What do You Mean by Indicative Offer
Indicative offer is more commonly known as non-binding offer or Letter of Intent (LOI). In simple words, it can be explained as contract made between two parties during a sales process. So, the contract or “agreement to agree” will be made between the buyer and seller. The document will hold information related to the buyer’s intent to buy certain product/service from the seller on a later date. However, buyer is not legally bound to make the purchase. Thus, this offer is to keep the negotiation and/or discussion moving along between the two parties to make the sale process a successful and hassle-free one.
A binding obligation or a definite legal contractual commitment only comes to play when both parties signs any document acting as a definitive agreement, i.e. PSA or Purchase and Sales Agreement.
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:
Non-binding offer will hold the information regarding the price which the potential buyer wants to pay for the said product/service. It can be a price range or a specific figure as per the nature of transaction and/or request from any one of the parties involved. It will also have a summary stating how the amount will be acquired by the buyer. It may also state the time period which the buyer needs to acquire that fixed amount. A buyer can have an idea about the different price offered to the seller, and make the purchasing decision based on the information provided.
It will also contain a proper explanation on the terms of payment. It may also hold information related to non-cash consideration which the seller is comfortable with.
Terms And Conditions
Indicative offer will have all the conditions that both parties need to comply with during this phase. So, 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.
It will also hold information related to the fix time period within which the buyer needs to make the purchase. So, anything related to the total time to complete the process, expected ending date of the contract and time period of due diligence are mentioned so that both parties are well-informed and on the same page.
It also includes complete assurance that the mentioned offer given by the buyer should be handled confidentially. It also includes the information that the other party can disclosed in order to facilitate the selling process.
Everything that both the parties will be adding to Indicative offer are mostly drawn up on basis of the details available from CIM (Confidential Information Memorandum). So, both the buyer and seller need to sit through many management meetings and then come up with the conditions of the offer which will satisfy both parties involved.