Are Two Heads Better than One? The Role of Investment Banking Syndicates in M&As

Abstract

We examine the economic rationale for the use of investment banking syndicates in mergers and acquisitions. We find that syndicates are more likely to be hired in more complex transactions and in deals where acquirers have greater demand for external acquisition-related financing. Compared to individual financial advisors, syndicates produce higher abnormal returns, greater synergy gains, and lower takeover premiums in small to medsize transactions. The reverse is, however, true for syndicates advising on mega deals which are associated with more severe coordination and incentive problems. Further analysis indicates that the value destruction of syndicates in mega deals varies by syndicate structure, with the effect stronger among syndicates that face greater challenges to collaborate, i.e., when syndicate members are geographically dispersed, absent prior cooperation experience or are dominated by lower-tier financial advisors.