Nomalia Manna, ’21

Can some specific investment banks provide an information advantage to targets in M&A deals? Does this advantage provide the targets better deal outcomes?

When targets hire financial advisors, they can be strategic about who can provide information advantage or can help them gain negotiation power. My research finds that targets of serial acquirers use the financial advisor of a previous target of the same acquirer. For example, when Cardinal Health acquired Bindley Western, Bindley hired Salomon Smith Barney as their financial advisor. Salomon was also appointed as the financial advisor by Syncor International Corp. when they got acquired by Cardinal Health. I find that when targets hire these “repeated advisors,” they gain higher returns and deals are completed faster. On the other hand, serial acquirers suffer lower returns. These findings suggest that “repeated advisors” have an information advantage that gives the targets better bargaining power.

My research suggests that, apart from reputation and market power, firms also prefer advisors who can transfer information and provide bargaining power. It also provides another potential explanation of why serial acquirers perform poorly, especially in their later deals.