Moving from Private to Public Ownership: Selling Out to Public Firms versus Initial Public Offerings

Poulsen, Annette B.; Stegemoller, Mike

doi:10.1111/j.1755-053x.2008.00005.x

Cited by 181 publications

(86 citation statements)

References 50 publications

(67 reference statements)

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“…The difference between the two groups is statistically significant, in line with the prediction that more viable firms tend to prefer the IPO as initial exit mechanism. This is consistent with previous literature, such as Bayar and Chemmanur (2012) and Poulsen and Stegemoller (2008) Finally, the fraction of firms going public after the introduction of SOX-like regulatory changes is lower compared to that of firms being directly acquired (39.6% vs. 46.6%). This suggests that the regulatory tightening might have increased the attractiveness of direct acquisitions relative to IPOs.…”

Section: Univariate Analysissupporting

confidence: 81%

“…Papers in this literature study the IPO versus acquisition of private firms as a one-time choice: see, e.g., Brau, Francis, and Kohers (2003); Poulsen and Stegemoller (2008);and Chemmanur, He, He, and Nandy (2012). Some papers in this literature document that IPOs have a valuation premium over acquisitions, and analyze the source of this valuation premium: see, e.g., Bayar and Chemmanur (2012).…”

Section: Figure 1: Scenarios Faced By a Private Firm At Its Initial Ementioning

confidence: 99%

“…Part of the reason for the above interest is due to the fact that, in recent years, a private firm has been much more likely to be acquired than to go public: see, e.g., Gao, Ritter, and Zhu (2014) who show the significant decline in the number of IPOs in the US over the last decade. Existing empirical analyses of IPOs versus acquisitions treat private firms' exit decisions as a one-time choice between the two (Brau, Francis, and Kohers, 2003;Poulsen and Stegemoller, 2008;Chemmanur, He, He, and Nandy, 2012). However, in reality, a significant proportion of firms (roughly 15% both in the US and Europe) first go public and are then acquired within three years of their IPO.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Two Stage Exits: An Empirical Analysis of the Dynamic Choice between IPOs and Acquisitions by European Private Firms

2014

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A private firm's exit decision has been modeled in the existing empirical literature as a dichotomous choice between IPO and acquisition. In this paper, we take a dynamic approach and analyze how explicitly accounting for dynamic considerations, such as the benefits arising from being acquired after going public at higher valuations relative to a direct acquisition, or the costs arising from being delisted at lower valuations, alters the initial IPO vs. acquisition trade-off. We find that firms that are more viable against product market competition, characterized by larger private benefits of control and lower information asymmetry, are more likely to choose an IPO over a direct acquisition as initial exit mechanism. These firms are also more likely to be acquired post-IPO, while firms characterized by lower product market viability and higher information asymmetry are more likely to be delisted. We document that two-stage acquisitions are a valuable exit route for firms, that are acquired at a 44.7% premium, on average, compared to the valuation they could have obtained in a direct acquisition. On the other hand, firms that are delisted post-IPO suffer from a 31.9% valuation discount relative to a direct acquisition. The valuation premium is higher for firms with more viable business models and affected by lower information asymmetry. Our evidence indicates that explicitly accounting for the benefits and costs arising from post-IPO considerations will tend to push private firms with higher product market viability and lower information asymmetry more towards choosing an IPO rather than an acquisition as initial exit mechanism.

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Section: Univariate Analysissupporting

confidence: 81%

Section: Figure 1: Scenarios Faced By a Private Firm At Its Initial Ementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Two Stage Exits: An Empirical Analysis of the Dynamic Choice between IPOs and Acquisitions by European Private Firms

2014

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“…A third set of explanations relates to the role of firm and product market characteristics, such as growth potential, capital constraints, degree of information asymmetry, and complementarity with the potential acquirer (e.g. Poulsen & Stegemoller, 2008;Bayar & Chemmanur, 2011. Finally, founder characteristics, most notably entrepreneurial preferences for control versus value creation, can play a role.…”

Section: Literaturementioning

confidence: 99%

Entrepreneurial Exits and Innovation

2014

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We examine how IPOs and acquisitions affect entrepreneurial innovation as measured by patent counts and forward patent citations. We construct a firm-year panel dataset of all venture capital-backed biotechnology firms founded between 1980 and 2000, tracked yearly through 2006. We address the possibility of unobserved self-selection into exit mode by using coarsened exact matching (CEM), and in two additional ways: (1) we compare firms that filed for an IPO (or announced a merger) with those who did not complete the transaction for reasons unrelated to innovation, and (2) we use an instrumental variables approach based on the relative level of IPO versus acquisitions market "heat". Our across-and within-mode results are consistent with altered project selection and incentives associated with differing levels of information disclosure to outsiders shaping innovation outcomes. These firm-level results are not explained by an alternative mechanism of inventor-level turnover following exit events.

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“…Having compared the outcomes of each of the two options Poulsen and Stegemoller (2008) concluded, that companies choosing the IPO record higher valuation multiples than those having chosen the acquisition by a public company. This conclusion prompted a discussion over the existence of an extra IPO valuation premium, which suggests that a private company seeking to maximize value for the shareholders should opt for an IPO.…”

Section: Introductionmentioning

confidence: 99%

Analysis of the IPO Valuation Premium Puzzle: the Factor of Information Asymmetry

Osiichuk

2016

Zeszyty Naukowe Uniwersytetu Szczecińskiego Finanse Rynki Finansowe Ubezpieczenia

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Based on existing empirical evidence and the theoretical model developed by Akerlof (1970), the paper offers an explanation of the IPO valuation premium puzzle. When choosing between an IPO and a sellout as possible options of going public, an increasing number of companies prefer the latter despite the fact that the IPO potentially offers higher valuation premiums. The conclusions derived by means of a critical review of the empirical literature suggests that this phenomenon is mainly shaped by the factor of information asymmetry, which prompts the analogy with the 'lemons' market. Akerlof's model helps clarify the IPO valuation premium puzzle, however, some important deviations from the predictions of the normative analysis are observed in practice, which, as demonstrated in the paper, can be explained by the influence of behavioural factors. We postulate that the validity of the theoretical models, which explain the valuation puzzles, hinges upon the assumptions regarding market efficiency and rationality of the market participants. We systematize those assumptions and make conclusions regarding their relevance in case of the phenomenon in question. The paper explains how the market mechanisms, for example, the dual-track IPOs, allow overcoming the problem of information asymmetry and, possibly, eliminating the valuation anomalies.

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Moving from Private to Public Ownership: Selling Out to Public Firms versus Initial Public Offerings

Cited by 181 publications

References 50 publications

Two Stage Exits: An Empirical Analysis of the Dynamic Choice between IPOs and Acquisitions by European Private Firms

Two Stage Exits: An Empirical Analysis of the Dynamic Choice between IPOs and Acquisitions by European Private Firms

Entrepreneurial Exits and Innovation

Analysis of the IPO Valuation Premium Puzzle: the Factor of Information Asymmetry

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