New BYU Study Underscores the Value of a "Dual-track" IPO/M&A approach

August 20, 2010

Earlier in 2010, Stikeman Elliott posted to their Securities blog, the article “M&A transaction or IPO: Why not pursue both?” in which Stikeman Elliott M&A partner Curtis A. Cusinato discussed the advantages of “dual-track” IPO/M&A processes. Dual-tracking is an increasingly popular strategic alternative involving the simultaneous pursuit of both an initial public offering and a negotiated or controlled auction sale process.

Readers with an interest in this approach (the feedback we’ve received suggests that there are many) will also be interested in a recent article authored by Jim Brau of Brigham Young University’s Marriott School of Management. Professor Brau and two colleagues analyzed 679 recent take-overs, finding that companies sold off in the course of a dual-track process realized 22-26% premiums over companies acquired without a concurrent IPO. Even more interesting, and somewhat surprising, was the BYU study’s additional finding that this premium significantly exceeded the premium realized when a sale followed within 12 months of a completed IPO. In other words, where a dual-track process is underway, a bid received in response to the initiation of an IPO will on average be superior to a bid received after the IPO has been completed.

The article, “Dual-track versus single-track sell-outs: An empirical analysis of competing harvest strategies“, was published in the Journal of Business Venturing 25:4 (July 2010). A summary is available on the BYU website. Although this study was based on U.S. companies, the results of the study are, in our view, equally applicable to the Canadian marketplace.

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