What is Indicative Offer?
Short answer: An indicative offer, also called a non-binding offer, is a buyer's preliminary transaction proposal based on limited information. It helps the seller compare bidders before granting more diligence access or inviting a later binding offer.
A useful offer does more than state a headline number. It identifies the target perimeter, share or asset structure, enterprise-to-equity assumptions, form and timing of consideration, financing sources, management participation, diligence requirements, internal approvals, regulatory conditions and expected timetable. It should also explain the buyer's strategic rationale and any material reservations. The offer remains different from a definitive agreement because the buyer has not completed diligence and the full contractual risk allocation is absent. It is also distinct from an LOI signed by both parties, although a selected offer may become the basis for one.
How it works
The seller normally issues process instructions that specify the required format, assumptions, submission date and next stage. Advisers normalise offers into comparable bridges, testing cash, debt, working capital, deferred consideration, earn-outs, rollover, financing and conditions. They assess the credibility of funds and decision-makers, then rank value alongside certainty and strategic fit. Buyers should show which assumptions are evidence-based and which require confirmation. Sellers should clarify ambiguous points before selecting a bidder. Common mistakes include comparing enterprise value with another bidder's equity value, ignoring deferred or conditional consideration, and treating a high but weakly funded proposal as superior to a lower executable one.
Comparable equity proceeds = stated enterprise value - expected debt and debt-like items + expected eligible cash +/- expected working capital and other defined price adjustments; execution certainty is assessed separately
Example
Bidder A offers enterprise value of 100, all payable at completion, subject to confirmatory diligence and committed financing. Bidder B states equity value of 98, but assumes 10 of cash remains in the company, defers 20 for two years and requires an unapproved joint venture partner. After applying the seller's expected net debt of 15 and eligible cash of 4, Bidder A implies equity proceeds of 89 before other adjustments. Bidder B's headline cannot be compared directly because its cash assumption, deferral and partner condition change both value and certainty. The seller asks both bidders for a standard bridge and advances the proposal with the stronger combined outcome.
Why it matters
Sellers and boards use indicative offers to create a controlled competitive decision rather than negotiating with every interested party indefinitely. Buyers use the document to reserve resources and communicate the case to lenders or investment committees. Private-investment teams must connect the proposal to underwriting limits, governance and financing capacity. A strong process preserves alternatives until value and execution risk are understood, while management limits sensitive disclosure to bidders that have earned the next level of access.
The phrase non-binding does not automatically prevent confidentiality, exclusivity, costs, governing-law or good-faith obligations from arising. Market-abuse, takeover, merger-control and foreign-investment rules may affect communications or conditions. A seller should not represent that financing or approvals are certain without evidence. Counsel should review the offer's status and process obligations, and tax and accounting advisers should test consideration forms before comparison.