Non-binding offer: features and what to look out for?
In the process of a take over a company or sell company A non-binding offer (NBO) plays an important role. In this article, we explain what a non-binding offer is, its characteristics, why it's used, and what to look for in a non-binding offer.
What is an NBO?
A non-binding offer (NBO) is a preliminary offer made by a potential buyer to the seller of a company. As the term indicates, this preliminary offer is not immediately binding. It is common practice during the acquisition process for a potential buyer to submit a non-binding offer to the seller to assess whether it makes sense to continue discussions. This preliminary offer is issued based on the seller's draft. While it does not create any legal obligations, a non-binding offer is an important step in the acquisition process because it lays the groundwork for further negotiations and demonstrates the buyer's interest.
Characteristics of an NBO
The main features of a non-binding offer are:
Provisional character
: It is a first step in negotiations and often serves as a basis for further discussions. It is not final and can be adjusted as more information becomes available, for example after a due diligence investigation.
No legal obligations
: Unlike a binding offer, a non-binding offer creates no legal obligations for the parties. This means that neither the buyer nor the seller is legally obligated to proceed with the transaction based on this offer.
Negotiating tool
: It provides a framework for initial negotiations. It helps both parties understand their expectations and decide whether to proceed with more detailed discussions in the business acquisition process.
Confidentiality
: Typically, such offers are made under the condition of confidentiality. This means that the details of the offer may not be made public. This is not made public through a non-disclosure agreement, or a non-disclosure agreement (NDA).
Why a non-binding offer?
In the business acquisition process, a non-binding offer is used for various reasons. Below are the three main reasons for a non-binding offer.
1. Interest is officially expressed
Firstly, it serves as a way for the buyer to formally express their interest in acquiring the company without immediately committing themselves legally. This is an essential step for initiating negotiations and gauging the seller's willingness to sell. Furthermore, an NBO serves as a starting point for these negotiations, with terms such as price and payment terms forming the basis for further discussions.
2. There are no obligations
In addition, the flexibility of an NBO also offers a significant advantage. Because it is non-binding, both the buyer and seller can remain free from obligations during the initial phase of the acquisition process. This means the buyer can withdraw if the results of the due diligence investigation do not meet expectations or if the negotiations are not going in the desired direction.
3. Insight into the company's market value
Finally, an NBO is valuable for the seller because it provides insight into the company's market value and market interest. It helps determine a realistic selling price based on initial offers from potential buyers. Using an NBO allows both parties to begin the acquisition process with a clear understanding of each other's intentions and expectations, which is crucial for successfully navigating the complexities of a business acquisition.
What should be taken into account when selecting an NBO?
Submitting a non-binding offer is an important part of the acquisition process, but it's essential to formulate it correctly to avoid misunderstandings. Here are some key points to keep in mind:
Clearly state the non-binding nature
: Make sure the non-binding nature of the offer is clearly stated. This helps align expectations between both parties.
Make it clear that conditions depend on further information
: The offer must indicate that the proposed terms are still subject to information that becomes available at a later date, for example after due diligence.
Please indicate dependency on funding
: If the offer is contingent on financing, this must be explicitly stated. This is important for the seller to know whether the buyer has the necessary funds to complete the transaction.
Be transparent about the financing position
: As a seller, you want to be sure the buyer has the financial capacity to complete the deal. Make sure this is clearly stated in the non-binding offer.
Why choose Match Plan?
With over 30 years of experience in corporate acquisitions, Match Plan helps companies navigate the complexities of the acquisition process. Our experts will guide you through:
- Drafting an effective non-binding offer.
- Negotiating terms.
- Ensuring a transparent and efficient process.
Contact us and discover how we can support you with a successful business acquisition or sale.
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