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

Chong Chen and Xueping Wu

Journal of Corporate Finance, 2021, vol. 69, issue C

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.

Keywords: M&A; Advisor; Lead arranger; Loan pricing; Dual-role premium (search for similar items in EconPapers)
JEL-codes: G14 G23 G24 G34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:69:y:2021:i:c:s0929119921001565

DOI: 10.1016/j.jcorpfin.2021.102034

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