Industry IPOs, growth opportunities, and private target acquisitions

As a result of increased information production and aggregation, acquiring companies may make merger decisions based on valuable information they extract from public markets. This paper examines acquisition decisions, and suggests a novel source of information for industry firms - the IPO market. The results provide evidence that industry IPOs signal the existence of available investment opportunities, in particular about privately-held firms. The proportion of private target acquisitions, stock payments, and acquirer announcement returns significantly correlates with signals derived from industry IPOs. Our results suggest that industry IPOs generate positive externalities by facilitating more efficient acquisition decisions.