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We are developing a list of potential acquisition targets in our industry. We have existing alliance or joint venture agreements with some of these companies. We can get to the fuzzy front end to open the discussion, but then our conversations stall because they all want a Letter of Intent (LOI). Since we are simply shopping for one acquisition target among many we don't have enough answers to give them a LOI. After some research it seems like an Indication of Interest (IOI) is a better tool for our needs. We would like to understand how an Indication of Interest fits in the negotiation process. It would also be useful to understand what an IOI should cover? What are the main differences with an LOI?
Negotiations over a proprietary pipeline are always challenging. The seller wants an purchase price before disclosing any confidential information, especially financial information. The buyer needs information before making an offer. A bit of a chicken and egg problem.In cases like this you need some financial information before providing any purchase price. It is just not prudent to make offer without some financial information first. As the buyer, you have the leverage.The Indication of Interest (IOI) is, in fact, a great way to outline a purchase price (or more likely, a range of prices) and general terms, like stock or asset deal.For an IOI to have any real value it needs to give the seller a concrete idea about the price and structure. To do that, you will need 3-5 years of summary financial information. That includes income statement and balance sheet at a minimum, but would hopefully include cash flow statements too.With that information and your knowledge of the industry you can probably put together an IOI that will allow the prospective seller and purchaser to stop dancing around the topic and get down to a real negotiation.
In addition to financial terms, consider guidance on deal structure, particularly for points that are important to your company. Stock or asset purchase. Role of owners and managers. Follow on investment. Even though an IOI seems like an informal document, you should have your legal counsel review it first.