Common Advisors in Mergers and Acquisitions: Determinants and Consequences

Abstract

This paper examines the determinants of merging firms’ choice of a common or separate M&A advisor, and the consequences of this choice on several deal outcomes. We analyze a large sample of acquisitions and account for the endogenous choice of common or separate advisors. We find that common advisors are generally chosen in economically sensible ways. After controlling for other variables, deals with common advisors take longer to complete and provide lower premiums to targets. We also find some evidence of lower target valuations and higher bidder returns in such deals. While there is no significant difference in overall quality between deals with and deals without common advisors, our evidence that deals with common advisors turn out to be somewhat better for acquirers than for targets favors the conflict of interest hypothesis over the deal improvement hypothesis about the role of common advisors. We find no evidence that merging firms avoided sharing advisors during the 1980s, but strong and growing evidence of such avoidance over the following two decades.