Closing targeted for 90 days from LOI signing' is a commitment. 'Subject to timing of financing, regulatory approval, and buyer board process' is not.
A buyer who will not name a window is a buyer whose capital, approvals, or appetite is not yet locked. That does not mean the deal dies — but it does mean the seller is the one absorbing optionality risk between the LOI and close. That asymmetry should be priced, either in a reverse break-fee, a tighter exclusivity, or a deposit.
The reply to a first-round IOI is not an acceptance or a rejection. It is a short, written response that names the two or three assumptions the buyer has made that the seller needs clarified, and signals whether the seller is prepared to grant exclusivity in exchange for specific improvements in the letter.
Buyers respect the letter that comes back with three precise questions more than the one that comes back with a counter-number. The counter-number invites a negotiation before the diligence work has been done. The questions force the buyer to stand behind their own assumptions first. That is the posture the seller wants to be in when the second letter arrives.