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Access to capital
A serial acquirer needs plenty of capital on good terms. Public companies, especially those that do well, tend to have access to more debt and cheaper debt, and it is easier to raise equity when an opportunity appears, especially at a big scale. A few AI companies are now defying what looked reasonable in private markets, but for most companies the private market has a ceiling.
Timing the listing
Timing matters. A company that goes public after leaving a lot of growth on the table for two years has waited too long. The right moment is when not being public is not a problem yet, and Bending Spoons went public a bit early on purpose.
Stock as a tool
Public stock brings other tools. A buyer can issue equity to a seller as payment in a way that avoids immediate tax consequences, which some sellers like. A private company can try this, but people generally do not want illiquid equity, and it is harder to use without a discount. Buybacks are easier too. Bending Spoons has not done any in recent years, yet a day will probably come when the stock is stupidly cheap and a buyback is more appealing than the next acquisition.
Why do public companies borrow more cheaply?
Public companies must file audited financial reports on a regular schedule, which gives lenders more information and lowers the risk they price in. Their shares also trade every day, so lenders can see what the market thinks the company is worth. Rating agencies assign public debt a grade that buyers can compare across thousands of borrowers. Lower risk for the lender means a lower interest rate for the borrower.
How does paying with stock affect sellers' taxes?
In the United States, certain stock-for-stock acquisitions qualify as tax-deferred reorganizations under Section 368 of the Internal Revenue Code. The sellers receive shares instead of cash, so no tax is due at the closing, and tax comes later when they sell the shares. Rules differ in other countries.
Why do buybacks matter when a stock is cheap?
A buyback reduces the number of shares outstanding, so each remaining share claims a larger slice of the company. If the stock trades below the business's underlying value, repurchasing it is like buying the business at a discount. In the United States, Rule 10b-18 of the Securities and Exchange Commission, adopted in 1982, gives companies a safe harbor when they repurchase their own shares.
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