What Does Binding Offer Mean?
A binding offer refers to an offer made by a bidder to acquire a target company (or seller) after the due diligence phase of a sale process is complete. This offer constitutes a formal contract between the bidder and seller should the seller accept the bidder’s terms. In contrast to an indicative offer or an indication of interest, the bidder is legally obligated to comply with the terms and conditions of a binding offer, if the offer is accepted.
Divestopedia Explains Binding Offer
During a sale process, after non-binding indications of interest or letters of intent (indicative offers) have been received and reviewed, selected bidders will be invited to conduct due diligence on the target company. Once the due diligence process is complete, the purchase price and other terms outlined in the indicative offers will be confirmed or revised, and bidders will submit their respective binding offers to the seller.
A binding offer may differ considerably from the non-binding indicative offer previously submitted by the same bidder if, for example, the bidder uncovers negative, previously undisclosed information during the due diligence process. A bidder is bound by the terms and conditions of a binding offer once it is accepted by the seller.