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Winning megadeals: The dual role of acquirer advisors in loan-financed mergers and acquisitions

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  • Chen, Chong
  • Wu, Xueping

Abstract

Acquirer advisors now often arrange syndicated loans financing merger and acquisition deals they advise on. This paper shows that such an advisor-lender dual role facilitates valuable big-ticket deals. There is a positive announcement effect for the acquirer which also shows no systematic post-deal underperformance—dispelling concerns about the advisor abetting managerial empire building. But advisor-led syndicated loans, despite being larger in size, have higher loan spreads than those led by non-advisors. Advisors apparently have an information advantage but rent extraction is unlikely. The higher charges are justifiable in view of the significantly lower post-deal creditworthiness of dual-role bidders. Advisor-lender's superior information about adverse changes in the credit risk is rationally priced into the dual-role interest rate premium.

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  • Chen, Chong & Wu, Xueping, 2021. "Winning megadeals: The dual role of acquirer advisors in loan-financed mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:corfin:v:69:y:2021:i:c:s0929119921001565
    DOI: 10.1016/j.jcorpfin.2021.102034
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    More about this item

    Keywords

    M&A; Advisor; Lead arranger; Loan pricing; Dual-role premium;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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