Indicative Offer: The Non-binding Price in the M&A Process

An indicative offer is a non-binding offer from an interested buyer. It comes at the start of the sale process, after the interested party has received the teaser and information memorandum. It is also called a non-binding offer, or NBO.

The indicative offer does not yet bind the interested party. They can withdraw later or adjust their parameters. For the seller it is nonetheless valuable: it shows who is seriously interested and in what order of magnitude.

Definition and timing

The indicative offer follows the first information phase. The sequence before it is standard: an anonymous teaser, a non-disclosure agreement (NDA), then the information memorandum. On this basis the interested party gives its first assessment.

The order matters. The indicative offer rests on publicly available information and on what was provided in the memorandum. It is not yet secured by due diligence. It therefore comes with reservations.

Content of an indicative offer

A robust indicative offer is more than a number. It names its foundations. Usual components:

• Price range: a realistic span rather than a fixed amount.
• Assumptions: the basis of the valuation, such as assumed earnings power or net debt.
• Reservations: conditions such as successful due diligence or board approval.
• Financing: how the purchase is to be financed, e.g. equity or debt.
• Structure and timeline: a rough idea of deal structure and process.

The range is deliberate. It gives the interested party room to refine the offer after the review. At the same time it forces them to disclose their assumptions. How a valuation comes about is explained in what is my company worth.

Distinction: indicative offer, LOI, binding offer

The three terms mark different levels of commitment.

Feature	Indicative offer (NBO)	Letter of Intent (LOI)	Binding offer
Timing	before due diligence	often after a first review	after due diligence
Commitment	non-binding	mostly non-binding, often with binding parts	legally binding
Level of detail	rough, a range	more detailed, key terms	concrete, fixed price
Typical binding parts	usually none	often exclusivity, confidentiality	the entire core
Function	pre-selection of bidders	framework for the negotiation	basis of the contract

An LOI can contain individual binding elements, such as exclusivity or confidentiality, even if the core remains non-binding. The legal effect in the individual case belongs with a lawyer.

Role in the process and timing

In a competitive process the indicative offer acts as a filter. The seller receives several offers and can compare them. They decide which interested parties advance to the next round and gain access to the deeper review.

In this way the field of bidders is narrowed in an orderly manner before sensitive data is disclosed. That protects discretion and saves time. How this phase fits into the overall process is shown in the process of a company sale.

Frequently asked questions

Is an indicative offer binding?

No. It is expressly non-binding. The interested party can leave the process or adjust its parameters after the review. The purchase becomes binding only with a binding offer or the purchase agreement.

How does the indicative offer differ from the LOI?

The indicative offer is more general and comes at the start. The letter of intent is usually more detailed, often comes after a first review and can contain individual binding elements, such as exclusivity. Both are non-binding at their core.

Why is a price range named instead of a fixed price?

Because the offer is made before due diligence. The interested party does not yet know all the details. The range gives them room to refine the price after the review and at the same time forces them to state their assumptions.

What happens after the indicative offer?

The seller selects, on the basis of the offers, which interested parties advance. These gain access to due diligence. After that, a binding offer and the negotiation of the purchase agreement usually follow.

Should one always prefer the highest indicative offer?

Not necessarily. A high price with vague assumptions or uncertain financing can fall later. Structure, reservations, financing certainty and the probability of closing count just as much as the number.