Non-Binding Offer (NBO)

Non-Binding Offer (NBO): Indicative Purchase Proposal as the First Step in the M&A Process

The Non-Binding Offer (NBO), also known as an indicative offer or non-binding purchase proposal, is a key milestone in the early phase of an M&A process. It serves to gauge the fundamental interest and price expectations of potential buyers without requiring them to commit bindingly at this stage. For the seller, the NBO is an important decision-making basis for selecting the most promising bidders for further negotiations.

Content and Function of the Non-Binding Offer

An NBO typically results from an initial assessment of the target company by the potential buyer, usually based on an information memorandum (IM) or a management presentation. It contains the essential key points of a possible purchase offer, in particular:

• Indicative valuation or price range for the target company
• Ideas regarding the transaction structure (e.g., share deal vs. asset deal)
• Assumptions and conditions for the acquisition (e.g., exclusive negotiation rights, financing contingency)
• Planned timeline for due diligence and contract negotiations
• Proposed warranties and representations from the seller

The NBO is deliberately non-binding and often not very detailed. It is intended to give the seller a first impression of whether the bidder’s price expectations and transaction parameters are broadly aligned with their own. At the same time, it signals the bidder’s serious interest in purchasing and serves as a starting point for further negotiations.

Positioning of the NBO in the M&A Process

The Non-Binding Offer typically marks the end of the first phase of a structured bidding process for the sale of a company. After the seller has identified and approached a circle of potential buyers, these are invited to submit an indicative offer based on the provided basic information.

Often, the seller sets a standardized framework for the offers, for example in the form of a Request for Proposal or a process letter. This ensures that the NBOs from different bidders are comparable and address the seller’s most important points.

After evaluating the submitted NBOs, the seller usually selects a shortlist of bidders to proceed to the next phase. These bidders gain access to a data room containing detailed information about the target company and can conduct an in-depth due diligence review. Based on this, a final, binding offer (Binding Offer) is often submitted.

Thus, the NBO marks the transition from preparation and market exploration to more concrete transaction negotiations with selected interested parties. It is an important filter to identify promising bidders and structure the further process.

Challenges and Success Factors

Despite—or precisely because of—its indicative nature, the NBO is often a critical point in the M&A process. Specific challenges arise for both buyers and sellers:

• Information asymmetry: At the time of the NBO, the bidder often has only limited information about the target company. They must base their valuation and offer on incomplete data, which entails uncertainties.

• Strategic bidding: Some bidders deliberately submit very high NBOs to advance to the next round without a well-founded valuation. Others hold back initially to maintain negotiation leverage. For the seller, assessing the seriousness of the offers is a challenge.

• Time pressure and resource commitment: Preparing an NBO often requires significant resources from the bidder, especially when multiple offers must be submitted in parallel. At the same time, there is usually high time pressure as deadlines are set by the seller.

• Confidentiality and competition: Especially in auction processes with multiple bidders, the confidentiality of the NBOs is crucial. Bidders generally do not want their competitors to gain insight into their offers and considerations.

To overcome these challenges and increase the chances of a successful NBO, several success factors have emerged in M&A practice:

• Thorough preparation: Bidders should engage intensively with the available information and substantiate their valuation considerations as much as possible before submitting an offer. This also includes early involvement of experts (e.g., finance, legal, tax).

• Clear positioning: An NBO should give the seller a clear signal as to why this bidder is an attractive purchase candidate. Beyond price, strategic considerations, financing capability, and transaction certainty are important.

• Focus and prioritization: In parallel processes, bidders must deploy their resources wisely. Careful selection and prioritization of targets increase competitiveness in the bidding process.

• Proactive process management: Sellers should clearly structure the NBO process and communicate the rules early on. Standardized offer formats and a strict timeline ensure comparability and process discipline.

• Professional communication: Clear, respectful communication with bidders is essential. This involves confidentiality as well as transparency regarding selection criteria and next steps in the process.

Ultimately, the NBO is an important tool to gradually move from broad outlines to detailed negotiations in a structured M&A process and to separate the wheat from the chaff. For buyers, it is an opportunity to position themselves competitively and make the shortlist. Sellers receive valuable indications for valuing their company and assessing the attractiveness of potential partners.

Despite its preliminary and non-binding nature, the NBO often lays the foundation for later transaction success. Careful preparation and professional execution pay off for all parties involved.

Further details on the entire process of selling a company can be found in the article "Company Sale Step by Step".