The role of investment banks in M&A transactions: Fees and services (original) (raw)

Do Investment Banks Matter for M&A Returns?

2011

Abstract We document a significant investment bank fixed effect in the announcement returns of M&A deals. The interquartile range of bank fixed effects is 1.26%, compared with a full-sample average return of 0.72%. The results remain significant after controlling for the component of returns attributable to the acquirer. Our findings suggest that investment banks matter for M&A outcomes, and contrast earlier studies that show no positive link between various measures of advisor quality and M&A returns.

Investment bank market share, contingent fee payments, and the performance of acquiring firms

Journal of Financial Economics, 2000

This paper investigates the determinants of the market share of investment banks acting as advisors in mergers and tender offers. In both mergers and tender offers, bank market share is positively related to the contingent fee payments charged by the bank and to the percentage of deals completed in the past by the bank. It is unrelated to the performance of the acquirors advised by the bank in the past. In tender offers, the post-acquisition performance of the acquiror is negatively related to the contingent fee payments charged by the bank, suggesting that the contingent fee structure in tender offers ensures that investment banks focus on completing the deal.

The Role of Bank Advisors in Mergers and Acquisitions

Journal of Money, Credit, and Banking, 2004

This paper looks at the role of both commercial and investment banks in providing merger advisory services. In this area, unlike some areas of investment banking, commercial banks have always been allowed to compete directly with investment banks. In their dual role as lenders and advisors to firms that are the target or the acquirer in a merger, banks can be viewed as serving a certification function. However, banks acting as both lenders and advisors face a potential conflict of interest that may mitigate or offset any certification effect. Overall, we find evidence supporting the certification effect for target firms. In contrast, conflicts of interest appear to dominate the certification effect when banks are advisors to acquirers.

The Banking Relationship's Role in the Choice of the Target's Advisor in Mergers and Acquisitions

European Financial Management, 2010

We analyse the factors influencing the target company's choice of bank advisor in mergers and acquisitions (M&As). We first examine the choice of hiring an advisor, which is nontrivial, since in one-third of transactions our sample target companies did not hire one. We also analyse the choice to hire as advisor a bank with a strong prior relationship with the company (i.e., the main bank). Using data on 473 European M&A transactions completed in the period 1994-2003, we find evidence that the decision to hire an advisor depends on three main factors: (i) the intensity of the previous banking relationship, (ii) the reputation of the bidder company's advisor, and (iii) the complexity of the deal. We also investigate the impact of the bank advisor on shareholder wealth. We find that the abnormal returns of target company shareholders increase with the intensity of the previous banking relationship, thus indicating a 'certification role' on the part of investment banks.

An analysis of advisor choice, fees, and effort in mergers and acquisitions

Review of Financial Economics, 2003

This paper investigates the choice of financial advisors in mergers and acquisitions, the fees that the targets and the acquiring firms pay to these advisors, and the speed with which advisors complete transactions. Our sample includes 5337 merger deals announced during the period January 1995 to June 2000, that involved publicly traded targets and acquirers. We find that top-tier advisors are more likely to complete deals and to complete them in less time than lower tier advisors. However, the synergistic gains realized by the acquirers declined when top advisors were used. We also find that contingent fees play a significant role in expediting the deal completion. Surprisingly, we find that deals that are initiated by the advisors do not seem to take less time to complete. Our results suggest that the payment of larger advisory fees do not play an important role in determining the likelihood of completing the deal, but they are associated with greater acquisition gains realized by the acquirer. In addition, these synergistic gains are also associated with the switching by acquirers of their financial advisors within the same tier. D

The role of investment bankers in M&As: New evidence on Acquirers’ financial conditions

Journal of Banking & Finance, 2018

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Investment Banks as Insiders and the Market for Corporate Control

Social Science Research Network, 2007

We study holdings in M&A targets by financial conglomerates which affiliated investment banks advise the bidders. We show that advisors take positions in the targets before M&A announcements. These stakes are positively related to the probability of observing the bid and to the target premium. We argue that this can be explained in terms of advisors, privy to important information about the deal, investing in the target in the expectation of its price to increase. We document the high profits of this strategy. The advisory stake is positively related to the likelihood of deal completion and to the termination fees. However, these deals are not wealth-creating: there is a negative relation between the advisory stake and the viability of the deal.

Premium, merger fees and the choice of investment banks: A simultaneous analysis

The Quarterly Review of Economics and Finance, 2009

We study the effects of merger-related decisions for 635 U.S. M&A from 1985 to 2004. We find that the target's choice of the investment bank is driven by the earlier choice made by the acquirer. In contrast with prior research, this paper distinguishes between the target and acquirer fees, and shows their independent effects on the level of the merger premium. We confirm the existence of a positive (negative) association between target (acquirer) fees and the level of the premium. Our results confirm the conflict of interests between target and acquirer firms where the investment banks efforts are positively related to shareholders interest. Additionally, this study verifies the endogenous choice of investment banks and provides evidence about the effect of their reputation on the premium. While more reputable acquirer advisors lead to paying a significantly lower premium, which serves the best interest of the acquirer shareholders, employing more prestigious advisors by the target firm results in a surprisingly lower premium.