Dual-Track Process: IPO vs. M&A

Step 1: Implied M&A Enterprise Value

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

M&A Enterprise Value = $150.0m × 9.0 = $1,350.0m

This is the enterprise value the company can lock in today via a signed, binding agreement. It offers certainty of price and timing, but caps the seller's upside if public market investors would otherwise pay a richer multiple for the same cash flows.

Step 2: Implied IPO Enterprise Value (Midpoint)

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

Where: Low Multiple = 11.0x, High Multiple = 13.0x, so the midpoint multiple = (11.0 + 13.0) / 2 = 12.0x.

Using the midpoint multiple (12.0x) and LTM EBITDA ($150.0m):

IPO Enterprise Value = $150.0m × 12.0 = $1,800.0m

Public market multiples typically sit above a single strategic buyer's offer because IPO investors are buying a liquid, tradeable security with ongoing access to capital markets, while a private acquirer often prices in a discount for illiquidity risk and integration cost. This gap is exactly why boards find the dual-track process attractive: it keeps the higher-value path open without giving it up prematurely.

Step 3: Risk-Adjusted IPO Value

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

Using the IPO midpoint value ($1,800.0m) and the market window risk (15%, or 0.15):

Risk-Adjusted IPO Enterprise Value = $1,800.0m × (1 − 0.15) = $1,800.0m × 0.85 = $1,530.0m

Bankers haircut headline IPO valuations for execution risk because the price is not locked in until the night before trading begins — rate moves, a derating of the comparable set, or a broader risk-off shift between filing and pricing can all erode the number. Risk-adjusting is what makes an IPO valuation comparable to a signed M&A offer, which by contrast is fixed at signing (subject to closing conditions).

Step 4: Net Proceeds Comparison

Net M&A Proceeds = $1,350.0m − $12.0m = $1,338.0m

Net Risk-Adjusted IPO Proceeds = $1,530.0m − $30.0m = $1,500.0m

Note that the $20.0m already spent keeping both tracks alive does not enter this comparison: it is a sunk cost, spent regardless of which path is ultimately chosen, so it has no bearing on the marginal decision between the two remaining paths. Including it would double-count a cost that is identical under both scenarios.

Final Results

• Implied M&A Enterprise Value: $1,350.0m
• Risk-Adjusted IPO Enterprise Value: $1,530.0m
• Net M&A Proceeds: $1,338.0m
• Net Risk-Adjusted IPO Proceeds: $1,500.0m

Since net risk-adjusted IPO proceeds exceed net M&A proceeds by $162.0m even after haircutting for market window risk, and this gap clears the board's $1,400.0m minimum acceptable proceeds threshold either way, the board should continue running the dual-track process rather than signing the M&A offer immediately. The signed M&A bid still serves a purpose: it acts as a valuation floor and negotiating leverage while IPO preparation continues, and the board should be ready to execute the M&A sale if the public market window narrows or the strategic buyer raises its offer to close the gap.

Would you like to explore how this recommendation changes if the market window risk rose from 15% to 35% instead?