Too many cooks spoil the broth: on the impact of external advisors on mergers and acquisitions

Almost 60% of mergers and acquisitions are concluded with the aid of multiple third-party advisors. While there has been work on the impact of advisors, the theoretical and empirical implications of using multiple advisors remain unclear. Using insights from the "cheap talk" literature, we derive hypotheses on the impact of multiple advisors. Expanding upon this, we then consider the moderating impact of advisor reputation/quality and deal timing (in terms of merger wave periods vs. non-merger wave periods), as factors that both the cheap talk and the literature on single advisors highlight as relevant. We test our hypotheses using a sample of 10,544 large US acquisitions, and evaluate the impact of advisors using an event study and abnormal returns. Our results support a value-creating role for single advisors—we find that deals with single advisors create a higher expectation of value-creation—but find little support for the use of multiple advisors. Furthermore, we show that the moderating effect of advisor reputation, and deal timing, are contingent on the number of advisors. In doing so, we make a number of academic and practical contributions to the discussion of advisors in mergers and acquisitions.

Innovation in Urban Transit at the Start of the Twentieth Century: A Case Study of Metropolitan Street Railway’s Stealth Hostile Takeover of Third Avenue Railroad

In 1900, a syndicate of investors used open market purchases and manipulative trading strategies to exploit an ongoing financial crisis at the Third Avenue Railroad Company and stealthily gain control of the company. The acquisition occurred during the first great merger wave in U.S. history and represented the street railway industry’s response to a new technology, namely electrification. The lax regulatory environment of the period allowed operators and insiders to profit handsomely and may have benefited consumers, but possibly harmed some minority shareholders. Our case study illuminates an unusual acquisition, when capital markets were less transparent.

International Trade and the Propagation of Merger Waves

Cross-border merger activity is growing in importance. We map the global trade network each year from 1989 to 2016 and compare it to cross-border and domestic merger activity. Trade-weighted merger activity in trading partner countries has statistically and economically significant explanatory power for the likelihood that a given country will be in a merger wave state, at both the cross-border and domestic levels, even controlling for its own lagged merger activity. The role of trade as a channel for transmitting merger waves is confirmed using import tariff cuts and trade sanctions as instruments to mitigate endogeneity. Overall, the full trade network helps our understanding of merger waves and how merger activity propagate across borders.

Deindustrialization and the Global Imperative

This chapter considers deindustrialization's effects on the National Association of Manufacturers (NAM) during the 1960s. While organized labor was quick to recognize the dangers of cheap imports to its interests, organized manufacturing—that is, NAM—seemed belligerently oblivious, even as it was losing members at record rates. It is now widely accepted that imports, Cold War trade policies, and offshoring contributed to deindustrialization, which began in the 1960s. In promoting freer trade and foreign direct investment, NAM, despite its claims to the contrary, was working against the interests of small and midsized manufacturers, who were still the majority of its membership and the most vulnerable to imports. Together with a merger wave in the mid-1960s, deindustrialization eviscerated NAM's membership, which went from a high of 21,801 companies in 1957 to just under 12,000 by 1980. As its membership declined, NAM became even more dependent on large multinationals to meet the challenges of a global economy that it had helped create.

Post M&A innovation in family firms

PurposeThe paper empirically investigates how family firms appropriate acquired resources to become more innovative in the context of merger waves. It draws on resource-based view and the theory of first mover (dis)advantages to examine the implications of the timing of acquisitions on innovation in family firms.Design/methodology/approachThe paper uses a panel data set of Standard & Poor's (S&P) 500 manufacturing firms followed over a period of 31 years.FindingsThe study finds empirical support for the predictions that family firms are more able to utilize acquired resources better than nonfamily firms. Furthermore, targets acquired during the upswing of a merger wave are more valuable to family firms and associated with more innovation than for nonfamily firms.Originality/valueThe paper establishes that resources acquired during the upswing of a merger wave are more valuable, provide better resource synergies and impact innovation positively in family firms than nonfamily firms. Second, the paper makes an empirical contribution that family firms absorb external resources markedly differently and more efficiently than nonfamily firms. Third, the paper enhances a better understanding of the influence of family ownership on the relationship between acquisitions and innovation outputs.