Meaning and transaction use
BDC describes an initial offer or letter of intent as a generally non-binding proposal covering proposed price, key terms, deal structure, financing and an exclusivity period for due diligence. [S1]
BDC also states that an LOI sets out acquisition-process terms and indicates what a final offer might look like, while noting that expressly stated provisions can be binding. [S2]
Proposed review method: separate headline value from the equity bridge and cash received, list every assumption and condition, evidence the funding route and identify each provision intended to have legal effect.
Worked example
Illustrative indicative offer only. Assume enterprise value of USD 30 million, cash of USD 2 million, debt of USD 8 million and USD 1 million of assumed debt-like items. Ignore working-capital and tax adjustments.
Scroll the table horizontally to view all columns.
| Item | Calculation | Amount |
|---|---|---|
| Enterprise value | Assumed headline value | USD 30 million |
| Add cash | + USD 2 million | USD 32 million |
| Less debt | - USD 8 million | USD 24 million |
| Less debt-like items | - USD 1 million | USD 23 million |
| Indicative equity value | 30 + 2 - 8 - 1 | USD 23 million |
The simplified bridge produces indicative equity value of USD 23 million. Diligence and definitive definitions may change the amount and the offer may remain subject to funding, approval and other conditions.
Proposed transaction review process
Define valuation
State enterprise or equity value, range, currency, date and valuation basis.
Bridge the economics
Show cash, debt, working capital, debt-like items, leakage and contingent consideration.
State execution terms
Identify structure, funding, approvals, diligence, conditions, timetable and exclusivity request.
Mark legal status
Identify provisions intended to be binding and obtain transaction-specific legal review.
Evidence checklist
Valuation support
Model, comparable evidence, assumptions and sensitivity analysis.
Funding evidence
Cash resources, debt terms, equity approvals and funding conditions.
Diligence basis
Materials reviewed, information date, unresolved questions and reliance limits.
Authority record
Bidder approval, signatory authority, legal review and submitted version.
Decision framework
| Situation | Proposed action |
|---|---|
| The price is expressed as a range | State the variables that determine the point within the range. |
| Funding is conditional | Describe the condition and exclude the amount from committed funding until satisfied. |
| The seller requests exclusivity | Link duration and milestones to a defined diligence and documentation plan. |
| Diligence changes an assumption | Quantify the bridge effect and document the revised position before progressing. |
Common errors to check
- Calling enterprise value the cash payable to shareholders.
- Omitting debt-like items or working-capital assumptions.
- Presenting conditional funding as committed.
- Assuming the entire document is non-binding without reviewing its wording.
Test the indicative offer
Bring the valuation model, funding plan, diligence basis and proposed terms to an indicative-offer review. Reconcile the value bridge, conditions and decision timetable before submission or acceptance.
Discuss the transactionPrimary references and editorial scope
- BDC: How to negotiate the sale of your business
Initial-offer content, due-diligence stage and progression to definitive documentation. Reference checked 17 September 2026. - BDC: Letter of intent for a business acquisition
LOI purpose, process terms and potentially binding provisions. Reference checked 17 September 2026.
General M&A education. Figures and adjustments are hypothetical. Legal effect, disclosure, financing, tax and transaction requirements depend on the wording, facts, transaction and jurisdictions.
General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.
