Dual track sell-out: Signaling through IPO and Underpricing

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Recent empirical analyses suggest the existence of a new exit strategy for private companies’ owners: the dual track sell-out. This paper aims to understand whether this strategy involves signals and why some firms undertake it more than others. I build a model depicting how going public and underpricing arise also as a response to asymmetric information. Target firms and market’s characteristics influence both signaling choices in equilibrium and conditions under which going public costs are offset by its benefits. It is shown that signaling plays a relevant role, answering why most firms dual tracking are characterized by valuation uncertainty.