Going Public to Acquire? The Acquisition Motive in IPOs

41 Pages Posted: 30 Jun 2008 Last revised: 14 May 2014

See all articles by Ugur Celikyurt

Ugur Celikyurt

Koc University - College of Administrative Sciences and Economics

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance

Anil Shivdasani

University of North Carolina Kenan-Flagler Business School

Date Written: June 30, 2008

Abstract

Using a sample of IPOs from 1994 to 2004, we show that newly public firms make acquisitions at a torrid pace. This acquisition activity is fueled not only through the initial IPO proceeds, but also through the creation of an acquisition currency that is used to raise capital for both cash and stock financed acquisitions and through debt issuance subsequent to the IPO. The IPO allows companies to use potentially overvalued stock to pay for acquisitions, but also facilitates M&A by resolving uncertainty about the true value of the acquiror. We show that acquisitions play as significant a role in the growth of newly public firms as do R&D and CAPEX outlays. The patterns of acquisition activity following an IPO are important in explaining the evolution of ownership structure of newly public firms.

Keywords: IPOs, M&As

JEL Classification: G32, G34

Suggested Citation

Celikyurt, Ugur and Sevilir, Merih and Shivdasani, Anil, Going Public to Acquire? The Acquisition Motive in IPOs (June 30, 2008). Available at SSRN: https://ssrn.com/abstract=1153508 or http://dx.doi.org/10.2139/ssrn.1153508

Ugur Celikyurt

Koc University - College of Administrative Sciences and Economics ( email )

Rumelifeneri Yolu
Sariyer 80910, Istanbul
Turkey

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Anil Shivdasani (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3182 (Phone)
919-962-2068 (Fax)

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