A bidding process is a structured method in which several potential buyers simultaneously bid on a company. The process involves three main stages: the NBO (Non-Binding Offer), the LOI (Letter of Intent) and due diligence. This systematic approach maximises the sale value and ensures a controlled course of the transaction.
What is a bidding process and why is it used in acquisitions?
A bidding process is a structured sales procedure in which multiple interested parties make simultaneous bids for a target company. This method creates competition between potential buyers, resulting in higher valuations and better terms for the seller.
The process is applied when companies generate sufficient market interest to attract multiple serious candidates. This is especially true for mid-market companies with strong market positions, proven business models or strategic value for different buyer profiles.
For sellers, a bidding process offers maximum value creation through competitive pressure. Buyers benefit from a transparent process with clear rules of the game and equal access to information. It avoids lengthy exclusive negotiations that often lead to lower valuations.
A structured bidding process in M&A transactions ensures efficient litigation, limited distractions from day-to-day operations and a predictable timeline to closing.
What exactly does an NBO (Non-Binding Offer) entail?
An NBO is a preliminary bid in which potential buyers express their interest and appreciation without any legal obligation to purchase. This initial bidding phase serves as a selection mechanism to identify serious candidates for the next process step.
An NBO typically includes an indicative valuation, preliminary deal structure, financing confirmation and desired timeline. Buyers specify their strategic rationale, synergies and any conditions such as management continuity or operational changes.
The non-binding nature protects both parties from premature commitments. Sellers retain flexibility to choose between candidates, while buyers keep room for adjustments after deeper research.
The NBO phase typically lasts two to four weeks. Sellers evaluate bids on price, security, timing and strategic fit. The best candidates are invited to the next phase, usually leaving three to five parties for further negotiations.
How is an LOI (Letter of Intent) different from an NBO?
An LOI is a formal letter of intent with partially binding elements, while an NBO remains completely non-binding. The LOI marks the transition from indicative interest to concrete negotiation commitments between seller and preferred candidate.
Crucial differences lie in the binding components. An LOI contains legally enforceable clauses such as exclusivity, confidentiality, cost reimbursement and due diligence conditions. The purchase price and main terms usually remain non-binding until contract signature.
The LOI specifies deal structure, financing arrangements, management participation and closing conditions in much more detail than an NBO. Both parties commit to an exclusive negotiation period of typically eight to 12 weeks.
This phase requires intensive legal and commercial alignment. The LOI provides the foundation for due diligence and contract negotiations, with deviations from the agreed outline limited to material findings.
What happens during the due diligence process?
Due diligence is the systematic examination in which the buyer verifies and evaluates all relevant aspects of the target company. This process validates information from earlier stages and identifies risks that may affect the valuation or deal structure.
The research includes financial, legal, commercial, operational and tax aspects. Buyers analyse historical performance, contractual obligations, market positions, management teams, IT systems and compliance issues through a structured questionnaire.
Due diligence typically takes six to 10 weeks, depending on the complexity of the business and deal structure. Vendors facilitate the process by setting up a digital data room with all relevant documentation and organising management presentations.
Findings may lead to price adjustments, additional guarantees or changes in the deal structure. Material issues are addressed through escrow arrangements, insurance or specific contractual protection in the purchase agreement.
Which parties are involved in a bidding process?
A bidding process requires coordination between multiple specialised parties, each bringing specific expertise. The seller is usually assisted by a corporate finance advisor, accountant, legal advisor and tax specialist for optimal process support.
Corporate finance advisers steer the entire process, from strategy and valuation to negotiations and closing. They coordinate all parties involved, manage the timeline and ensure maximum value realisation through effective competitive pressure between bidders.
Buyers engage similar teams: M&A advisers for strategic guidance, due diligence specialists, legal teams for contract negotiations and financing partners for debt and equity arrangements. For strategic buyers, internal corporate development teams are closely involved.
Additional parties may include notaries, insurers, pension trustees and regulatory advisers, depending on the sector and deal complexity. Effective coordination between all parties determines process efficiency and ultimate deal success.
On average, how long does a complete bidding process take?
A full bidding process typically takes four to six months from inception to closing. This timeline includes preparation (4-6 weeks), market approach and NBO phase (6-8 weeks), LOI negotiations (2-3 weeks), due diligence (6-10 weeks) and contract negotiations with closing (4-6 weeks).
Several factors significantly affect lead times. Complex deal structures, international buyers, regulatory approvals or carve-out situations lengthen the process. Well-prepared data rooms, experienced advisers and proactive process coordination significantly shorten the timeline.
The preparation phase largely determines process efficiency. Complete financial documentation, legal due diligence reports and structured management information prevent delays in later phases. Incomplete preparation often leads to time pressure and suboptimal results.
Market conditions also play a role. In active M&A markets, financing is quicker and buyers are more decisive. During periods of uncertainty, buyers take more time for risk assessment, which can extend the overall lead time to eight to 12 months.
A professionally supervised bidding process requires strategic planning, market knowledge and process expertise to achieve optimal results. For entrepreneurs who need a takeover consider, timely preparation and professional guidance is essential for success. Take contact for a no-obligation discussion about your specific situation and options.
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