Indicative bid to binding bid: what actually happens in those 60 days of exclusivity

A founder gets an indicative offer of interest at ₹600 crore. Exclusivity granted for 60 days. The board congratulates itself. The founder mentally spends the money. Sixty days later, the SPA shows up with a headline price of ₹540 crore and an additional ₹30 crore in escrow against specific indemnities.

This is not a fraud. It is the indicative-to-binding window doing exactly what it was designed to do.

Worth understanding the rhythm.

What an IOI actually commits the buyer to

An indicative offer or non-binding bid is not a contract. It is a structured expression of interest, usually 4-6 pages, that sets out the headline price, the financing source, the diligence the buyer wants to do, and the conditions precedent the buyer expects to negotiate.

What the IOI commits the buyer to: nothing legally enforceable on price. The buyer is committing to spend their own time and money on confirmatory diligence, and in return the seller commits to exclusivity — usually 45-60 days, sometimes 90 — during which the seller cannot solicit, negotiate with, or accept offers from any other buyer.

What the seller gets: a fixed window in which to extract a binding offer that is at or near the indicative number. What the buyer gets: the right to walk away if diligence reveals problems, or to re-price the offer if the diligence findings justify it.

The 60-day rhythm

Most Indian deals run a rhythm that looks roughly like this. Week-by-week varies by buyer archetype and sector but the shape is consistent.

Week 1-2: Confirmatory financial diligence kicks off. Big Four advisor on the buyer side starts work on quality of earnings (QoE), working capital normalisation, debt-like items, and the EBITDA bridge from reported numbers to the buyer's underwriting case. The seller submits a Vendor Due Diligence pack if one was prepared.

Week 2-4: Legal and tax diligence. Buyer's legal counsel goes through the data room — corporate records, material contracts, related-party transactions, litigation, IP, employment, regulatory licences. Tax counsel runs through income-tax, GST, transfer-pricing, and any specific risk areas (Section 56(2) deemed-gift issues, retro assessments).

Week 3-5: Commercial and operational diligence. Buyer's commercial team or a specialist advisor talks to top customers (anonymised reference calls), top vendors, key employees. Site visits to plants, offices, warehouses. Technology diligence if IP or platform matters.

Week 4-6: Management presentations and follow-up Q&A. The seller's senior team presents twice — once on business strategy and growth plan, once on operations and key risk areas. Follow-up Q&A volume peaks here.

Week 5-7: SPA negotiation begins. Buyer's counsel circulates a first draft of the Share Purchase Agreement. Seller's counsel responds. Working capital target, escrow structure, indemnity caps and baskets, reps and warranties survival periods, conditions precedent.

Week 6-8: Regulatory and antitrust assessment. If CCI notification is required (Section 5 thresholds met), the buyer's counsel starts drafting the Form I or Form II. FEMA pricing certificates for cross-border transfers. Sectoral approvals (RBI for NBFC, IRDAI for insurance, SEBI for listed targets).

Week 7-9: Final pricing and SPA close-out. Working capital target locked. Escrow structure locked. Earn-out mechanics agreed. Signing date scheduled.

Sixty days, end to end, is tight. Eighty to ninety is more common. Anything over 120 days suggests the deal is in trouble and the parties are negotiating reasons to walk away.

Where buyers re-trade

The single most common founder surprise in this window is the re-trade. Re-trading is when the buyer reduces the indicative price after diligence findings. It is not always bad faith — most re-trades are anchored to real discoveries — but the seller experiences it as a betrayal because the IOI felt like a commitment.

The re-trade triggers we see most often:

Quality of earnings adjustments. The buyer's QoE finds normalisations the seller hadn't disclosed — one-off contracts that inflated revenue, non-recurring cost savings that won't repeat, working capital seasonality that overstates trailing EBITDA. A ₹50 crore EBITDA gets adjusted to ₹42 crore. At 12x, that's ₹96 crore off the headline.

Customer concentration disclosed in diligence. The IM said top-3 customer concentration was 28%. Diligence reveals it's actually 41% once white-labelled revenue is allocated to the underlying brand customer. Multiple haircut: 0.5-1.5 turns of EBITDA depending on contract length and renewal terms.

Working capital target reset. This deserves its own article and gets one in this batch. Briefly: the buyer proposes a working capital target 5-8% above the seller's expectation, and the difference comes off cash at closing.

Tax exposures. A pending transfer-pricing assessment, an unresolved GST notice, a Section 56(2) deemed-gift issue from a past round — buyer's tax counsel quantifies the exposure and the buyer demands a specific indemnity or a price reduction.

Customer or vendor reference calls. Surprises here are the hardest re-trades to push back on because the data point is independent of seller representation. A top customer says they're considering switching. A key vendor has just been acquired by a competitor.

Where deals die

Not every re-trade is recoverable. Some 15-20% of indicative offers in Indian mid-market M&A do not convert to binding offers — and the failures cluster around a few patterns.

Diligence reveals undisclosed problems. Litigation that wasn't in the data room. Regulatory notices that weren't flagged. Related-party transactions that weren't papered. The buyer doesn't necessarily walk over the issue itself; they walk over what the omission signals about the seller's other disclosures.

Management departure during the window. A key executive — usually the CFO or a senior operating leader — resigns mid-process. Buyers price management continuity into the deal; a departure mid-diligence forces a re-underwriting of the value-creation thesis. Some buyers will negotiate. Some walk.

Market shifts mid-process. Sector multiples compress (think of any quarter when public comparables drop 20%). Public market deals affecting the same sector get repriced. The buyer's investment committee resets the bid range. This is where the IOI's non-binding nature bites hardest — there's no enforcement mechanism for market risk.

Regulatory unexpected. CCI demands Phase II review. A sectoral approval comes back conditional. FEMA pricing certificate finds a gap. These don't kill the deal directly but they extend timelines, and extended timelines often kill deals by exhausting buyer patience or seller momentum.

Retro-trading on price. The most cynical pattern. The buyer never intended to pay the indicative price; they used the IOI to win exclusivity, then re-traded from a position of seller fatigue 50 days in. Indicators: the IOI price is meaningfully above other bids, diligence findings are vague but persistent, the buyer's deal team is junior and seems to be looking for reasons.

The seller's leverage curve

The seller's leverage is highest the day exclusivity is granted and lowest the day exclusivity expires.

Day 1: the buyer has spent essentially nothing on the deal. They can walk away cheaply. The seller can also walk away — exclusivity has just started, no real diligence has occurred. Symmetric.

Day 30: the buyer has spent ₹50-100 lakh on advisors, internal team time, and management distraction. They want this deal to close. The seller has spent significant management bandwidth and has cooled relationships with other potential buyers.

Day 55: the buyer is fully committed financially and internally. The seller has burned 55 days of optionality. If the buyer re-trades 5-8% at this point, the seller's BATNA is to walk away and restart a process — which costs another 4-6 months and signals weakness to the next buyer universe.

This is why re-trades land in week 7-8 disproportionately. The buyer's leverage peaks just before the SPA is signed.

How we run the window

Two principles we hold to when running the indicative-to-binding window for a sell-side client.

Negotiate the SPA in parallel with diligence, not after. Most processes wait for diligence to finish before circulating the SPA. We push to have a first draft of the SPA out by week 3, with parallel negotiation alongside diligence. This forces the buyer to commit to structural positions earlier, when their leverage is lower.

Track diligence findings in real time and counter early. A buyer's QoE adjustment shouldn't surface for the first time in week 7 as a re-trade. We track the buyer's diligence questions weekly and flag any line of questioning that looks like it's building toward a re-trade. We then prepare the seller's counter — supporting documentation, alternative interpretation, expert opinion — and surface it before the buyer's adjustment crystallises.

What the seller should do at IOI signing

Three things the seller should lock in before granting exclusivity.

First, define the working capital target methodology in the IOI itself. Not the number — the methodology. Trailing 12-month average, with seasonal adjustment. This blocks the most common re-trade vector.

Second, define the conditions precedent narrowly. The IOI should list specific CPs (regulatory approvals, third-party consents). Anything outside the list should require buyer escalation. Open-ended diligence outs are how deals get re-traded into oblivion.

Third, get a deposit. ₹2-5 crore in escrow, refundable only if specific named conditions fail. This forces the buyer to commit financially and creates symmetry on walk-away costs. Indian sellers rarely ask for deposits. Buyers usually refuse on first ask. The negotiation is worth running anyway — the buyer's response signals their level of commitment.

What good looks like at day 60

Binding offer signed at or within 3-5% of the indicative price. Working capital target negotiated, not imposed. Escrow at 10-15% of headline price for 18-24 months, with specific indemnities carved separately. CP list closed and signed. Regulatory filings drafted and ready to file at signing.

Anything materially worse than this means the indicative window was negotiated from a position of weakness — usually because the seller treated the IOI as the deal, not as the option to negotiate the deal.