What Is a Tender?
Let me explain what a tender really means in the world of business and finance. Typically, tendering is the process where governments and financial institutions put out invitations for bids on large projects, and you have to submit those bids by a strict deadline. But the term 'tender' can also mean accepting a formal offer, like in a takeover bid where shareholders hand over their shares in response to an offer.
Key Takeaways on Tenders
Here's what you need to know at a glance. A tender is essentially governments and institutions inviting bids for projects. A tender offer is a public call to shareholders to sell their stock at a set price within a time frame. Requests for tender are formal invites for suppliers to bid on providing materials, products, or services. The term also covers shareholders submitting shares during takeovers. Plus, large investors buy government securities via competitive tenders, while smaller ones use non-competitive processes.
How a Tender Works
As I see it, a tender in business is an invitation from governments or other entities for you to submit a bid on contracts. Most organizations have a clear tender process for their projects or procurements, including rules for opening, evaluating, and selecting vendors to keep everything fair and transparent.
A request for tender is a structured invite for suppliers to offer competitive bids on raw materials, products, or services. Since this is public, laws exist to prevent issues like bribery or nepotism and promote fair competition.
You can find tender services that help potential bidders by crafting bids, managing deadlines, and ensuring legal compliance, drawing from both private and public sources.
Keep in mind, in the private sector, these are often called requests for proposals (RFPs), letting bidders address the issuer's specific needs.
Tender vs. Tender Offer
Don't mix up 'tender' with 'tender offer'—they're related but different. A tender offer is a public request to all shareholders to sell their stock at a specific price over a certain period, often above market value to encourage participation. In the U.S., these are heavily regulated.
For instance, Dell closed a tender offer in December 2021 to buy back its securities, funded by cash and proceeds from selling senior notes. This approach targets shareholders directly, bypassing management unless they're major holders.
If an acquirer already holds a significant stake, they might just need a minority of remaining shares to gain control. If shares aren't tendered by the deadline, the deal often falls through, giving shareholders veto power.
Competitive Tender vs. Non-Competitive Tender
When it comes to government securities, there are two main ways to buy them: competitive and non-competitive tenders. Governments sell things like Treasury bonds, bills, and notes to fund operations, with buyers ranging from individuals to big institutions getting repayment plus interest at maturity.
In a competitive tender, large institutional investors bid in an auction, and the highest bidder wins at their price. For non-competitive tenders, smaller investors buy at the price set by those big bidders, which establishes the fair market value.
Examples of Tender
Many U.S. business owners aim to grow by becoming government contractors at federal, state, or local levels. They bid on providing goods or services to agencies like the Defense Contract Management Agency, Department of Energy, Department of Education, Department of Health and Human Services, and Department of Homeland Security.
To win, businesses submit proposals and quotes in response to invitations to tender, also known as calls for bids. The federal government maintains a searchable database of opportunities, including pre-solicitation, solicitation, and award notices, to match your offerings with open contracts.
Common Questions About Tenders
What does tender mean in business and finance? It usually means inviting bids for projects, often large ones from governments or institutions, or accepting a formal offer like a takeover bid where shareholders submit shares.
What are some examples of tendering? Think of contractors bidding to work with government agencies like the Department of Energy or Homeland Security, submitting cost-based proposals for required work.
What are the steps in the tender process? It starts with a call for submissions, followed by bid submission, selection, and contract formation, leading to project completion.
What's the difference between tender and tender offer? Tender is inviting bids for projects, while a tender offer is a company's or third party's bid to buy shares from shareholders, or even repurchasing debt securities.
The Bottom Line
Tender is a versatile term in business, finance, and investing. In business, it's about governments inviting vendors to bid on projects or services. For government securities like U.S. Treasuries, it's the bidding process for purchases. In stock buybacks, it's a corporation's offer to repurchase shares. Other variations include short tender and hedged tender, but the core idea revolves around structured invitations and bids.
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