Indicative Offer

An indicative offer is a first, non-binding price offer from a potential buyer. It is usually based on the Information Memorandum and not yet on a deep review. The seller uses such offers to identify serious interested parties early.

More than a number is normally required: alongside a price range on a cash-free debt-free enterprise value basis, bidders state the assumptions applied, the intended financing structure with evidence of available equity, the scope of diligence envisaged, the timetable to completion, the internal approvals required and the strategic rationale for their interest. From this the seller decides who is invited into the second phase, and the selection does not follow the highest price alone: a bidder with secured financing, limited diligence needs and few conditions can be more attractive than one with a higher number and many reservations.

The offers are expressly non-binding, which is appropriate since the bidder has not yet examined the company, but this also explains the instrument's known weakness: some bidders deliberately quote a high value to gain access to the data room and revise downwards later. Experienced sellers therefore also assess how the price was derived and the bidder's reputation.

An indicative offer should be distinguished from the binding offer of the second phase, submitted after diligence. Bidders are well advised to disclose the assumptions under which the figure applies, such as a particular adjusted result, a normalised working capital level and a specific net debt position. An offer without these can barely be defended later and appears unserious. Quoting a realistic price rather than an inflated one is equally advisable, because a later downward revision substantially weakens one's position in the process and damages standing in the market.