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How an IPO Helps in M&A

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  • Ugur Celikyurt
  • Merih Sevilir
  • Anil Shivdasani

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.

Suggested Citation

  • Ugur Celikyurt & Merih Sevilir & Anil Shivdasani, 2010. "How an IPO Helps in M&A," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(2), pages 94-99, April.
    • Handle: RePEc:bla:jacrfn:v:22:y:2010:i:2:p:94-99
    DOI: 10.1111/j.1745-6622.2010.00278.x
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    References listed on IDEAS

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    1. James C. Brau & Stanley E. Fawcett, 2006. "Initial Public Offerings: An Analysis of Theory and Practice," Journal of Finance, American Finance Association, vol. 61(1), pages 399-436, February.
    2. Luigi Zingales, 1995. "Insider Ownership and the Decision to Go Public," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(3), pages 425-448.
    3. Celikyurt, Ugur & Sevilir, Merih & Shivdasani, Anil, 2010. "Going public to acquire? The acquisition motive in IPOs," Journal of Financial Economics, Elsevier, vol. 96(3), pages 345-363, June.
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    Cited by:

    1. Reddy, K. Srinivasa, 2011. "The aftermarket pricing performance of initial public offers: Insights from India," MPRA Paper 62885, University Library of Munich, Germany, revised 2013.
    2. Mortal, Sandra & Nanda, Vikram & Reisel, Natalia, 2020. "Why do private firms hold less cash than public firms? International evidence on cash holdings and borrowing costs," Journal of Banking & Finance, Elsevier, vol. 113(C).
    3. Khiar, Mohamed Nasrallah & Kooli, Maher, 2024. "Culture and exit mechanisms: International evidence," Global Finance Journal, Elsevier, vol. 61(C).

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