M&A Vocabulary – Understanding the Experts: Dual-Track Process – Two Paths, One target

M&A vs. IPO

As the name suggests, the term “dual-track process” describes a two-pronged transaction planning strategy.

When a shareholder envisions an exit from a company or requires new capital and seeks investors, they face a fundamental decision: either sell their equity stake (in whole or in part) to an investor (M&A track) or – given sufficient size and capital market readiness – venture onto the stock exchange, known as an Initial Public Offering (IPO track).

Parallel Preparation of Company Sale and IPO

In a dual-track process, the choice between the M&A and IPO track is not made in advance; instead, both exit paths are prepared in parallel until a final decision is reached. The target is to use this two-pronged process and keep both strategic options open to ultimately select the track that offers the most attractive conditions for the company and the shareholder.

Both tracks run parallel to each other under continuous evaluation – from the preparation phase to market and investor outreach and the due diligence process, through to the creation and coordination of transaction and IPO documentation, and the final phase shortly before the IPO or the signing of the purchase agreement.

Both tracks are continuously compared with one another. The achievable valuations are not the only decisive factor. Factors such as transaction certainty, speed, long-term strategic perspectives, remaining participation opportunities in the company, and the current situation on the capital markets also play an important role.

The final decision on whether to pursue the M&A or IPO track is made only when the achievable purchase price in a sale can be quantified and the Business Valuation realizable through an IPO can be estimated with sufficient specificity.

Opportunities and Risks of the Dual-Track Process

The dual-track process places high demands on those involved, as two complex transactions must be prepared simultaneously. This requires a high commitment of resources and consequently leads to higher advisory costs. However, synergies can be leveraged during the preparation and creation of the transaction documentation.

Another challenge is the requirement for process management. This particularly concerns confidentiality, which plays a significant role in the M&A track, while an IPO involves increased public exposure. Additionally, there are different regulatory requirements and varying valuation approaches.

By taking a two-pronged approach, the dual-track process creates additional flexibility in the decision-making process and contributes to optimizing sale proceeds. By deliberately keeping the choice of track open, negotiating positions are strengthened and potential risks of the respective alternatives can be managed as effectively as possible. The dual-track process can also fuel competition among potential investors, thereby increasing the probability of a sale and the chance of higher sale proceeds. It is possible to decide according to current market conditions and choose the more advantageous path for the company and the shareholder; in particular, risk minimization regarding market volatility is possible. Thus, the shareholder can flexibly opt for the M&A track, especially in the case of volatile capital markets or changed macroeconomic conditions that influence the capital market.

When the Effort Is Worthwhile

A dual-track process is particularly useful when both an IPO and an M&A deal represent realistic, viable, and attractive options, and the shareholders are willing to bear the higher organizational and financial costs. Although the dual-track process requires additional resources and complex, careful project management, the simultaneous preparation of the M&A and IPO tracks can significantly increase the valuation, negotiating position, and flexibility, while optimally shaping the timing and form of the transaction. If successful, this increases the chance of realizing the most attractive exit for the company and the shareholder.

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M&A Vocabularies