A Non-Binding Indicative Offer (NBIO) is the first ‘letter’ or ‘agreement’ a potential purchaser submits to a vendor when entering a merger or acquisition. Sometimes referred to as the ‘letter of intent’, an NBIO essentially puts into writing any verbal offer made and, with the exception of a few components (such as the exclusivity and confidentiality clauses), is normally non-binding.
An NBIO outlines the essential terms and conditions under which the potential purchaser is willing to enter into negotiations.
An NBIO should include the price that’s being offered by the purchasing party and any adjustments, including deferred consideration. It should outline the conditions under which the potential purchaser is willing to enter into negotiations and a few other aspects, including:
- The purchaser’s details
- The vendor’s details
- Specifically, what the purchasing party is acquiring
- Any conditions that are being proposed
- Confidentiality and exclusivity, and
- Timeline or expiry date.
How to craft a thorough NBIO – the devil is in the detail
A Non-Binding Indicative Offer should include every aspect of your offer. Do not omit any details. Adding details later when the Sale/Purchase Agreement is being drafted could sabotage the deal, stopping it in its tracks or slowing it down significantly.
Some key considerations that you should include in your NBIO if relevant include:
- Clarification on whether you’re purchasing the shares of an entity or the assets of an entity
- If you’re purchasing assets of an entity, specifically list those that are necessary and critical to the deal
- Is the offer on a cash-free debt-free basis?
- Don’t forget to push for net of tax adjustments with the leave provisions you will take over
- An appendix or spreadsheet that defines what is included, and excluded, in the working capital and net debt adjustment
- A relevant restraint period
- Any offers for the vendor’s continuation in the business and details surrounding this, and
- Details of insurances such as Professional Indemnity and Warranty and Indemnity.
What follows the signing of an NBIO?
Once an NBIO has been signed by all parties, they will generally enter into an exclusive negotiation period. This exclusivity period typically spans between six weeks and three months. During this period, the vendor has agreed not to engage with any other interested parties, which allows the potential buyer time to conduct due diligence and arrange finance.
Communication between the parties will be ongoing and high during this time, to maintain deal momentum and to ensure all concerns are addressed on a timely basis.
Given the importance of detail in your Non-Binding Indicative Offer, we suggest you consult with a trusted corporate finance advisor early in the process.
William Buck Corporate Finance can assist you in drafting an effective NBIO and converting it into a final signed sale agreement.
