Going Public to Acquire: The Acquisition Motive for IPOs

Abstract

This paper demonstrates that the desire for making acquisitions is a primary consideration underlying the decision of companies to go public. Using a sample of IPOs from 1994-2004, we show that newly public firms make acquisitions at a torrid pace. This acquisition activity is fueled both through the initial proceeds from the IPO but also through the use of an acquisition currency that is used to raise capital for both cash and stock financed acquisitions. Acquisitions play a more significant role in the growth of newly public firms than internal investment through R&D and CAPEX.

Keywords: IPOs, Mergers and Acquisitons

JEL Classification: G32, G34