M&A Disclosure in the IPO Prospectus

In this essay, I will focus on disclosure regulation in the context of initial public offerings (IPO). In the U.S., firms that intend to go public must file a registration statement with the SEC and disclose a significant amount of financial and non-financial information in the final prospectus, also referred to as Form S-1. Specifically, the essay will focus on the disclosure provided by IPO firms that have recently undertaken an M&A transaction. M&A are often highly value-relevant deals that may affect firms’ long-term performance. In fact, several studies in the field of M&A document that firms that have undertaken such a deal tend to underperform in the long-term. For this reason, it is interesting to observe how firms behave in terms of their disclosure choices regarding recent M&A transactions, which are events that can potentially impact investors’ valuation of the IPO firm. First, I will provide an overview of initial public offerings, the motivations behind the decision to go public and the associated costs, the players involved, and the required disclosure. I will then discuss a selection of studies that have analyzed the relationship between firms’ disclosure choices in the prospectus and the IPO’s pricing. Second, I will delve into the topic of M&A and discuss studies that have investigated the performance of M&A firms. Then, I will provide an overview of the literature that has analyzed the disclosure choices of M&A firms and the impact of these choices on market efficiency. Finally, I will provide a series of case studies which illustrate how disclosure behavior may differ from firm to firm in the context of pre-IPO M&A and mere reorganization transactions.