"The Effect of a ‘Lock-in’ on M&A Performance and Advisor Decisions"

Abstract

Due to the rapid economic development, the magnitude of M&A activity is increasing and so is the influence of large investment banks. A growing research body has investigated whether these so-called high-quality advisors provide superior deal performance. Since there is no consensus if high-quality investors yield higher post-acquisition performance and why acquirers choose specific advisors, this study focuses on whether a previous relationship with a M&A advisor and its reputation affects both the deal outcome and the choice to hire the M&A advisor for acquirers located in Europe. Prior research mainly investigates whether the use of a top-tier advisor affects deal outcome, while this research focuses on the reputation and an associated lock-in of the top 500 financial advisors retrieved from league tables. It is found that a higher ranked advisor does not lead to higher post-acquisition performance while reputation, particularly amongst top-tier investment banks, is an important selection criterion to switch from M&A advisor. Furthermore, this research concludes that a previous relationship with an advisor is not associated with higher or lower acquisition performance. However, a lock-in is an important determinant in switching behavior of an acquirer.

Keywords: Merger & Acquisitions (M&A), Financial advisor, Relationship Banking, Lock-in Reputation, League Tables