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Reaching The Milestone Of The Non Binding Offer

Garry Stephensen

Article Author: Garry Stephensen
Position: Managing Director
Read time: 5 mins

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In the realm of mergers and acquisitions (M&A) within the Australian business landscape, reaching the milestone of signing a Non-Binding Offer (NBO) signifies a crucial step. This pivotal moment denotes the mutual agreement between the seller and the buyer on fundamental commercial terms, encompassing aspects such as pricing, structural nuances, and the timeline for the transaction.

Upon reaching this juncture, enthusiasm permeates both parties involved, driven by the substantial time and effort invested. The linchpin for a successful transaction lies in maintaining this positive momentum and ensuring accountability from all stakeholders, particularly with regard to adhering to predefined deadlines, including the signing of the Sale/Purchase Agreement and the ultimate completion.

As seen in the Financial Review and the Courier Mail.

The Non-Binding Offer is typically signed during the early stages of a business acquisition process, often after initial discussions and negotiations but before reaching a definitive and legally binding agreement. The specific timeline may vary depending on the complexity of the transaction and the parties involved, but the NBO generally comes after the preliminary stages of interest and exploration.

Reaching The Milestone Of The Non-Binding-Offer

Here's a simplified overview of the typical stages in a business acquisition process, leading up to the signing of an NBO:

  • Preliminary Discussions:
    Potential buyers express interest in acquiring a business.
    Preliminary discussions take place to explore compatibility and alignment of interests.

  • Due Diligence:
    The potential buyer conducts initial due diligence to assess the target business thoroughly. Both parties may exchange information to evaluate the feasibility of the transaction.

  • Indication of Interest:
    The potential buyer, having conducted preliminary due diligence, may submit an Indication of Interest (IOI). The IOI outlines the buyer's proposed terms, including a preliminary valuation and key conditions.

  • Negotiation and Discussions:
    Negotiations between the buyer and seller intensify as they work toward a mutual understanding of terms. Key elements such as price, deal structure, and other commercial terms are discussed.

  • Non-Binding Offer (NBO):
    Once the parties have reached a significant level of agreement on the essential terms, they may proceed to sign an NBO. The NBO outlines the agreed-upon terms for the transaction but is non-binding, meaning that the parties are not legally obligated to complete the deal based on the NBO alone. The NBO often includes provisions for exclusivity, granting the buyer a period of time to conduct more in-depth due diligence and negotiate the final legal documents.

  • Exclusive Negotiation Period:
    After signing the NBO, the buyer may be granted a period of exclusivity, during which the seller agrees not to engage with other potential buyers.
    This period allows the buyer to conduct comprehensive due diligence and negotiate the final, legally binding documents.

  • Finalizing the Transaction:
    If the due diligence process is satisfactory and negotiations proceed smoothly, the parties move toward finalizing the Sale and Purchase Agreement (SPA) and other legal documents.  It's important to note that while the NBO sets the framework for the deal, it is not a legally binding document itself. The legally binding commitments come into play with the finalization of the Sale and Purchase Agreement and other associated documents. The NBO serves as a critical step in the process, providing a foundation for the subsequent stages of the acquisition.

Reaching The Milestone Of The Non-Binding-Offer


One notable facet of an NBO is the relinquishment of certain rights by the seller, particularly the granting of exclusive rights to the buyer for a specified period. This exclusivity period, ranging from 6 weeks to 3 months, provides the buyer with the latitude to conduct due diligence and negotiate pivotal legal documents such as the Sale and Purchase Agreement and Shareholders Agreement.

While exclusivity may seem disadvantageous to the seller, it is invariably a requisite demand. This is primarily because the buyer seeks assurance that the seller will not engage with other potential buyers during the exhaustive due diligence phase, which often incurs substantial costs, ranging into hundreds of thousands of dollars.


For the seller, the negotiation and execution of an NBO represent the final opportunity to secure optimal transaction terms. Post-NBO, bargaining power diminishes significantly, precluding the ability to leverage alternative offers to enhance negotiating positions. A comprehensive NBO, elucidating the intricacies of the sale and post-sale obligations, is instrumental in limiting potential disagreements during the finalization of legal documents, thereby curbing legal costs and expediting the process.

Inconvenient Realities

Transparency regarding any adverse developments is paramount, particularly when delivering unfavorable news. Although challenges such as the loss of a key client or suboptimal trading results may impact the transaction, proactive communication can mitigate the fallout. Sellers are encouraged to articulate the tangible effects on business operations, revenue, and earnings, aiming to minimize the potential for the buyer to exploit the situation during negotiations.

Due Diligence

Granting exclusivity demands judicious consideration from the seller, ensuring they are dealing with a bona fide buyer possessing the financial means and experiential acumen to consummate the transaction. Conducting background checks on the buyer's transaction history and negotiation approach becomes paramount to safeguarding the seller's interests. Contrary to the perception that signing an NBO concludes the deal, it marks merely the inception of an intricate process. Transforming the NBO into a final, signed sale agreement demands extensive effort and can span several months.

In navigating the dynamic landscape of business acquisitions in Australia, the judicious execution of an NBO serves as a linchpin for success, requiring astute negotiations, meticulous due diligence, and strategic communication throughout the transaction journey.

Business Broker - Garry Stephensen

Managing Director
Business Broker - Karen Dado

Director NSW
Business Broker - Geoffrey Tulett

Lloyds Corporate Partner - Mergers & Acquisition Specialist
Business Broker - Edward Alder

Director Victoria
Business Broker - Kevin L Sutherland

Director International Business Sales
Business Broker - Dianne Reynolds

Research Director and Corporate Broker

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