How an IPO Helps in M&A |
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| Authors: | Ugur Celikyurt Merih Sevilir Anil Shivdasani |
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| Affiliation: | 1. Assistant Professor at Koç University in Istanbul, and can be reached at ucelikyurt@ku.edu.tr;2. Associate Professor at Indiana University, and can be reached at msevilir@indiana.edu;3. Distinguished Professor at the University of North Carolina, and can be reached at anil.shivdasani@unc.edu. |
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| Abstract: | An initial public offering (IPO) can often provide a powerful stimulus to private companies seeking to pursue an acquisition-driven growth strategy. Based on a comprehensive analysis of U.S. IPOs, the authors show that newly public companies are prolific acquirers. Over 30% of companies conducting an IPO make at least one acquisition in their IPO year, and the typical IPO firm makes about four acquisitions during its first five years as a public company. IPOs facilitate M&A not only by providing infusions of capital but also by creating ongoing access to equity and debt markets for cash-financed deals. In addition, IPOs create an acquisition currency that can prove valuable in stock-financed deals when the shares are attractively priced. The authors also argue that IPOs improve the ability of companies to conduct M&A by resolving some of the valuation uncertainty facing privately held companies. |
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