Conflicts of Interest and the Role of Financial Advisors in M&A Transactions: Empirical Evidence from the Private Equity Industry

41 Pages Posted: 8 Aug 2015 Last revised: 12 Apr 2017

See all articles by Stefan Morkoetter

Stefan Morkoetter

University of St. Gallen - School of Finance

Thomas Wetzer

University of St. Gallen

Date Written: April 1, 2017

Abstract

Financial advisors play an important role in M&A transactions. Private equity (PE) firms, in turn, are highly sought-after clients for financial advisors as they promise lucrative business due to their frequent engagements in acquisitions. We find that PE firms pay, on average, less for portfolio companies when their sell-side advisor has worked for the acquiring PE firm on the buy-side in past transactions. We refer to this as indirect relationships and argue that conflicts of interest be-tween financial advisors and their clients are the main driver for our results. Strategic acquirers do not benefit from these previous indirect relationships altogether.

Keywords: Private Equity, Mergers and Acquisitions, Financial Advisors, Conflicts of Interest

JEL Classification: G15, G24, G32, G34

Suggested Citation

Morkoetter, Stefan and Wetzer, Thomas, Conflicts of Interest and the Role of Financial Advisors in M&A Transactions: Empirical Evidence from the Private Equity Industry (April 1, 2017). University of St.Gallen, School of Finance Research Paper No. 2015/15, Available at SSRN: https://ssrn.com/abstract=2640922 or http://dx.doi.org/10.2139/ssrn.2640922

Stefan Morkoetter (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Thomas Wetzer

University of St. Gallen ( email )

Dufourstrasse 50
St.Gallen, CH-9000
Switzerland

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