The Relationship Between Target and Its Financial Advisor in Mergers and Acquisitions -- Are There Still Benefits to Gain?

Abstract: We aim to measure the effect of relationship building between target-firm and financial advisor in the Mergers and Acquisitions industry. We also aim to investigate what affects the target-firm’s decision to stay loyal or switch financial advisor. Our main findings show that relationship building does not have a significant effect on the advisor fee and speed of transaction. Instead of earlier cooperation as representing relationships, transaction-oriented variables such as size of transaction and amount sought in the target-firm, have a larger influence on advisor fee and speed. Even though benefits as lower advisor fee and a quicker closed deal, will not be gained by building a relationship, target-firms still tend to stay loyal to their financial advisors when transactions are large (>$1 000 000 000), when they are cooperating with one of the top banks or when they already have had an earlier cooperation with that particular advisor.