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Basic Information in an M&A Indication of Interest

The indication and its key piece of information, the valuation range, merely set up the next steps for the M&A process: meetings, letters of intent, due diligence, and (cross your fingers) the closing. But those aren’t the only aspects of the indication.

Introduction

The indication starts as most well-written letters start: with some introductory lauding. In this case, it’s directed at Seller’s company. Buyer almost always mentions how excited she is at the prospect of buying the company. It also states the obvious: “We are pleased to submit this indication of interest . . . .”

Background information

Most indications also include some boilerplate information about Buyer. This section lets Buyer do two things: brag and tout. Buyer can chirp about all the company’s office locations, how much money it has made under management, its revenue size, its balance sheet strength — you get the idea. If Buyer thought slapping on some smelly cologne would impress Seller, she’d do that, too.

The intention of the background information section is to afford Seller with a modicum of security that Buyer is a stable, secure, and decisive outfit that can do what it says it’ll do. All this leads up to the valuation range: a proposed range that the Buyer is willing to pay for the company.

M&A Valuation range

This is the key piece of information that sellers look for: how much are you willing to pay for their company? It is usually given as a range to allow for further negotiations as the M&A deal proceeds.

The legalese

This part is usually just a quick sentence where Buyer states the offer is based on information provided by Seller or her intermediary (if she has one). This section gives Buyer an out if further due diligence uncovers issues or problems not disclosed or readily apparent in the materials provided.

In other words, if Buyer makes an offer to buy a company with $5 million in EBITDA (earnings before interest, taxes, depreciation, and amortization) and due diligence shows the company actually has only $1 million in EBITDA, Buyer has recourse to amend that offer.

Toward the end of most indications, Buyer tosses in some more boilerplate legalese that reiterates the need to confirm everything in due diligence before the deal can close.

An enthusiastic send off

The indication will then conclude with enthusiastic, “Let’s do a deal!” language. It’s a call to action.

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