The Choice of IPO Versus Takeover: Empirical Evidence
Posted: 30 Aug 2001
Private firm owners interested in gaining increased access to public capital, increasing their liquidity, and/or changing the control of their firms, face a fundamental choice between an initial public offering (IPO) or a takeover by a public acquirer. Using a sample of over 9,500 U.S. privately held firms, we address the IPO versus takeover issue by examining market-timing, industry, deal-specific, and fund demand factors of the IPO versus acquisition choice. Our results show that the concentration of the industry, the high-tech status of the private firm, the current cost of debt, the "hotness" of the IPO market relative to the takeover market, the percentage of insider ownership, and the size of the firm are all positively related to the probability that a firm will conduct an IPO. In contrast, private companies in high market-to-book industries, firms in financial service sectors, firms in highly leveraged industries, and deals involving greater liquidity for selling insiders show a stronger likelihood for takeovers. Finally, a quantitative analysis of the premiums associated with the IPO versus takeover decision provides evidence that a liquidity discount exists in takeovers relative to IPOs.
Keywords: Going public; IPO; Takeover
JEL Classification: G34, G32
Suggested Citation: Suggested Citation