The Interplay of IPO and M&A Markets: The Many Ways One Affects the Other

Abstract

This article examines the interactions of initial public offerings (IPOs) and mergers and acquisitions (M&As), in contrast with the common approach of studying them in isolation. Of the many motivations to conduct an IPO (e.g., fundraising, access to capital, increased liquidity, publicity), several of them clearly relate to takeover activities. A few theoretical and empirical studies consider, for example, trade-offs between IPOs and M&As as exit options, dual-track strategies, or the role of IPO firms in M&As. However, a complete, integrated perspective on their mutual relations does not exist. To close this gap, this article reviews the literature in order to paint a complete picture of the many ways that one market affects the other, according to three key forms of interaction: (1) IPO and M&A markets interact when entrepreneurs and early investors from private firms decide to liquidate and cash out of their investments. They can exit through an IPO, or they might seek an acquisition by another firm (e.g., sellout to a strategic acquirer, private equity fund, or another financial investor); (2) after a company becomes listed, some firms become takeover targets, and a substantial fraction of IPO firms also participate actively in the M&A market as acquirers; (3) between the IPO and M&A markets, one of them can be used to exert pressure on the other.

Publication
In: Douglas Cumming and Sofia Johan (eds.), ‘Oxford Handbook on IPOs’, Oxford University Press
Date
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