M&A Vocabulary – Understanding Experts: “Non-Binding Offer”

A so-called “Non-Binding Offer” (NBO) often marks the beginning of an M&A process, potentially following an initial exchange of information about the target company based on a confidentiality agreement (NDA). The terms “letter of intent” or “indicative offer” are also commonly used. Ultimately, the potential buyer aims to demonstrate their interest to the seller and communicate their initial ideas regarding the key parameters of the planned transaction. This approach is particularly common in bidding processes and serves to meaningfully narrow down the pool of interested parties.

Through the Non-Binding Offer, the potential buyer submits a unilateral, non-binding offer to the seller, which primarily contains an initial purchase price indication. This documents the seriousness of their potential acquisition interest and outlines the circumstances and conditions under which they are prepared to enter into negotiations. The seller, in turn, can use the Non-Binding Offer to better assess the interest level of potential buyers and, in particular, decide whether and with which interested parties they wish to proceed to the next negotiation phase.

To achieve these objectives, a Non-Binding Offer typically includes:

• Purchase price indication, which should clearly distinguish between enterprise value and equity value
• Where already possible, a reconciliation of the enterprise value based on already communicated company metrics (equity bridge)
• Timeline for the further process
• Information requirements for due diligence
• Strategic plans for the target company after the acquisition

Based on this indicative offer from individual prospective buyers, the seller can then decide which potential buyers remain “in the running” and identify initial discussion topics, thereby further narrowing the buyer pool within the bidding process.

However, the Non-Binding Offer does not contain any binding obligations to acquire the company in principle or under these conditions. The prospective buyer can therefore still withdraw from the bidding process at this stage or adjust the parameters stated in the NBO at a later point. Nevertheless, certain ancillary obligations may already arise for the potential buyer at this stage, as they will be required in particular to treat obtained information confidentially and take the seller’s interests into account. Violations of these obligations can trigger liability even without a contract being concluded.

In the next phase, potential buyers are then granted access to more detailed information about the company through a data room, enabling all buyers to conduct a due diligence review to evaluate the company more precisely. Only after successfully completing the due diligence process does the buyer then submit a binding offer, provided they still wish to acquire the company.

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