Bank Lenders as Matchmakers? When Acquirers and Targets Share a Common Lender

Abstract

We examine whether M&A transactions between firms sharing a common lender differ in important ways from those without common lenders. Consistent with the idea that banks serve a positive matchmaking role, we find higher abnormal announcement returns for deals in which the bidder and target share a common lender. Additionally, these deals result in reductions in borrowing costs, and are associated with lower investment bank advisory fees. However, evidence suggests a significantly different outcome for acquirer and target shareholders in such deals: The effect of having a common lender is positive (and significant) for bidder announcement returns and negative (but usually not significant) for target announcement returns. As further evidence that targets on average may actually fare worse in such deals, acquisition premiums are significantly lower for deals involving shared creditors. We additionally present evidence that our primary return results are not driven by lenders acting as advisors. Overall, the evidence suggests that bank lenders may indeed serve an important and value-enhancing role in merger transactions, but that their role may not be entirely bias-free.