Process letter
M&A / Merger ModelThe seller's instructions to bidders setting out what to submit, in what form, and by when.
A process letter accompanies each round and tells bidders exactly what is expected: the deadline, the format, what the offer must address, and what assumptions to make about structure.
First round letters ask for a non binding indication of value, usually as a range, plus evidence of funding capability, proposed timetable and any conditions. Second round letters ask for a binding offer with a mark up of the sale and purchase agreement and committed financing.
Standardisation is the point. Comparing offers is only possible if they answer the same questions on the same basis, and without it the seller ends up comparing a cash free debt free enterprise value against an equity price with different assumptions buried inside.
It also preserves the seller's flexibility, invariably reserving the right to change the process, extend deadlines, or deal with anyone at any time, so no bidder acquires rights simply by participating.
Worked example
The first round letter asks for a value range on a cash free debt free basis, funding evidence, required approvals and a proposed timetable, by a fixed date.
Standardising the basis is the point. Without it the seller ends up comparing an enterprise value against an equity price with different working capital assumptions buried inside.
It also reserves the seller's right to change the process or deal with anyone at any time, so no bidder acquires rights simply by participating.