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: Luna, you run a mid-market bakery brand. Someone walks in and says, 'I want to buy your company.' Do you take the offer, or do you call three other people to see if they'll bid higher? Luna: I'm calling three other people — obviously. But I think the more interesting question is: do I call strategic buyers, financial buyers, or both? Lucas: And that's exactly what a dual-track auction is. You run a single sale process, but you court two types of buyers simultaneously — strategic corporates who want synergies, and private equity firms who want financial returns. Each values your business differently, and they don't always agree on the price. Luna: So you're saying the same company gets two different valuations depending on who's buying? That's fascinating. How big does the gap typically get? Lucas: A recent example from the consumer goods space: a premium pet food company — let's call it 'Bark & Co.' — went to market in early 2025. They had about thirty million dollars in revenue, growing thirty percent year-over-year, gross margins of fifty-five percent. Their investment banker ran a dual-track. The strategic bidders — big pet food conglomerates — valued it at around nine times EBITDA, because they could push Bark & Co.'s products through their existing distribution. Private equity, on the other hand, offered closer to twelve times EBITDA, because they believed they could grow the brand further independently and then sell it again in three to five years. Luna: So private equity actually paid more? That's counterintuitive. I always thought strategics would pay a premium because of synergies. Lucas: It's true that strategics can pay more when there are direct cost synergies — layoffs, shared factories, combined sales teams. But in this case, those synergies were modest. Bark & Co. had its own manufacturing line and a loyal direct to consumer base. The conglomerates saw a nice addition, but not a game-changer. Private equity saw a platform — a brand they could roll up with two smaller competitors and IPO in four years. So they bid higher. That's the dual-track advantage: you let the market tell you who values your business most, rather than guessing. Luna: And I assume the deal ended up going private equity? Lucas: It did. The final sale was to a mid-market PE firm at eleven and a half times EBITDA — about one hundred and ten million dollars. The highest strategic bid was at nine and a half times. That's a difference of roughly twenty million dollars, all because they ran both tracks. Luna: That's a compelling argument. But I imagine running two tracks also means two sets of due diligence, two sets of legal work, more management distraction. What's the cost side? Lucas: You're right to ask. The incremental cost is real — maybe two hundred to five hundred thousand dollars in banker fees and legal, plus about three to four months of management time. But if you're a forty-million-dollar EBITDA company, a one-turn multiple difference is worth forty million dollars. That's a huge return on that investment. Luna: Yeah, the math works out. But then you also have the risk of one track falling apart early and the other losing interest because the process looks stalled. How do you manage that? Lucas: That's the 'no-track trap' I mentioned. The trick is the information wall. Your banker keeps both tracks separate but parallel. They might show the strategic buyers a slightly different story — emphasizing growth potential and distribution fit — while showing PE firms a story focused on margin expansion and scalability. Both tracks are primed to think they're the preferred buyer. That tension actually creates momentum. Luna: So you're essentially making each group believe there's competitive pressure from the other side. That's classic auction theory. Lucas: Exactly. And there's a structural tool that makes dual-track work even better: stapled financing. The sell-side banker arranges a debt commitment in advance, so when a PE buyer comes in, they already know they can lever up the deal. That removes a big uncertainty for financial buyers and lets them bid more aggressively. In the Bark & Co. case, the banker provided a stapled financing package of four times EBITDA in senior debt. That gave PE the confidence to offer twelve times. Luna: Strategics don't typically need that, because they use their own balance sheet or cash. So the dual-track really does create two different currencies: strategic synergies vs. financial leverage. Lucas: Precisely. Now, I think the real skill is knowing when to drop a track. You don't want to drag both to the finish line because that wastes time and can create confusion. Usually around the second round of bids, one track will clearly be offering higher multiples or better terms. At that point, the banker focuses on that track and lets the other go cold — but always leaves the door open for a last-minute bid from the other side, just in case. Luna: I've heard stories where a strategic buyer walked away from a dual-track process because they felt the PE firm was being treated as the frontrunner. That has to hurt the seller's negotiating position. Lucas: It can. That's why the banker has to manage the narrative carefully. If a strategic buyer starts to drift, the banker might tell them confidentially that the PE bid is 'full price but not as clean on terms' — implying they'd rather sell to the strategic if the price is close. That re-engages them. It's a game of subtle signals. Luna: So the banker is almost like a diplomat. Let me ask you this: for a smaller indie brand — say five million in revenue — does a dual-track still make sense? Or is it only for larger deals? Lucas: It can work for smaller companies, but the economics get tighter. If the incremental cost is three hundred thousand dollars and your expected valuation is only ten million, that's three percent of deal value. You need to be confident the dual-track will boost the multiple by at least half a turn. For smaller brands, a single-buyer negotiation with a strategic who has clear synergies is often more efficient. But if you have strong growth and good margins, PE firms still get interested — even at five million in revenue. I've seen dual-tracks work for companies as small as three million in EBITDA, but only if the banker is experienced and the business has a defensible niche. Luna: That makes sense. It's like any strategic decision: the expected benefit has to outweigh the cost and complexity. Lucas: Exactly. And I should add that in 2026, the M&A environment is actually favoring sellers who run dual-tracks. Interest rates have stabilized, private equity dry powder is at record levels — something like two and a half trillion dollars — and strategic buyers are under pressure from activist investors to grow through acquisitions. So both groups are motivated. That's a sweet spot for the dual-track approach. Luna: Two and a half trillion? That's staggering. So there's a lot of capital chasing deals. But what about the flip side — sellers who go exclusive with one buyer and end up leaving money on the table? Lucas: It happens all the time. Look at the craft beer space in the 2010s. Many small breweries went exclusive with large beer conglomerates — thinking they'd get great support — only to realize later that PE buyers would have paid two to three times more for their growth runway. The founders got synergy stories instead of premium dollars. Luna: Ouch. So the lesson is: never accept the first offer, and never let one buyer control the process. Lucas: Exactly. Even if you think you know who the natural buyer is, run a dual-track — or at least a pre-emptive process that tests that assumption. The worst that happens is you spend some extra banker time. The best that happens is you add twenty percent to your sale price. Luna: And that's the kind of return that makes a founder's retirement a lot more comfortable. So for listeners who are operators thinking about an exit in the next two years, what's your single actionable takeaway? Lucas: Talk to an investment banker who specializes in your sector and ask them to run a 'blind test' — let them informally approach two or three strategic buyers and two or three PE firms without your name attached. See what range of valuations come back. That costs you almost nothing, and it will tell you whether a dual-track makes sense for your specific business. Luna: That's practical. And if they get a wide range, you know there's a gap to exploit. Lucas: Exactly. And if the range is narrow, you might just negotiate with the highest bidder directly. But at least you'll know. Luna: Alright, I'm convinced. Let's take a quick pause — and actually, before we move on, I want to mention something. If you're getting value from these conversations, and they've helped you think differently about your own business decisions, consider supporting the show. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, it really does make a difference. We keep the show ad-free, and listener support is a big part of that. Anyway, back to the auction mechanics — there's one more twist I want to cover: the 'stalking horse' bid. Luna: A stalking horse — that's the initial bid that sets the floor in a bankruptcy auction, right? But it's also used in dual-tracks? Lucas: Yes, some sellers use a stalking horse privately. You get one buyer to commit early — usually a strategic with strong synergies — and that sets a minimum price. Then you can shop that to PE firms, saying 'We already have an offer at X. Can you beat it?' That gives you both the certainty of a committed buyer and the upside of a competitive process. Luna: Interesting. So the stalking horse provides a floor, and the dual-track provides the ceiling. Lucas: Exactly. And in practice, many mid-market deals use a hybrid: a stalking horse strategic bid, then a limited dual-track with two or three PE firms. That balances speed and price maximization. Luna: I think that's a great place to wrap. Lucas, thanks for walking us through the mechanics. For anyone thinking about selling, this is a playbook worth studying. Lucas: Absolutely. Thanks, Luna.