Indicative offer definition:
An indicative offer or non-binding offer or Letter of Intent (LOI) represents a sheet negotiating framework contract made between two parties during a sales process. Using indicative offers, potential buyers express an interest, commits to good faith negotiations, and ensures the process’s confidentiality. The document will hold information related to the buyer’s intent to buy certain products/services from the seller later. However, the buyer is not legally bound to make the purchase. Thus, this offer keeps the negotiation and/or discussion moving between the two parties to make the sale process successful and hassle-free.
A binding obligation or a definite legal, contractual commitment only comes to play when both parties sign any document acting as a definitive agreement, i.e., PSA or Purchase and Sales Agreement.
An indicative offer is one of the best ways to keep both the buyer and seller on the same page before the transaction is made. A potential buyer draws up this term sheet to stand out from other buyers by stating that he/she has the ability to meet any terms/conditions laid down by the seller.
Components Of Indicative Offer
A standard LOI will have the following components/characteristics:
Indicative Offer Pricing
A non-binding offer will hold the information regarding the potential buyer’s price for the said product/service. It can be a price range or a specific figure per the transaction’s nature and/or request from any of the parties involved. It will also have a summary stating how the buyer will acquire the amount. It may also state the time period in which the buyer needs to acquire that fixed amount. A buyer can know the different prices offered to the seller and decide based on the information provided.
Indicative Offer Payment Process
It will also contain a proper explanation of the terms of payment. It may also hold information related to non-cash consideration which the seller is comfortable with.
Indicative Offer Terms And Conditions
Indicative offers will have all the conditions that both parties need to comply with during this phase. It will include any regulatory requirements and internal approvals that both buyer and seller need to abide by. Here it should be mentioned that, in case of any technical and specialized product, this contract will also include the support the seller must provide to the potential buyer to make sure that the complete buying and after-sales experience is ideal for the buyer.
Indicative Offer Timeline
It will also hold information related to the fixed time period within which the buyer needs to purchase. Anything related to the total time to complete the process, the expected ending date of the contract, and the time period of due diligence are mentioned to be well-informed and on the same page.
Indicative Offer Confidentiality
It also includes the complete assurance that the mentioned offer given by the buyer should be handled confidentially. It also includes the information that the other party can disclose to facilitate the selling process.
Everything that both the parties will be adding to the Indicative offer is mostly drawn based on the details available from CIM (Confidential Information Memorandum). So, both the buyer and seller need to sit through many management meetings and then develop the offer’s conditions, satisfying both parties involved.
Indicative offer letter example
Below are two documents as indicative offer letters examples: