In April 2026, SpaceX announced an agreement giving it the right to acquire the AI coding company Cursor for $60 billion in SpaceX stock after SpaceX went public. If that stock transaction did not occur, the agreement called for a $10 billion breakup fee, payable in cash. The stock was the point. What did the IPO allow SpaceX to do that remaining private would not? The answer highlights a crucial role of public equity. Going public does not simply allow firms to raise capital. It also creates a new acquisition currency.
The SpaceX agreement is unusual in size but not in kind. Corporate executives have long described acquisition currency as one of the main reasons firms go public. The logic is simple. Before an IPO, a firm’s shares are hard to value and harder to sell. After an IPO, those same shares trade in a public market at a price. Yet despite decades of research on IPOs and mergers, there is not much evidence on what happens when firms obtain this new currency. Do newly public companies simply make more acquisitions because they have more cash? Or does publicly traded equity change which acquisitions become possible, how they are paid for, and who ultimately bears the risk?
The Experiment
These questions are tricky because firms that complete IPOs differ systematically from firms that withdraw them. Companies that successfully go public tend to have stronger growth prospects and greater appetite for expansion. So simply comparing firms that go public with firms that stay private is not a fair test. In a new paper, we study more than 6,000 U.S. IPO registrations between 1990 and 2024 and make use of fluctuations in industry-level stock returns while firms are waiting to complete their IPO. A firm that files just before its industry rallies tends to complete the IPO; a firm that files just before its industry dips is more likely to withdraw it. From the filer’s perspective, the market’s mood while it waits is a coin flip. We show that those market movements influence whether a firm ultimately completes the transaction, but they are unrelated to the firm itself and do not affect the acquisition activity of firms that are already public. This research design lets us isolate the causal effects of going public.
Spend the Stock, Conserve the Cash
Our first finding is that going public causes acquisition activity to spike. Completing an IPO increases the probability of making an acquisition by roughly 12 percentage points per year. Among firms that withdraw their IPO filings, the probability of making an acquisition in any given year is only about 2 percent. Among firms that complete an IPO, it rises to roughly 15 percent.
Our second finding identifies the means. Nearly three-quarters of the additional acquisitions are paid at least partly in stock. Part of that response is mechanical, since a private firm cannot pay with listed shares. The more informative result is what happens on the cash side. An IPO delivers a median $53 million in proceeds along with increased access to public capital markets. Indeed, days after its IPO, SpaceX secured its first-ever investment-grade credit ratings from all three major rating agencies. If going public matters for dealmaking mainly by relaxing financial constraints, acquisitions paid entirely in cash should also surge. They barely move at all. Firms spend the new currency and conserve the new cash.
What the Currency Buys
Newly public firms use the new currency primarily to acquire private companies operating in their own industries. Public stock is most useful as payment in these transactions. Owners of private businesses often have no other route to liquidity, and a share with a transparent market price is far easier to accept than a private one.
These stock-paid acquisitions also appear to be lower in quality. Among the newly public firms we studied, those that paid in stock underperformed those that paid in cash by 20 to 30 percentage points over the following three to five years and were 50 percent more likely to be delisted for poor performance. Moreover, the same hot-market conditions that tip marginal firms into going public also predict weaker long-run returns for their stock. These patterns support a long-standing hypothesis in finance: When equity becomes highly valued, firms have an incentive to swap it for real assets.
The firms that appear most valuable after going public are also the firms whose insiders sell the largest fraction of their holdings in subsequent years, and institutional investors (including both active and passive funds) end up holding more shares. Put differently, a higher valuation at the transition from private to public alters not only how acquisitions are paid for but also who ultimately bears the risks and reaps the rewards.
Why It Matters
These findings suggest that IPOs should be understood as more than purely rational financing events. By creating a liquid acquisition currency, public markets expand the set of transactions firms can undertake, and in hot markets firms are especially prone to use that new currency to make acquisitions.
Two implications follow, and both apply directly to the marginal firms that hot-market conditions tip into listing. First, regulations or fast-track index inclusion rules that ease the path to going public also enlarge the pool of newly liquid equity. That new equity is disproportionately used to buy real assets, often private firms in related lines of business. Second, our study flags the types of deals that are most likely to underperform and leave the acquirer’s institutional shareholders holding the losses: an acquisition of a related private firm, paid in stock, by a firm that went public in a hot market. A deal, in other words, much like SpaceX’s purchase of Cursor.
Davidson Heath is an associate professor at the University of Utah’s Eccles School of Business, and Christopher Mace is an assistance professor at Kansas State University. This post is based on their recent paper, “Stock as Currency,” available here.