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: If you're a founder thinking about selling your company, the single biggest question is how to get the highest price. And the most talked-about tactic right now is the dual-track auction. Luna: Dual-track meaning you run two parallel sale processes at the same time — one aimed at a strategic buyer, one aimed at a financial buyer like private equity. Lucas: Exactly. And the theory is simple: competition drives price up. But the execution is surprisingly delicate. Let's use a real example — a mid-market software company that ran a dual-track process earlier this year. We'll call it TechFlow, though that's not the real name. Luna: Okay. What was the outcome? Lucas: TechFlow was generating about $25 million in EBITDA, growing around 20 percent year-over-year. The founder wanted to exit but didn't want to leave money on the table. So the investment bank advised a dual-track. They approached five strategic buyers — larger software companies that could integrate TechFlow's product — and simultaneously reached out to three private equity firms. Luna: And the bank managed both tracks in secret? I imagine keeping them separate is tricky. Lucas: It's all about information control. The bank shares a detailed CIM — confidential information memorandum — with both groups. But they hold separate data rooms. Strategic buyers might see customer concentration or product roadmap details that PE firms don't get, because the PE firm might be a future competitor. Luna: Right. And the timing has to be tight, doesn't it? You don't want one track to stall while the other races ahead. Lucas: Exactly. The typical timeline is about 12 to 16 weeks. First four weeks are outreach and NDA signings. Then weeks five through eight are management presentations and Q&A. By week ten, you want initial indications of interest — non-binding, but with a price range. Then weeks twelve to fourteen are final bids and exclusivity. Luna: And the competition is supposed to push both sides to their best price. But does it actually work? I've heard stories where the dual-track backfires. Lucas: It can. The biggest risk is that one track drops out early, and then the remaining buyer knows they have less competition. If the strategic buyer gets cold feet, the PE firm might lower their bid. But in TechFlow's case, it worked beautifully. Luna: What was the final number? Lucas: The company sold for $210 million — about 8.4 times EBITDA. The initial indications from strategics were around 7 times, and from PE around 7.5 times. By the final round, a strategic buyer came in at 8.4 times, and a PE firm matched at 8.3. The strategic won. Luna: So the premium was roughly 12 to 20 percent above what a single-track process might have yielded. That's significant. Lucas: It is. And the reason is simple: strategic buyers can often pay more because they see synergies — a combined product, cross-sell opportunities, cost savings. PE firms are limited by their fund's return targets. But when PE knows a strategic is in the room, they'll push their own numbers higher. Luna: But the strategic also knows the PE is there. That tension is what drives the price. Lucas: Right. And the bank's job is to manage that tension carefully. You don't want to reveal specific bids, but you can signal that there's strong interest from 'multiple parties of different types'. That's enough to create urgency. Luna: Are there certain industries where dual-track works better than others? Lucas: Generally, it works best in fragmented industries with many potential acquirers — software, healthcare services, business services. If there are only two or three possible buyers total, the auction dynamic is weaker. And if the company is highly specialized, strategics might see it as a must-have, giving them more leverage. Luna: What about the cost? I imagine running two parallel processes isn't cheap. Lucas: Bank fees are typically higher — maybe 2 to 3 percent of the deal value instead of 1.5. And you need more management time for presentations. But if the price bump is 15 percent on a $200 million deal, that's an extra $30 million. The fees are a rounding error. Luna: So the founder walks away with a lot more. But there's also the risk of leakage — information getting out and hurting the business if the deal falls through. Lucas: That's real. If customers hear you're for sale, they might delay contracts. If employees hear, you could lose key talent. That's why confidentiality agreements are strict, and management presentations are kept to a small group. In TechFlow's case, only the CEO and CFO presented, plus the head of product for one session. Luna: Another risk I've heard about: the dual-track can drag on longer than expected, and the business might hit a rough patch during the process, which then lowers the final price. Lucas: That's a real concern. In a single-track deal, you might go exclusive with one buyer quickly and close in 60 days. The dual-track takes longer, so the company has to perform well during that window. If quarterly numbers dip, the buyer might renegotiate. That's why banks often advise sellers to schedule the process right after a strong quarter. Luna: Makes sense. So the dual-track is powerful but not for everyone. What kind of seller should consider it? Lucas: Any founder who thinks they can attract both strategic and financial interest. It's most common for companies with $10 million to $100 million in EBITDA, growing fast, with a clear competitive moat. If you're a niche player that only makes sense for one strategic buyer, dual-track probably won't help. Luna: And if you do decide to go dual-track, what's the single biggest piece of advice? Lucas: Hire an experienced M&A bank. A good bank knows how to pace the process, when to apply pressure, and how to handle the inevitable hiccups. A bad one might let one track leak or fail to create real competition. The bank's reputation can add or subtract millions. Luna: Alright, I think that's a solid walkthrough. Before we wrap up this part, I want to mention something that keeps these conversations going. Lucas: Sure, go ahead. Luna: So, this show is ad-free, and that's on purpose. But it only stays that way if listeners who find value chip in a little. A couple of dollars a month genuinely makes a difference — keeps the lights on, you know. Lucas: Yeah, it's true. If these episodes have ever moved your work forward in some small way, consider tossing a few bucks at buy me a coffee dot com slash fexingo. That's it — no pressure. Luna: Right. And we appreciate everyone who already supports. Now back to the deal mechanics — one thing I find fascinating is the final-hour negotiation. What happens when both tracks produce a final bid on the same day? Lucas: That's where the bank earns its fee. They'll typically ask for best and final offers by a specific time. Then they present both to the seller, along with a recommendation. The board or founder decides. Sometimes they give one buyer a chance to match or beat the other — that's called a 'go-shop' period, though it's more common in single-track deals. Luna: Right. And in dual-track, the final bid is usually binding, with a signed merger agreement. But the loser might walk away with a breakup fee if they've incurred costs. Lucas: Exactly. The deal is usually structured so that if the seller chooses the other track, they pay a small breakup fee to the losing bidder — maybe 2 to 3 percent of the deal value. That's just to cover their due diligence costs. Luna: Overall, the dual-track seems like a smart play for a wide range of companies. Any final thoughts? Lucas: Just that it's not a magic wand. It requires discipline, good timing, and a strong bank. But when it works, it can mean millions more for the seller. And for founders who've built something valuable, that's worth planning for. Luna: Agreed. Thanks, Lucas. That's all for this episode of The Acquisition Talk. Lucas: Thanks, Luna. See you next time.