7 - Mergers and acquisitions in IPO markets: Evidence from Germany

Abstract

This chapter analyzes empirically the determinants of mergers in the high technology and knowledge-based sector. Using a unique dataset of 285 listed German companies that conducted their IPOs from March 1997 to March 2001, the chapter analyzes empirically whether and how the takeovers in the technology sector could be explained by firm characteristics. The results show that the likelihood of being taken over within three years after IPO is significantly affected by the percentage of shares held by the initial owners at IPO. The results also show that, in contrast to earlier studies, firm characteristics such as age, the market-to-book value, or the market value of assets do not significantly affect the likelihood of being a takeover target. This study adds to previous research about the determinants of newly public firms' acquisition by providing evidence that the identity of the controlling initial owners—and thus the corporate governance structure of firms—affects the likelihood of acquisitions after IPO. Initial owners, such as venture capitalists, managers, banks, or corporations, behave differently after the firm goes public owing to their different objective functions. The lack of significant influence of firm characteristics on the likelihood of acquisitions, as found in earlier studies, may suggest that the motive for acquisitions of newly public firms may differ from that behind other acquisitions.