What an M&A process letter contains in each round, and how to disclose a data license
An M&A process letter is the sell-side advisor's instructions to bidders: what to submit, by when and under which conduct rules. The first-round letter asks for a non-binding indication of interest; the second-round letter asks for a final bid and a purchase agreement markup. Disclose any data license in both rounds so bidders price it up front.
What is an M&A process letter?
An M&A process letter, also called a bid procedures letter or bid instructions letter, is the sell-side advisor's written instructions to prospective buyers. It sets out what bidders must submit, the deadline, the format and the rules of conduct. A typical auction uses two: a first-round letter asking for non-binding indications of interest (IOIs), and a second-round letter asking for final bids together with a markup of the draft purchase agreement.
The letter is a control tool. It makes bids comparable, keeps every party on one timetable, and reserves the seller's right to change the process, negotiate with anyone or reject any bid.
What does the first-round letter ask bidders to submit?
The first-round letter goes out with, or shortly after, the confidential information memorandum (CIM), and only to parties that have signed a confidentiality agreement. It asks for enough to compare bids and decide who advances.
| IOI element | What the letter typically requests | Why the advisor asks |
|---|---|---|
| Valuation | An enterprise value or range on a cash-free, debt-free basis with a normal level of working capital | Puts every bid on one basis |
| Structure | Cash at closing, rollover equity, earnout, seller note | Shows how much of the price is certain |
| Financing | Sources of funds and any financing conditions | Tests the ability to close |
| Key assumptions | What the price depends on | Flags likely retrade points early |
| Diligence scope | Workstreams and outside advisors needed in round two | Sizes the second round |
| Approvals | Investment committee, board or regulatory approvals | Exposes timing risk |
| Management and employees | Plans for the team and any rollover expectations | Matters to many owners as much as price |
| Timing | Estimated time to sign and close | Compares speed |
| Contacts | Who leads for the bidder | Keeps communication in one channel |
The letter also sets conduct rules: all communication through the advisor; no contact with employees, customers, suppliers or lenders; confidentiality governed by the signed agreement; and a statement that the letter is not an offer and creates no obligation for the seller.
What changes in the second-round letter?
After the first round the advisor narrows the field, opens fuller data room access and schedules management presentations. The second-round letter then asks for a bid the seller could sign quickly.
| Item | First round | Second round |
|---|---|---|
| Purpose | Choose who advances | Choose who signs |
| Bid form | Non-binding IOI, often a range | Final proposal at a single price |
| What bidders receive | Teaser, CIM, process letter | Full data room, management meetings, draft purchase agreement and disclosure schedules |
| What bidders return | IOI letter | Final bid letter plus a redline of the purchase agreement |
| Financing evidence | A description of sources | Commitment letters or proof of funds |
| Diligence | Desk review of the CIM | Remaining confirmatory items only |
| Other requests | Assumptions and approvals | Position on representations and warranties insurance, key employee arrangements, signing timetable |
Final bids are judged on more than price. The resource on comparing indications of interest beyond the headline price covers certainty, structure and the depth of the purchase agreement markup.
Where does a data license belong in the process?
If the company has signed a license of its operational records, or is negotiating one, it belongs in both letters. A license bidders learn about after the letter of intent becomes a retrade lever: the buyer argues it changes the asset they priced. Disclosed at launch, it is one more term that every bidder prices the same way.
Use a three-part rule: disclose, define, direct.
- Disclose. Describe the license in the CIM and place the agreement, or a term summary if it is still in negotiation, in the data room. Read the license's confidentiality clause first; it may limit what can be shared and with whom.
- Define. State in the letter how bids should treat it: whether proceeds received before closing stay with the seller or count as company cash, and how long any exclusivity runs.
- Direct. Ask bidders to state in their IOI any value they attribute to, or deduct for, the license, and any diligence they need on it.
Illustrative wording for a first-round letter, to be adapted by deal counsel:
Exclusivity is the term bidders care about. To the extent the licensed records include copyrighted material such as documents or code, the Copyright Act allows any one exclusive right to be transferred and owned separately from the others (17 U.S.C. 201). The acquirer inherits a company that has already granted that right for the term, which is why bidders need to see it before they price. SourceX licenses usually carry AI-training exclusivity for a set term, while ownership of the records stays with the company.
How the letters change with the license's status
| Status at launch | What the letters say | What goes in the data room |
|---|---|---|
| Signed and paid | Describe the license and confirm proceeds were received | The executed agreement, subject to its confidentiality terms |
| Signed, payment pending | Describe it and state how pending proceeds are treated in the price | The agreement and invoice status |
| Terms agreed, not signed | Say signing is expected and ask bidders to state their position | A term summary the seller has approved |
| Exploring only | Usually nothing in round one; revisit before round two if it advances | Nothing until there is something concrete |
| None | No mention | Nothing |
Nothing in a SourceX license binds the company until it agrees price and terms and signs, so an early conversation is not a commitment bidders must price. When a recapitalization runs alongside the sale, the guide to the dual-track M&A process shows where the license fits on each track.
What process letters mean for advisors who refer clients
Sell-side advisors see the systems list, the data room index and the company's history before anyone else, which makes them well placed to notice records worth licensing. If the timing suits the owner, the introduction is short:
- Raise the idea with the owner in private, never with bidders.
- Put the company forward through the referral form, or give the owner your referral link to apply with at sourcex.si/apply.
- SourceX confirms the baseline, including 50+ full-time employees at peak (contractors excluded) and the rights to license; the who qualifies page has the detail.
- The company prepares its data inventory and negotiates terms with SourceX while you stay focused on the auction; records never pass through your hands.
Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. Rewards are payable only after the buyer pays and SourceX receives its fee, and no reward is guaranteed. If you hold a securities or state license, confirm your own rules on referral compensation and disclose the arrangement to the client. The M&A advisor partner page and the page for professional services M&A advisors cover the program in more detail.
Limits and open questions
Process letters are drafted deal by deal by the advisor and seller's counsel, and conventions differ by deal size, sector and buyer type. Smaller sales sometimes run a single round or a negotiated deal with one buyer, in which case the same disclosure points move into the letter of intent and the purchase agreement. How license proceeds and exclusivity are treated is a negotiation, not a formula, and the copyright point above applies only to the extent the licensed records are copyrighted works. This is general information, not legal, tax or financial advice. Confirm the drafting with your own deal counsel before acting.
Next step
If a current mandate holds years of operational records, run it through the company fit checker before the CIM is drafted, then register as a partner to make the introduction. For why licensees never join the bidder group, see how sell-side buyer lists are built.
- Step 1Share your linkSend your personal link to a company you know.
- Step 2Company appliesThe company applies itself at /apply.
- Step 3Buyer selects and paysThe buyer selects and pays for the data and SourceX receives its fee.
- Step 4You get your rewardYour share of SourceX fees becomes payable.
Common questions
Is an M&A process letter legally binding?
Generally not as to the sale itself. Process letters usually state that they are not an offer, that the seller may change the process or reject any bid, and that no obligation exists until a definitive agreement is signed. Confidentiality obligations come from the separate agreement each bidder signed, which the letter typically references.
Who drafts the process letter?
The sell-side advisor usually drafts it, with the seller's deal counsel reviewing the conduct rules, the no-obligation language and the instructions for marking up the purchase agreement. The seller approves the timetable and any statements about the business, including how a data license or other material contract is described.
How long do bidders get to respond to a first-round letter?
Long enough to read the CIM, build a model and obtain internal approval, which commonly means a few weeks. The advisor sets the date based on the size of the business, the bidder mix and holiday periods. Sponsors with fixed committee calendars may ask for extensions, so decide in advance whether you will grant them.
What is the difference between an IOI and an LOI?
An indication of interest answers the first-round letter with a non-binding price range and key assumptions, usually from many bidders. A letter of intent comes later, typically from the chosen bidder, and sets out price, structure and main terms in more detail, often with an exclusivity period. Most LOI terms are non-binding, though exclusivity and confidentiality provisions usually are binding.
Should a company pause data license talks during a sale process?
Not necessarily, but the decision belongs to the seller with the advisor and deal counsel. Some sellers finish the license before launch so bidders see a signed agreement; others pause until after closing so the acquirer decides. What causes trouble is running it quietly in parallel and disclosing it late.
Related pages
- How to evaluate indications of interest beyond the headline price
- How a dual-track M&A process works, and where a data license fits as a third track
- Which US businesses are a fit for a SourceX data licensing introduction
- Referral opportunities for M&A advisors
- Referral playbook for M&A advisors who sell consulting and professional services firms
- Check Company Fit for Data Licensing
Free resources
- PDF bank statement to CSV converter — Turn Chase, Bank of America or Wells Fargo PDF statements into CSV, privately in your browser.
- Client data licensing eligibility checker — A transparent preliminary screen for one company.
- Enterprise value calculator — Enterprise value from equity value, debt and cash.
- All free tools · MCP resource center
By SourceX Partnerships Team · Published 2026-10-09 · Updated 2026-10-09
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