نقش بانک های سرمایه گذاری در ادغام و اکتساب معاملات: هزینه ها و خدمات

We examine the pricing and performance of advisers in M&A transactions. We determine adviser quality on the basis of a contemporaneous market share measure and show that high quality advisers receive higher M&A advisory fees. High quality advisers also complete deals faster, but their superiority is not reflected in increasing the likelihood of deal completion or delivering greater abnormal equity returns to their clients. It is well known that stock bids are received more negatively than cash bids, so we further partition the sample of acquirers by consideration type and examine the abnormal returns of each partition. We find that high quality investment banks are able to differentiate themselves by delivering greater abnormal returns to their acquirer clients in deals involving stock.

The fees that investment banks receive from providing merger and acquisition (M&A) advisory services are large.1 According to the SDC Platinum database, M&A transactions completed in the U.S. during 2003 alone totalled more than $435 billion. Of these, investment banks acted as advisers on deals worth a combined value of $386 billion. The total amount of advisory fees that advisers earned exceeded $596 million, suggesting that investment banks derive a significant amount of income for providing M&A advice. Although advisory fees are of such substantial size, there has been very little research into the factors that determine the level of advisory fees paid. In this paper, we examine the factors that determine the level of fees charged in M&A transactions and further evaluate the performance of M&A advisers. Prior research indicates that fees paid in advisory work may be related to the quality of the advisor. High quality advisers may signal their superiority by charging higher fees in providing M&A advice. Bowers and Miller (1990, p.36) suggest that for investment banks with greater prestige, “the enhanced reputation will differentiate that banker in the marketplace, thereby allowing superior bankers to charge higher fees”. Consequently, this paper evaluates the determinants of M&A advisory fees and further investigates whether high quality advisers receive a premium in providing M&A services. Given that investment banks possess different levels of reputation, we determine whether the performance of advisers differ systematically across different levels of advisers. Here, we focus on the performance of advisers on two key fronts. Consistent with Rau (2000) and Hunter and Jagtiani (2003), we compare advisers of different levels of quality on the basis of their deal completion rates and the time taken to complete deals. High quality advisers should be able to work more effectively than low quality advisers, leading to a successful outcome for deals that have been announced. In addition, deal completion should be faster when a high quality adviser is used because of the adviser's expertise and experience in handling M&A transactions. We further examine the abnormal returns delivered by advisers of different quality to their clients. In theory, any project, including M&A transactions, should only be undertaken if it adds value to the firm. Bowers and Miller (1990, p. 34) posit that “managers should use the same decision criterion in choosing an investment banker as in all other corporate decisions: by evaluating the impact on shareholder wealth”. This makes the stock returns of an adviser's client an important measure of the adviser's performance. As a result, we expect high quality advisers to be able to deliver higher value to their clients. There have only been a few studies investigating the level of advisory fees paid, and the results from these studies have been inconsistent. McLaughlin (1992) provides evidence that, depending on the fee contract type between the adviser and the client in a transaction, lower quality advisers may receive a greater amount of advisory fees than higher quality advisers. However, more recent studies find the opposite result, with the research by Rau (2000) and Hunter and Jagtiani (2003) reporting higher level of fees received by high quality advisers in M&A transactions. Furthermore, earlier studies report that wealth gains are greater in deals involving high quality advisers (Bowers and Miller, 1990). While this result is theoretically sound, the empirical evidence produced by later studies does not support this. McLaughlin (1992) finds that the abnormal returns to acquirers are lower when the acquirer uses a high quality adviser, and Rau (2000) finds no support for the hypothesis that high quality advisers deliver greater abnormal returns to their clients. The anomalous results in the existing literature on both the level of advisory fees and the performance of advisers are a primary motivation for this paper. Several reasons might account for the anomalous results in the existing literature. The findings that high quality advisers do not generate higher returns to their clients might be driven in part by the methodology used to rank the advisers. Previous studies such as McLaughlin (1992) and Rau (2000) use a static ranking system to determine adviser quality and a bank's ranking is allowed to remain fixed over the entire sample period. This ranking procedure ignores the dynamics of the M&A adviser market that could be relevant in measuring adviser quality (Da Silva Rosa et al., 2004). In this paper, we rank advisers based on their contemporaneous market share in a rolling window period of three years allowing adviser quality to vary over time. The level of complexity of a transaction can also influence the returns delivered by M&A advisers to their clients. For example, if high quality advisers are associated with more complex transactions they are likely to deliver lower returns to their clients. Consequently, we include several variables that control for the complexity and characteristics of the deals. Moreover, even though empirical evidence suggests that high quality advisers are not able to generate higher abnormal returns to their clients (McLaughlin, 1992 and Rau, 2000), these studies fail to recognise that the wealth gain to the acquirer may be influenced by the form of consideration offered in the deal. As a result, we partition the sample of acquirer abnormal returns into three consideration types and further determine whether high quality advisers are able to deliver greater returns to their clients across all-stock, all-cash and all other bids. Furthermore, the current paper differs from prior studies in two other important respects. Previous studies have tended to focus their investigations on acquirer adviser performance (Servaes and Zenner, 1996 and Rau, 2000). We analyse both acquirer and target advisers and thus provide a more complete analysis of M&A advisory fees. We further innovate by including the opposing party adviser's quality in the multivariate models to determine if it has any impact on the level of advisory fees and the performance of advisers. Using a comprehensive sample of 15,422 U.S. M&A transactions announced between January 1980 and December 2003, we find strong evidence to suggest that a quality premium exists in M&A advisory fees. Our results indicate that first tier and second tier advisers receive substantially greater levels of advisory fees than third tier advisers. While high quality is reflected through the adviser's ability to complete deals more quickly, it appears that high quality advisers are not more likely to complete a given deal. In terms of client's abnormal stock returns, in general, high quality advisers do not deliver stronger gains to their clients, with lower gains for targets that hire high quality advisers. However, the abnormal returns to acquirers in bids involving stock are more positive when a high quality adviser is used as the acquirer's adviser. The rest of the paper is structured as follows. Section 2 details the existing literature in M&A advisory fees. 3 and 4 introduce the data and the results of our empirical analysis, respectively. Section 5 concludes with a summary of the main results.

In this paper, we examine the determinants of the pricing of M&A transactions and further investigate whether a quality premium exists in advisory fees. The findings strongly support the hypothesis that a quality premium exists in M&A advisory fees. In particular, we find that first tier and second tier advisers receive substantially greater levels of advisory fees. We also find the level of advisory fees to be positively related to the size of the M&A transaction. Consistent with Rau (2000), there is no evidence to suggest that high quality advisers are more likely to complete deals. The quality of the acquirer adviser has no significant impact on the probability of completion, while high quality target advisers seem less likely to complete deals. It would be worthwhile in subsequent research to partition the target analysis based on whether the investment bank has been hired to ward off an unwanted bid. However, first tier and second tier advisers are found to be able to complete deals in significantly less time than third tier advisers. The results from the abnormal returns model show that high quality advisers are not able to generate higher positive abnormal returns to their clients. This result is not particularly surprising as the findings in this area have been inconsistent. For example, while Bowers and Miller (1990) find that the total abnormal returns to acquirers and targets are greater when a first tier investment bank is involved in the transaction, McLaughlin (1992) finds that the level of abnormal returns is lower in deals associated with a first tier investment bank. The results from this paper are consistent with the findings by McLaughlin (1992) and Rau (2000), who also fail to find support for high quality advisers being associated with clients experiencing greater abnormal returns. However, when high quality investment banks are hired as acquirer advisers in stock deals, there are strong incentives for these advisers to protect their reputational capital due to the negative returns that acquirers generally experience. The findings in this paper show that the abnormal returns to acquirers in bids involving stock are indeed more positive when high quality advisers are used as acquirers' advisers.