Binding offers
M&A / Merger ModelThe second round submission: a committed price with a marked up sale agreement and evidence of funding.
Also written: final offer, binding bid
A binding offer is a committed price supported by a mark up of the sale and purchase agreement, evidence of committed financing, and confirmation that diligence is complete.
The SPA mark up is often as important as the number. It shows what warranties the bidder demands, what conditions it attaches, how it wants the price adjusted at completion, and what escrow or indemnity protection it requires.
That is why the highest headline price does not always win. A slightly lower bid with a clean mark up, few conditions and committed funding can represent more deal certainty than a higher one loaded with conditionality, and sellers routinely take the more certain deal.
It also has to be genuinely deliverable. A bidder whose financing is subject to further credit approval has not really made a binding offer, whatever the letter says.
Worked example
Two final bids: 320 with a heavily marked up SPA, a financing condition and a 24 month warranty period; and 312 with a light mark up, committed funding and no conditions beyond antitrust.
The seller takes 312. The 8 difference is worth less than the certainty, and a board can defend the choice on deliverability.
This is why the SPA mark up is often as decisive as the number.