Going public to pursue acquisitions

The unique characteristics of newly public firms may motivate acquisitions and cause a unique market perception and performance following these acquisitions. For a sample of more than 400 acquisitions that were made within a year of the IPO, we find that newly public firms experience favorable valuation effects following announcements of their acquisitions. Firms are more likely to finance using stock and the valuation effects are less favorable during the Internet bubble and when venture capitalists are present. Finally, long-term performance following the acquisitions is not different than newly public firms that do not make acquisitions, suggesting that the expected benefits at the time of the announcement do not materialize.