The Mystique of the Boutiques: The Wealth Effects of Boutique Banks in Mergers and Acquisitions

Abstract

We provide the first comprehensive examination of the impact of the advisory services provided by boutique banks on acquirer returns in U.S. Mergers and Acquisitions (M&As). We show that the autonomy and expertise of boutique banks help acquirers realize significant gains in informationally demanding deals. We find that boutique banks add value to acquirers of large private companies in the short-run. Acquirers of small private companies also benefit from boutique banks, but these wealth effects are only pronounced in the post-announcement period. We attribute the delayed market response to the limited activity of information-driven traders at the time of the announcement of small private deals. We also show that resourceful acquirers recognize the valuable services offered by boutique banks and are more likely to involve them in private target deals. Lastly, we present novel evidence that boutique banks contribute to wealth creation in small public target M&As that are economically consequential for the acquirer. This result emerges only after we address endogeneity concerns by controlling for the acquirer’s quality.