The Day Ahead: IPO Today, Acquired Tomorrow?

Abstract

We study the double exit phenomenon—new IPO firms get acquired quickly in the M & A market. In this paper, we attempt to discern the distinct characteristics of new public firms that made them acquired soon after their IPOs. Specifically we find that double exit firms are those backed by venture capital. Double exit firms generally have prestigious investment banks underwrite their IPOs. High technology firms are more likely to be taken over soon after their IPOs. Also, double exit firms have higher level of intangible assets. We suggest that IPO may play an important role in firms’ following acquisition incidence. First, IPO helps to reduce ex ante transaction costs between firms and financial markets, such as raising external capitals. Second, IPOs wink signals concerning the quality of the firm.