Winning Megadeals: The Dual Role of Acquirer Advisors in Loan-Financed Mergers and Acquisitions

62 Pages Posted: 14 Jul 2021 Last revised: 20 Dec 2021

See all articles by Chong Chen

Chong Chen

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Xueping Wu

City University of Hong Kong (CityU) - Department of Economics & Finance

Date Written: June 6, 2021

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

JEL Classification: G14, G23, G24, G34

Suggested Citation

Chen, Chong and Wu, Xueping, Winning Megadeals: The Dual Role of Acquirer Advisors in Loan-Financed Mergers and Acquisitions (June 6, 2021). Journal of Corporate Finance, Vol. 69, No. 102034, 2021, Available at SSRN: https://ssrn.com/abstract=3877918 or http://dx.doi.org/10.2139/ssrn.3877918

Chong Chen

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

Xueping Wu (Contact Author)

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
+852 3442 7577 (Phone)
+852 3442 0195 (Fax)

HOME PAGE: http://personal.cityu.edu.hk/~efxpwu/

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