how an indication of interest ioi works
in the securities and investing world an indication of interest is typically expressed in advance of an initial public offering ipo 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 must provide the investor with a preliminary prospectus 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 firms and broker dealers 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 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 iois in mergers and acquisition m a an indication of interest in mergers and acquisitions is similar in intent 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 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 indication of interest ioi vs letter of intent loi an indication of interest ioi is an informal notice of an investor s interest in purchasing or acquiring an asset it is non binding and less definitive than a letter of intent loi the indication of interest includes value ranges and less specific transaction details the ioi coming before the loi begins the negotiation process 1at 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 2either party to a transaction can terminate negotiations since iois and lois are non binding example of ioiin may 2008 blackbaud s chief executive officer ceo 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 3 in the notice he asked for a time bound exclusive deal in exchange for a higher all cash offer details in the ioi included in its management retention plan chardon proposed that kintera s ceo and some executives and senior managers would receive employment agreements the ioi also outlined the exclusivity conditions it stated that until the purchase agreement was executed or when the purchaser terminated negotiations kintera could not enter into an agreement with a third party regarding an acquisition discuss or negotiate with a third party provide information about kintera to a third party solicit proposals or allow representatives of the company to engage in any of these prohibited activities 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 