Does Hiring M&A Advisers Matter for Private Sellers?

Abstract

We examine the determinants of private sellers’ choice of hiring M&A advisers or top-tier advisers and the effects of these choices on deal valuations. Using a novel, hand-collected dataset on the hiring of advisers in a large sample of M&A deals, we find that private sellers appear to make these choices in economically sensible ways. After accounting for this selection effect, we find that private sellers receive significantly higher acquisition premiums when they retain advisers. Among private sellers that hire advisers, hiring top-tier advisers leads to higher acquisition premiums to sellers. We find some evidence that acquirers’ announcement returns are lower in deals where private sellers use advisers. Our findings suggest that the hiring and reputation of M&A advisers improve private sellers’ bargaining power and deal valuations.