Too many cooks spoil the broth: on the impact of external advisors on mergers and acquisitions

Abstract

Almost 60% of mergers and acquisitions are concluded with the aid of multiple third-party advisors. While there has been work on the impact of advisors, the theoretical and empirical implications of using multiple advisors remain unclear. Using insights from the "cheap talk" literature, we derive hypotheses on the impact of multiple advisors. Expanding upon this, we then consider the moderating impact of advisor reputation/quality and deal timing (in terms of merger wave periods vs. non-merger wave periods), as factors that both the cheap talk and the literature on single advisors highlight as relevant. We test our hypotheses using a sample of 10,544 large US acquisitions, and evaluate the impact of advisors using an event study and abnormal returns. Our results support a value-creating role for single advisors—we find that deals with single advisors create a higher expectation of value-creation—but find little support for the use of multiple advisors. Furthermore, we show that the moderating effect of advisor reputation, and deal timing, are contingent on the number of advisors. In doing so, we make a number of academic and practical contributions to the discussion of advisors in mergers and acquisitions.