Common Advisors in Mergers and Acquisitions: Determinants and Consequences

We examine the determinants of merging firms' choice of a common or separate mergers and acquisitions adviser and the consequences of this choice on several deal outcomes. In a large sample of acquisitions, common advisers appear to be chosen in economically sensible ways. After controlling for other variables and accounting for endogeneity, we find that deals with common advisers take longer to complete and provide lower premiums to targets. We find some evidence of lower target valuations and higher bidder returns in such deals. While there is no significant difference in deals' overall quality, our evidence showing that deals with common advisers are somewhat better for acquirers than for targets favors the conflict-of-interest hypothesis over the deal improvement hypothesis. We find no evidence that merging firms avoided sharing advisers during the 1980s but strong and growing evidence of such avoidance over the following 2 decades.