Company Sales: How to Evaluate Indicative Bids
Company Sales: How to Evaluate Indicative Bids
Selling your business is one of the most important decisions an entrepreneur or business owner can make. Once one or more indicative bids have been received, the process enters a critical evaluation and negotiation phase. At this stage, many factors need to be considered — well beyond the headline valuation. It’s about finding the best overall solution for you as a seller, while also securing a sustainable future for the company.
What is an indicative bid?
An indicative bid is a non-binding offer submitted by interested buyers based on the information shared during initial discussions. It provides a first formal indication of what the buyer is prepared to pay and under what conditions the transaction might take place. Indicative bids form the basis for further negotiations and due diligence.
Evaluating indicative bids
When several indicative bids are on the table, it can be tempting to focus on the one with the highest valuation. But other factors can be just as important — and sometimes decisive — for the long-term success of the deal. Below are some of the key aspects to consider when comparing bids.
Valuation: Valuation is, of course, one of the most important factors in deciding which buyer to move forward with. But the highest price is not always the best deal if the accompanying terms are less favorable. A higher valuation may come with riskier conditions or unrealistic expectations that could prove difficult to meet.
Purchase price structure: How the purchase price is structured can be just as important as the price itself. It is common for part of the price to be paid at closing, with the remainder dependent on future performance — often through an earn-out. Earn-outs are typically used when buyers and sellers have different views on the company’s future earning potential. They can help bridge valuation gaps, but they also create risk if targets are overly ambitious.
Key questions include:
- What portion of the price is contingent on future performance?
- Are the targets realistic and clearly defined?
- How will disputes be resolved if the targets are not met?
Reinvestment and continued commitment: Buyers often require sellers to reinvest part of the purchase price into the acquiring company or retain a minority stake for a period of time. This is especially common if the buyer will not be actively involved in operations, or if they want the seller’s support during a transition.In such cases, mechanisms are usually put in place for the seller to exit remaining ownership after a set period. However, sellers should be prepared that continued involvement — either as an executive or as a shareholder — may be required for several years.
Questions to ask:
- How much of the purchase price must be reinvested?
- What does “continued commitment” mean in terms of time, role, and decision-making authority?
- Under what conditions can the seller exit the remaining ownership?
Buyer's plans and intentions
It is also critical to understand the buyer’s strategic plans. How do they intend to develop the business? Will their vision align with your values and the path you have set for the company? If continued growth and preservation of culture are important to you, the buyer’s intentions must reflect that.
Questions to ask:
- How will the company be integrated into the buyer’s operations?
- What are the buyer’s long-term goals?
- Will the company’s culture, management structure, or location change?
Buyer’s financial stability
The buyer’s financial strength is another decisive factor. A well-capitalized buyer with a strong track record is better positioned to handle challenges during and after the acquisition, and there is less risk of the deal collapsing due to financing issues.
Questions to ask:
- What is the buyer’s current financial position?
- Have they completed similar acquisitions successfully?
- What guarantees or safeguards can they provide?
Conclusion: Take a holistic view
Choosing the right buyer is a complex process that requires a holistic perspective. It’s not only about who offers the highest price, but about weighing a range of factors that affect both the future of the company and your own role as a seller. By carefully analyzing and comparing bids, you can make a well-informed decision that maximizes both value and security.
At FLB Partners, we support business owners throughout the entire sales process — from preparation to closing. Contact us today to discuss how we can help you achieve a successful sale.
