Significance and components of an indicative offer in a company sale

Selling a company: Why do you need a non-binding offer or a letter of intent?

Selling a company is a very complex process involving numerous steps. It often takes several months to successfully complete the sale. The indicative offer is an important part of this process.

When a company is up for sale, there are usually several interested parties. In order to effectively compare the offers submitted by the candidates, experienced M&A advisors often initiate a bidding process. Interested parties can participate by submitting an indicative, non-binding offer. The aim is to narrow down the selection early on in the bidding process and invite the most suitable candidates to the next round.

Parallels and possible differences to the letter of intent

The NBO is often used synonymously with LOI (“Letter of Intent”). Both NBO and LOI refer to an indicative offer submitted by the interested party early in the transaction process. Although both instruments serve to document an intention to purchase, there are some differences. For example, an LOI may contain specific binding elements, such as exclusivity agreements. As a rule, an LOI is also more detailed.

Use and distribution of an indicative offer

The indicative offer is submitted by the potential buyer to give the seller an initial impression of their purchase intentions and the possible terms and conditions. It is a non-binding offer that serves as a basis for the further transaction process.

The NBO or LOI is used in the first phase of negotiations and serves as a means of exchanging information, as a comparison tool, and as a basis for due diligence. In the sale of a company, the indicative offer plays an important role in steering the sales process and selecting potential buyers.

Components of an indicative offer

An indicative offer usually includes the following components, which differ from binding offers:

Information about the buyer:

Presentation of the interested party, including career history and current position

Motivation/intentions: Insights into the potential successor’s plans for the company

Asking price:

Determination of a price range including calculation basis

Payment terms:

Submission of payment terms, including timing and financing plans

Based on the indicative offer, a final decision will be made as to which interested parties will be taken forward in the transaction process.

Preparation of an indicative offer

Care should be taken when preparing an indicative offer to ensure that it accurately reflects the potential buyer’s intentions and provides a solid basis for future negotiations. Important considerations include:

Prospective buyers who make it onto the shortlist will receive more specific information about the company in the next step. This information is provided in strict confidence via a data room, usually in digital form. This gives the remaining candidates the opportunity to carry out an internal due diligence review. Any questions that remain unanswered are clarified at this stage.

Once the NBO or LOI has been signed, a temporary exclusivity agreement is in place. This ensures that no parallel negotiations are conducted with other interested parties. The next step is for external consultants to review specific areas (tax, legal, finance).

Do you need assistance selling your business?

At Conpair, we understand how complex selling a business can be and what is important when reviewing and filtering indicative offers. You can rely on our expertise—we would be happy to accompany you on the path to a successful conclusion by finding the right candidates to purchase your business. Get in touch today—we look forward to hearing from you!