Case 74 / 183 Expert
🔖 Save

Dual-Track Process: IPO vs. M&A

M&A & Deal Analysis

The prompt

“Running both simultaneously, optionality value, when to pull the trigger”

📋 What you're given

As the lead banker advising a founder-owned company's board on its exit process, you are tasked with explaining why running an IPO preparation track and an M&A sale process in parallel creates optionality value for the seller, and — using the figures below — determining whether the board should sign the M&A offer now or continue toward an IPO listing.

1. Task Overview

Task: explain why a dual-track process is more valuable to a seller than committing to either an IPO or an M&A sale alone, then use the numbers below to decide which path the board should pursue.

Step 1: Given Data — Deal Parameters

The board is evaluating TargetCo's exit options after receiving a signed indicative offer from a strategic buyer.

Line ItemValue
TargetCo LTM EBITDA$150.0m
Strategic Buyer Indicative Offer Multiple9.0x EBITDA
IPO Comparable Multiple Range (public peers)11.0x – 13.0x EBITDA
Estimated Public Market Window Risk15% (0.15)
M&A-Only Process Cost (advisory + legal)$12.0m
IPO-Only Process Cost (underwriting + legal)$30.0m
Incremental Cost of Running Both Tracks in Parallel$20.0m
Board's Minimum Acceptable Net Proceeds$1,400.0m

Step 2: Implied M&A Enterprise Value

Show Implied M&A Enterprise Value Formula

M&A Enterprise Value = LTM EBITDA × Strategic Buyer Multiple

Using this formula, compute the enterprise value implied by the strategic buyer's offer.

Step 3: Implied IPO Enterprise Value (Midpoint)

Show Implied IPO Enterprise Value Formula

IPO Enterprise Value (Midpoint) = LTM EBITDA × [(Low Multiple + High Multiple) / 2]

Using this formula, compute the midpoint enterprise value implied by public market comparables.

Step 4: Risk-Adjusted IPO Value

Show Risk-Adjusted IPO Value Formula

Risk-Adjusted IPO Enterprise Value = IPO Enterprise Value (Midpoint) × (1 − Market Window Risk)

Using this formula, compute the IPO value after discounting for the risk that market conditions deteriorate before listing.

Step 5: Net Proceeds and the Decision

Assume:

  • The M&A-only and IPO-only process costs apply only to the path ultimately chosen
  • The $20.0m incremental dual-track cost has already been spent to keep both options alive and cannot be recovered regardless of which path is chosen

Using these inputs, determine whether the board should sign the M&A offer now or continue toward the IPO.

💡 Model answer

Try answering out loud first — then reveal the model answer and compare.

⚠️ Common mistakes

  • Treating the $20.0m incremental dual-track cost as relevant to the marginal go/no-go decision once it has already been spent — this is a sunk cost and should not influence the choice between the two remaining paths.
  • Comparing the headline M&A multiple directly to the headline IPO multiple without risk-adjusting the IPO value for market window and execution risk.
  • Assuming a signed M&A agreement guarantees certainty of proceeds — MAC clauses, financing conditions, and regulatory approval can still cause a signed deal to fail before closing.
  • Failing to recognize that the M&A bid functions as a valuation floor and negotiating leverage during IPO preparation, not merely as a competing alternative to be discarded.
  • Believing a dual-track process is a costless "free option" — running both workstreams in parallel carries meaningful incremental legal, banker, and management-time costs.

🔁 Follow-up questions

➡️ Related cases

Case 57 What Is M&A and Why Do Companies Do It? Case 41 Precedent Transactions Case 48 How PE Thinks About Valuation Case 65 MAC Clause and Deal Closing Risk
← Previous Case 73: MAC in Volatile Markets

⭐ Rate this case

– 0 ratings

💬 Comments (0)

No comments yet — be the first to ask a question.

Part of a 183-case learning path. Create a free account to save progress & unlock follow-up answers.
Create free account