From IPO to M&A: Further Evidence

Abstract

This study investigates the determinants of mergers and acquisitions (M&A) for firms in the five years following their initial public offerings (IPOs). Specifically, the authors focus on the role of venture capital (VC) and the effect of asymmetric information on the probability of post-IPO M&A. The results indicate that VC reputation positively influences the likelihood that an IPO firm will engage in acquisition. They also find that a high extent of information asymmetry faced by both the acquirer and the target affects the choice of payment in a post-IPO M&A. Furthermore, they find that IPO firms with higher underpricing and proceeds, larger insider ownership dilution, and backed with reputable venture capitalists are more likely to be frequent acquirers after the IPO. Overall, the authors’ new findings confirm that an IPO represents an opportunity for new issuers to become single and even frequent acquirers.

TOPIC: Private equity