Latest / The Acquisition Talk with Fexingo: Mergers, Buyouts, and Business Sales for Operators / How Indie Brands Use Dual-Track Auctions to Get Higher Buyout Prices
Transcript
- Lucas: So you're an indie brand founder. You've built something with real traction — maybe a cult skincare line or a niche outdoor gear company — and now a strategic buyer comes calling. Offers you, say, eight times EBITDA. Feels good, right? Luna: I'd probably be tempted to shake hands right there. But I know that's not the end of the story. Lucas: Exactly. Because what if I told you that same buyer might have been willing to pay twelve times EBITDA if you'd run a dual-track auction? That's the gap we're looking at today — the premium indie brands can capture when they create competitive tension between strategic and financial buyers. Luna: And this isn't just hypothetical. You've got real numbers here. Lucas: Yeah. A study from a few years back looked at over a thousand M&A transactions and found that deals using a dual-track process — simultaneously courting both strategic buyers and private equity firms — fetched valuations 15 to 30 percent higher on average compared to single-track sales. We're talking tens of millions for a mid-sized brand. Luna: So how does it actually work? I mean, you're basically running two parallel processes? Lucas: That's the core idea. You prepare a single confidential information memorandum, but you market the company to two distinct groups. On the strategic track, you approach competitors or companies in adjacent spaces who could realize synergies — cost savings, distribution overlap, customer base expansion. On the financial track, you approach private equity firms, family offices, and sometimes even sovereign wealth funds who are looking for a standalone return. Luna: And the magic is that both groups know the other exists. That creates a bidding war dynamic. Lucas: Precisely. Strategics often pay more because they can layer synergies on top of the base cash flows. But they also know that if they drag their feet, a PE firm might swoop in with a clean, no-synergy offer. So they sharpen their pencil. Meanwhile, PE firms understand that if they don't price in some of the upside, they'll lose to a strategic who can justify a higher number. Luna: But isn't this risky? I mean, if you shop the company too aggressively, you might alienate the strategic buyer who was genuinely interested. Lucas: That's the tension. You need a savvy advisor who knows how to manage the process. The key is to keep both tracks alive without letting either side feel like they're being played. Usually, you set a deadline for initial bids, and you share limited information — enough to generate interest, not enough for a full valuation. Then, once you have a shortlist, you run a more formal auction. Luna: Give me a concrete example where this worked beautifully. Lucas: One of the classic cases is the sale of Leica Camera back in the mid-2010s. Leica was a storied brand but had struggled with digital disruption. The majority owner, a private equity firm, decided to sell. They ran a dual-track — approached strategic buyers like Chinese electronics conglomerates and also financial buyers. In the end, a Chinese strategic won with a bid that reportedly valued the company at over 1.5 times what a pure financial buyer would have paid. Luna: And Leica got a partner that could help them expand in Asia. So it wasn't just about price — it was about fit. Lucas: Exactly. The strategic buyer brought access to distribution channels and manufacturing scale that a PE firm couldn't offer. But Leica wouldn't have gotten that premium if they'd just sat down with one buyer. The dual-track forced the strategic to pay up. Luna: What about a case where it backfired? I mean, with the Leica example, it sounds almost too perfect. Lucas: Sure. There's a cautionary tale from the beauty space. A few years back, an indie skincare brand with strong DTC growth hired an investment bank to run a dual-track. They had a strategic interested — a large cosmetics conglomerate — and a couple of mid-market PE firms. But the process leaked. The strategic heard that the PE firms were only offering a lower multiple, so they lowballed their bid, thinking they could pick it up cheap. The founders panicked, accepted a deal that was below their expectations, and later found out the strategic would have paid much more if the PE track hadn't been so weak. Luna: So the dual-track only works if both tracks are credible. If one side is clearly weak, the other side can exploit that. Lucas: Bingo. That's why you need at least two strong, independent bidders on each track. If you only have one serious PE firm and one serious strategic, the strategic can gauge your leverage. The ideal scenario is three or four bidders per track, creating genuine competition. Luna: And the cost has to be worth it. Running two parallel processes means double the management time, double the legal fees, double the banker hours. Lucas: Absolutely. The all-in cost for a mid-market dual-track can run 2 to 4 percent of the deal value, including banker fees, legal, and accounting. So if your company is only worth $20 million, that's $400,000 to $800,000 in costs. You need to be confident the premium will exceed that threshold. Luna: So who should actually consider a dual-track? Is it only for companies above a certain size? Lucas: I'd say the sweet spot is companies with EBITDA between $5 million and $50 million. Below that, the costs as a percentage of deal value get too high, and the buyer universe is often too thin. Above that, well, you're in institutional territory and dual-track is almost standard. But for an indie brand doing, say, $10 million in EBITDA, it's a real option if you have a differentiated product, a loyal customer base, and multiple logical acquirers. Luna: And what about timing? When in the company's lifecycle should you start thinking about this? Lucas: Ideally, at least 12 to 18 months before you want to sell. You need clean financials, a strong management team that can operate without you, and a story that resonates with both strategics and financials. If you're already in distress, dual-track is probably not the right path — you want a quick, clean exit. Luna: So if I'm a founder listening, the takeaway is: don't just take the first offer. Build a process that forces buyers to compete. But only if you have the size and the story to back it up. Lucas: Exactly. And that's the kind of strategic thinking that separates a good exit from a great one. If these conversations have moved your work forward in some small way, consider supporting the show. It's what keeps us ad-free and focused on the details that matter. You can find us at buy me a coffee dot com slash fexingo. Luna: Yeah, and honestly, every bit helps us dig deeper into these topics. Now, back to the auction mechanics — there's one more nuance I want to explore. Lucas: Sure, what's that? Luna: The role of the 'stalking horse' bid. In some dual-track processes, the seller will agree to a lower bid from a financial buyer early on, just to set a floor. Then they use that to pressure strategics to beat it. Lucas: That's a smart tactic. It's common in bankruptcy auctions, but it works in healthy M&A too. The stalking horse gets certain protections — like a break-up fee if they're outbid — but in exchange, they establish a minimum price. For the seller, it removes the risk of ending up with no viable offer. Luna: And it sends a signal to strategics that there's already a credible buyer at the table. So they can't just lowball. Lucas: Right. But you have to be careful. If the stalking horse bid is too low, it might actually anchor the valuation downward. Strategics might think, 'Well, if that's the best a financial buyer can do, maybe the company isn't worth more.' So you need a stalking horse that's credible but not so low that it drags down the whole process. Luna: So the art is in the execution. It's not just a checklist — it's a negotiation dance. Lucas: Exactly. And that's what makes the dual-track such a powerful tool in the right hands. For indie brands looking to maximize their exit, it's worth serious consideration. Just make sure you have the right advisors and the right conditions before you pull the trigger. Luna: Great stuff, Lucas. I think our listeners have a much clearer picture of when and how to use this strategy. Lucas: Thanks, Luna. And to our listeners — if you've got a question about your own exit strategy, drop us a line. We might cover it in a future episode.