Mergers and Acquisitions: The Impact of Hiring Financial Advisors on Acquirer Shareholder Wealth in the US and UK Financial Services Sector

We document the impact of financial advisors in the announcement returns of M&A deals for the UK and the US financial services sectors. Our sample includes 1438 M&A deals announced during the period January 1999 to January 2010. The acquirer in these deals is a UK or US public listed firm in the financial sector, but there are no restrictions for the country of origin, the sector, or the listing status for the target firms. We provide some contrary evidence to prior studies that documented a positive relationship between various measures of financial advisor quality and M&A returns. Our results show that acquiring firms performing in-house M&As, rather than hiring financial advisors, have consistently achieved higher abnormal returns. Furthermore, acquiring firms hiring top-tier advisors within our sample achieve lower abnormal returns than the acquirers hiring lower-tier advisors. In addition, acquiring firms hiring top-tier advisors achieve low (negative) returns in M&As where targets are publicly listed. However, consistent with prior research, our findings suggest that top-tier advisors are able to achieve the highest deal completion rates amongst any other tier of advisors and commanded the highest fees. The question thus also revolves around not only whether financial advisors add value but rather whether their added value and knowledge also seem to be compensated by the huge sums of money they get paid. Achieving higher returns will be a justification of financial advisory excellence and higher premium fees. Overall, returns around the M&A announcement in this sector are perceived pessimistically. Our results also imply that financial advisors are not equally important across all deal types. Top-tier advisors perform much more complex deals which are on average at least ten times larger in size than any other M&A deal.