Knowledge base item

A Non-Binding Offer, what is it?

A preliminary offer to open negotiations

After a potential buyer has thoroughly read the information memorandum, he or she will have to make the choice whether or not to continue the process. In case of continuation, the buyer will proceed to the next phase in the process: the drawing up of a non-binding offer. A non-binding offer (NBO) is a provisional offer which is not yet immediately binding and therefore does not constitute a contractual obligation between both parties to continue the transaction until the end.

An NBO has 2 important functions. First, it gives the buyer the opportunity to express his or her interest and thus indicates that he or she is open to negotiation. Secondly, it allows the seller to make an assessment of whether it is worth entering into negotiations with the potential buyer at all. An NBO will therefore show whether the buyer and seller have similar views on the transaction.

A typical non-binding offering will consist of the following components:

  • An indicative price or price range, where the buyer can provide a summary describing how the price was arrived at.
  • The structure of the transaction.
  • A time estimate with respect to the Due Diligence
  • Indicative date of transfer

Much more importantly, we at Florijnz find that information is reflected in which the potential sustainable character is expressed. What is the dot on the horizon for Buyer and Seller. Any emotional aspects may not be missing, think of whether or not to retain the name or the continuity of (key) employees. In each transaction these aspects and points are unique. These aspects are determined by both Buyer and Seller.

The wording of the non-binding offer is very important. If the NBO is not formulated correctly, the buyer may be in for nasty surprises if it turns out later that he or she has nevertheless committed to certain points and can therefore no longer just walk away from the deal. The fact is that at the time of the NBO no Due Diligence has been done yet. The buyer therefore has not yet had the opportunity to check all the information obtained. An NBO should therefore clearly show that the price is indicative and that it can change later in the process. It is therefore advisable to draw it up in collaboration with an experienced consultant. The NBO is in fact the first anchor point that is often referred to later as the first real exchange of expectations regarding the intended transaction.

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Marieke Klaassen
Marieke Klaassen van BeurdenPartner