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.

Geogra