M&A vs IPO—the dual-track process

M&A vs IPO—the dual-track process

Corporate analysis: Will we see an increase in the number of M&A/IPO dual-track processes in 2015? George Swan, a corporate partner at Freshfields Bruckhaus Deringer LLP, gives an overview of what is involved in the process and the benefits and pitfalls practitioners should consider.

What is a dual-track IPO/M&A process?

A dual-track involves running an M&A sale track alongside an IPO track, so the owner company only has to make a final decision on its preferred exit strategy late in the process.

It is sometimes run simultaneously with a third refinancing track, for example through a high yield bond—this is referred to as a triple-track process.

What are the benefits for owner companies?

Potential benefits include:

  • owner companies can use the IPO markets to flush out potential bidders
  • the process can help maximise exit proceeds by increasing competition on an M&A sale
  • owner companies that want to participate in future profits can maintain some ownership if the IPO track goes ahead
  • there is an increase in transaction certainty for the seller, because owner companies wishing to exit are not entirely reliant on third party bidders
  • owner companies can hedge their bets and leave the final exit decision as late as possible
  • sophisticated sellers can use a triple track to maintain competitive tension in the disposal process independent of equity markets

What are the main challenges in pursuing a dual-track process?

The key challenges are that:

  • although running both tracks simultaneously will produce some synergies, it is more costly and requires a greater use of management bandwidth than a pure sale or IPO process
  • selecting an IPO at the end of the process is unlikely to lead to a full exit
  • the process often takes longer than a pure sale
  • there are additional challenges involved in co-ordinating the tracks and it is harder to target an IPO market ‘window’

Where is the dual track process popular?

In many ways, 2014 has seen the dual-track become the preferred exit strategy, especially for private equity exits.


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About the author:
Jenisa is Head of Market Tracker, a transaction analysis product that sits within Lexis®PSL Corporate. She has over 13 years of legal publishing experience, with a focus on researching and reporting on trends and developments in the corporate and commercial legal market. Previous roles include content developer for Lexis®PSL, Legal Podcaster at Informa, and Research Editor at Practical Law Company where she specialised in reporting on cross-border corporate and commercial developments from the firm’s New York office.