The influence of initial sponsor backing on post-IPO acquisition activity

Abstract

We investigate the impact of financial sponsor backing [venture capital (VC) or private equity (PE)] on post-initial public offerings (IPO) acquisition strategies of newly public companies. We find that PE-backed newly public firms undertake nearly three times more acquisitions than VC-backed ones and almost twice as many as non-backed firms, indicating that acquisitions are a primary growth strategy for PEs. This result remains robust after addressing potential endogeneity concerns. Additionally, PE syndicate-backed firms engage in transformative acquisitions, proxied by size, while VC-backed firms prioritise organic growth through R&D spending. Moreover, PE-backed acquirers experience significant positive long-run post-IPO stock returns, unlike VC-backed acquirers.