Skipping IOI to LOI
February 24, 2025
by a searcher from The University of Texas at Austin - Red McCombs School of Business in New York, NY, USA
Does anyone have any advice or experience trying to skip a broker enforced IOI process? We have high conviction on a deal and enough information leveraging a CIM, sell-side QoE, and several industry calls to submit a thorough LOI, but the broker continues to push for an IOI. I understand they want optionality and to shop the terms, but just curious whether anyone with experience in best practices on "pre-empting" the deal. Do we just submit an executed LOI with a deadline and see what happens?
from Gonzaga University in Denver, CO, USA
If you are trying to pre-empt to get a better deal / move to lock it up more quickly I would go with an IOI to stay close to the deal but not drive up the price (will be hard to increase speed with the broker).
If you are truly willing to pay above market because the deal is strategic to you or you have more synergies than others then drop a detailed LOI with a time clock and push to lock it up. You need to be disciplined here however or the broker will use you as a stalking horse for other bidders. If you say the offer is good for 10 days then you need to walk on day 10 if they are not engaging to negotiate the LOI. If they come back later your price should come down to reflect that they shopped the deal
from University of Pennsylvania in Miami, FL, USA
Come with an offer they can't refuse - i.e. all cash, 0.5-1.0x EBITDA higher than where others would come out; 30-45 day close, etc. This is all about price and certainty to close. Give them that and I could imagine the broker/seller moving forward. Remember, if you submit, the broker has a duty to take the LOI to the Seller and the seller should (but might not) dictate the process.
I would recommend a discussion with the broker about your LOI and why it will be superior and how it will benefit hime. Also, I would include a hard deadline - nicely communicate something to the effect that this offer may not be there if you have to go through the entire process (this is optional and you may not feel this way)