Can investors anticipate post-IPO mergers and acquisitions?

Christopher W. Anderson, Jian Huang and Gökhan Torna

Journal of Corporate Finance, 2017, vol. 45, issue C, 496-521

Abstract: Given the frequency and value implications of post-IPO merger and acquisition activity, we investigate empirically whether investors can utilize information based on IPO deal structure to predict merger and acquisition activity among newly public firms. Consistent with the hypothesis that some firms conduct IPOs to facilitate future M&A activity, we find that aspects of IPO deal structure predict whether a newly public firm subsequently becomes a bidder or target. These characteristics include underwriter quality, promotional activity, pricing, proceeds, ownership structure, and issuance activity suggestive of market timing. Investors appear to rely on these observable aspects of a firm's going public process to anticipate the implications of M&A activity for security valuation. Specifically, when newly public firms with IPO deal structures predictive of acquisition activity announce an acquisition their stock returns are indistinguishable from zero. In contrast, abnormal returns to acquisition announcements by unlikely or surprise bidders are positive on average. These results suggest that the going public process has important implications for future M&A activity and valuation.

Keywords: Initial public offerings (IPOs); Mergers and acquisitions (M&A); Deal structure; Merger anticipation (search for similar items in EconPapers)
JEL-codes: G14 G24 G32 G34 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:45:y:2017:i:c:p:496-521

DOI: 10.1016/j.jcorpfin.2017.05.006

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