Are good financial advisors really good? - SSRN

Rev Quant Finan Acc DOI 10.1007/s11156-009-0155-6 ORIGINAL RESEARCH

Are good financial advisors really good? The performance of investment banks in the M&A market Ahmad Ismail

Springer Science+Business Media, LLC 2009

Abstract The study examines whether prestigious investment banks deliver quality gains to their clients in a sample of 6,379 US M&A deals. It finds that acquirers advised by tierone advisors lost more than $42 billion, whereas those advised by tier-two advisors gained $13.5 billion at the merger announcement. The results were mainly driven by the large loss deals advised by tier-one advisors. The evidence indicates that investment banks might have different incentives when they advise on large deals vs. small deals. The results imply that market share based reputation league tables, could be misleading and therefore, the selection of investment banks should be based on their track record in generating gains to their clients. The findings were consistent with the superior deal hypothesis as tier-one target advisors outperformed tier-two advisors and the existence of a prestigious advisor on at least one side of an M&A transaction resulted in higher wealth gains to the combined entity. Target advisors were able to extract more wealth gains for their clients, which led to higher combined gains at the expense of the acquirer. Keywords

Investment banks Prestigious Gains Mergers and acquisitions

JEL Classification G34

1 Introduction The volume of worldwide announced mergers and acquisitions (M&A) soared to over $3.8 trillion in 2006. On the other hand, imputed advisory fees on completed transactions exceeded $32.8 billion, 38.5% of which were earned by ten (prestigious) investment

A. Ismail (&) College of Business and Economics, United Arab Emirates University, P.O Box 17555, Al-Ain, UAE e-mail: [email protected]; [email protected]

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A. Ismail

banks1 only, who advised on most of the announced deals.2 These figures show how hierarchical the investment banking industry is, since few prestigious investment banks dominate the M&A advisory services. The selection of M&A financial advisors is mainly driven by their perceived reputation and quality service. In the context of M&A, high quality products offered by investment banks are those that have greater positive impact on the clients’ shareholders wealth.3 Therefore, if financial advisors continue providing such high quality products to their clients, their reputation is enhanced. In turn, the demand for their products increases resulting in increased market share. Building on the above, financial advisors’ reputation (their market share) is mainly driven by how much value they create for their customers. Hence, a key question comes under the spotlight, that being, how beneficial have top investment banks been to their clients? In other words, does the selection of ‘quality’ financial advisors result in ‘quality’ value gains to bidder or target shareholders? To put it bluntly, are good financial advisors really good? Part of the literature on the role of investment banks in M&A examined the relation between advisors’ reputation and client shareholders’ gains, and reached contrasting conclusions. While recently Ma (2006) investigated only target adviser performance, most previous studies have focused their analyses on acquirer adviser performance (Servaes and Zenner 1996; Rau 2000; Da Silva Rosa et al. 2004). In addition, USA acquirer advisor studies used old and small samples not extending beyond the early 1990s and excluded the acquisitions of non-public targets. Therefore, their results may not be generalized to the total population of acquisitions. On the other hand, Moeller et al. (2004) documented that because cumulative abnormal returns (CARs) are equally-weighted, a sample of M&A transactions generating positive CARs, in fact, could have resulted in large negative dollar gains. Recently, only Kale et al. (2003) controlled for this issue, however, their study focused on a very small and outdated sample of acquisitions of listed target firms (324 deals completed between 1981 and 1994). Moreover, some merger deals during the 1990s merger wave were peculiar by all standards (excessive premiums, large acquirer losses and large deal values see e.g. Moeller et al. 2004 and 2005) adding another attraction to investigating the acquirer financial advisors performance. Therefore conducting a new study using dollar abnormal returns to investigate the performance of advisors in the M&A process is worth the effort. I use a sample of 6,379 US M&A deals, for listed and unlisted targets, completed between 1985 and 2004, for which the financial advisor for one party is publicly known. I control for deal and firm characteristics and find that prestigious acquirer advisors (tier-one) underperformed tier-two advisors and destroyed more than $42 billion value for acquiring firms’ shareholders. But it is also found that these huge losses were the result of 178 large loss deals, and that if these deals were removed from the sample, tier-one advisors could have outperformed tier-two advisors. A similar conclusion is reached if the bear market period was excluded from the sample. A key finding of this study is that investment banks might have different incentives when they advise on large deals vs. small deals as larger merger premiums are found to have been paid in large deals as compared to small ones.4 In contrast, the results for target advisors were consistent with the superior deal hypothesis as tier-one investment banks outperformed tier-two advisors. I also find that even in the presence of a 1

Investment banks and financial advisors are used interchangeably in the paper.

2

Source: Thomson Financial SDC database, M&A and Advisors Summary Report, Fourth Quarter 2006.

3

This is based on the assumption that managers seek shareholders value maximization as their main goal.

4

Other explanations for the lower premiums paid in small deals could be related to the possibility that smaller firms are more likely in distress, or their managers might accept lower premiums as part of an agreement with the acquirer management to keep their jobs etc…

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Are good financial advisors really good?

tier-one acquirer advisor, target advisors were able to extract more gains for their clients, which led to higher combined gains at the expense of the acquirer. The multivariate regressions show that acquirers’ gains are not associated with the acquirer advisor tier, but they are smaller when the target advisor is tier-one. Conversely, target gains are positively related to the target advisor’s reputation and to the relative reputation of the target to the acquirer’s advisor. Combined gains were found to be positively associated with the high reputation of either party’s advisor and apparently driven by the target firms’ gains. The implications of these results are that advisors’ reputation league tables, based on market share, could be misleading and hence do not necessarily suggest that top-tier banks will generate high gains to their clients; rather the selection of investment banks should be based on the performance of those banks in prior acquisitions. The paper is organized as follows: the relevant literature is reviewed in section two, and section three presents the methodology and data set. The empirical findings are presented in section four and the conclusion is drawn in section five.

2 Literature review Some of the research on the role of investment banks in M&A has examined the effect of the banks’ reputation on their clients’ returns and found mixed results. The findings responded to two main conflicting hypotheses, these being namely: the superior deal or the better merger hypothesis and the deal completion hypothesis. The superior deal hypothesis argues that more prestigious investment banks, due to their superior expertise in the M&A market, have the ability to identify better merger partners for their clients and determine ways to create greater operational and financial synergies. If investment banks’ advice results in greater wealth to their clients, then their reputation is enhanced. Therefore, this hypothesis predicts a positive relationship between the reputation of investment banks and their client’s wealth gain. The deal completion hypothesis, on the other hand, predicts no such association between reputation and customers’ gain. Because their fees are partially contingent on the completion of the deal, financial advisors have strong deal completion incentives. In such case, the financial advisors market share (reputation) will depend on the number of deals they complete (Rau 2000). However, McLaughlin (1990) argued that even if investment banks were motivated by fee income, they might not want to increase the acquisition prices, because this type of behaviour would reduce the value of their reputation capital. On the other hand, Bowers and Miller (1990) found that the combined wealth gain accruing to both acquirers and targets was larger when either the bidder or the target employed a first-tier financial advisor. Nevertheless, the authors found that acquirer shareholders do not generate higher gains if they use a first-tier advisor. On the other hand, Michel et al. (1991) found that some of the Bulge-bracket advisors outperformed less prestigious ones but, in general, the degree of prestige of an advisor does not vary directly with the abnormal returns earned by acquired and acquiring firms. Recently, Rau (2000) found that, in tender offers, but not in mergers, acquirers advised by first-tier investment banks earned higher abnormal returns than those advised by second and third-tier banks. On the other hand, McLaughlin (1992) reported a lower abnormal return for acquirers with more prestigious investment banks, whereas Servaes and Zenner (1996) did not find any relation between the acquirer’s abnormal return and the tier of its investment bank. Rau (2000), for merger deals, and Rau and Rodgers (2002) document a lower announcement return for deals involving top tier advisors. Similar findings were reported

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by Da Silva Rosa et al. (2004) for the Australian market. On the other hand, Kale et al. (2003) found that the total dollar wealth gain as well as the share of the total wealth accruing to the bidder (target) increases (decreases) as the reputation of the bidder’s advisor increases relative to that of the target. They also found that the total dollar wealth gain is positively related to the reputation levels of both acquirer and target advisors. McLaughlin (1992) found that the quality of the target investment banks had no significant effect on the premium received by target firms; however, the author also reported that bidders using the services of low-quality investment banks offered substantially lower premiums. Rau (2000) found no evidence that acquisition premiums and deal completion rates differed across the tier of the acquirer’s advisor in merger deals. Nevertheless, in tender offers, Rau (2000) confirmed the findings of McLaughlin (1992) and showed that using a third-tier investment bank resulted in paying a significantly lower premium and in a lower deal completion rate than using the services of second or first-tier advisors. The latter findings are consistent with the deal completion hypothesis, which stems from the agency conflict between acquirers and their investment banks who may be purely motivated by fee income.

3 Sample and research methodology 3.1 Sample selection The sample was collected searching the Thomson Financial SDC Database for all the M&A deals completed by US public acquirers between Jan 1, 1985 and April 22, 2004.5 Financial institutions were excluded from the sample and only deals with at least $1 million of disclosed value were selected. The sample included deals that resulted in a transfer of control where the acquirer’s ownership in the target firm increased above 50% as a result of the acquisition. The target firm is either a public, private or a subsidiary firm. Other filtering criteria necessitated that acquirers and public targets had share price data available on the Center for Research in Security Prices (CRSP) database and on DataStream (for non-US target firms) and that the financial advisors for either party are publicly disclosed. The final sample consists of 6,379 completed deals. 3.2 Research methodology Bowers and Miller (1990) and Carter and Manaster (1990) inferred the reputation from the advisors’ position in tombstone advertisement. Other researchers classified advisors into various tiers (usually two or three) based on their market share in the takeover market during the sample period (e.g. Rau 2000; Saunders and Srinivasan 2001; and Kale et al. 2003).6 This research adopts the second approach and uses the investment bank’s market share as a proxy for its reputation. Similar to Kale et al. (2003) the bidder and target financial advisors in each transaction are given credit for the full value of the deal. Consequently, tier-one investment banks are defined as the top ten advisors with the largest market share; all other advisors that are ranked higher than tenth are classified as tier-two.

5

April 22 represented the last date on which the data was available when I collected the sample.

6

Carter, Dark, and Singh (1998) show that continuous market share, three-tier market share rankings, and tombstone rankings are highly correlated for the IPO market.

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Moeller et al. (2004) argued that cumulative abnormal returns are equally-weighted and give the same weight to small and large acquirers making loss-making deals (calculated in dollar value) look, on average, profitable when actually they are not. Therefore, a sample of M&A transactions generating an average CAR of 1% might, in fact, have resulted in large negative dollar gains. Hence, similar to a recent study on the role of financial advisors in the M&A market (Kale et al. 2003) this paper uses abnormal dollar gains as a performance measure which is calculated as the market capitalization 2 months prior to the announcement of the merger multiplied by the cumulative abnormal return in the (-2, ?2) window.7 The abnormal dollar gain to the target is calculated in a similar manner; however, the pre-merger toehold presence of the acquirer in the target firm is adjusted for. The abnormal return is estimated using a standard event study methodology as in Brown and Warner (1985). The market model is employed and the model’s parameters are estimated over (-210, -20) interval using the CRSP value-weighted index returns as the benchmark for US firms and the DataStream index for non-US firms. 3.3 Descriptive statistics Table 1 contains the summary statistics for the sample. Tier-one advisors that are identified are very much similar to those recognized by other studies (e.g. Rau 2000; Hunter and Jagtiani 2003). The table shows that the most prestigious advisor in the sample (Goldman Sachs) advised acquirers and targets on deals worth nearly $210 and $395 billion respectively. Tier-one advisors participated in deals which are much larger than those advised by tier-two. In addition, tier-one advisors seem to dominate the takeover market with a market share of nearly 60% of the volume total as acquirer advisors and approximately 65% when representing targets. Tier-one advisors also participate in deals with very large acquirers.

4 Results 4.1 Performance of acquirer advisors Table 2 presents the performance of acquirer advisors. I find no consistency between acquirer advisors’ ranking and the gains generated by their clients. For instance, acquirers advised by Salomon Smith Barney, ranked fifth within the tier-one advisors, generated the highest mean dollar gains per deal ($157 million), while the gains generated by those advised by Morgan Stanley, the second top advisor, were among the lowest. Moreover, acquirers advised by tier-one investment banks earned mean dollar gains of nearly -$28 million per deal whereas, acquirers advised by tier-two advisors gained about $6 million per deal. Aggregating abnormal dollar gains across acquirers, it is found that firms advised by tier-one advisors lost approximately $42 billion, while those advised by tier-two advisors enjoyed a total dollar gain of $13.5 billion.

7

Fuller et al. (2002) justifies the use of the 5-day window by the fact that after checking the accuracy of the SDC announcement date they find that for about 92.6% of a random sample of 500 acquisitions the date was accurate. However, for the remaining deals it was off by two days at most. I use the 5-day CAR for my analysis similar to Fuller et al. (2002); however, I also run the tests using other windows and found that my results are robust. Results and tables are available upon request.

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A. Ismail Table 1 Descriptive statistics by the type of financial advisors Financial advisors

No. of Mean acquirers deal value

Total deal value

Mean acquirer size

No. of targets

Mean deal value

Total deal value

Mean acquirer size

Goldman Sachs & Co

251

834

209,434 13,676

376

1,028

386,481 10,961

Morgan Stanley

258

668

172,359 10,619

287

729

209,101 14,790

Merrill Lynch & Co Inc

212

641

135,865

6,870

204

729

148,626

Credit Suisse First Boston

161

796

128,190

5,490

201

656

131,909 13,245

Salomon Smith Barney

84

1,503

126,294 14,089

82

1,047

85,844 15,408

Lehman Brothers

141

456

7,262

157

375

58,948 11,657

JP Morgan

85

1,788

152,010 16,581

118

570

67,220 13,326

Lazard

86

820

70,486 14,697

101

452

45,696 14,595

Donaldson Lufkin & Jenrette

154

468

72,021

1,518

161

355

57,097

3,367

Bear Stearns & Co Inc

102

222

22,646

4,809

113

401

45,369

8,331

Top 10 advisors 1,534 (tier 1)

752

1,153,588

9,203

1,800

687

Other advisors (tier 2)

2,259

192

433,795

2,333

3,178

167

531,532

5,735

Undisclosed

2,446

112

275,085

7,279

1,359

100

135,516

2,220

140

328

45,955 31,635

42

121

5,084

1,630

In-house deals

64,284

8,123

1,236,291 11,283

The table presents summary statistics for the study sample. Deals are completed between Jan 1985 and April 2004 as reported by SDC excluding all financial institutions deals; where the deal value is at least $1 million and the acquirer gains control of a public, private or a subsidiary target firm. The table names the top ten (tier-one) advisors which were identified by the volume of deals advised during the sample period. Additionally, the distribution is made across four categories. Tier-one advisors, tier-two advisors which are the investment banks that did not occupy the first ten positions in terms of market share, In-House deals which are those with no investment bank retained and undisclosed advisors deals these are the deals for which the advisor is not reported in SDC database. Deal Value is the value paid for the target firm as reported in SDC; by size I mean market value of equity 2 months prior to the acquisition announcement. Dollar amounts are in millions

The worst performers among tier-one banks were Lehman Brothers, Lazard, and Morgan Stanley since their clients’ losses averaged $178.94 million, $169.55 million and $158 million per deal, respectively. Those values reflect a total dollar loss of more than $82 billion. On the other hand, In-House deals resulted in the largest loss per deal of $826 million, which translates into a total abnormal dollar loss of nearly $115.7 billion.8 At first sight, employing quality investment banks seems to have not resulted in quality value gains for acquirer shareholders which is consistent with prior research (e.g. Servaes and Zenner 1996; Rau and Rodgers 2002; and Da Silva Rosa et al. 2004). These gains are 8

I closely investigated the losses of In-House deals and found that they are mainly driven by deals completed by very large acquirers, those were Lucent Technologies, Cisco Systems, Intel Corp. and AOL. The abnormal dollar losses of those four acquirers reached nearly $145 billion during the sample period.

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Are good financial advisors really good? Table 2 Comparative performance of acquirers financial advisors Financial advisor

No. of acquirers

Total dollar gain

Mean dollar gain

Goldman Sachs & Co

251

9,190.52

36.62

Morgan Stanley

258

-41,048.26

-159.10


212

23,306.25

109.94


161

-2,288.60

-14.21

Salomon Smith Barney Lehman Brothers

84

13,200.59

157.15

141

-26,552.11

-188.31

JP Morgan

85

4,318.90

50.81

Lazard

86

-15,463.82

-179.81


154

-4,488.72

-29.15


102

-2,647.70

-25.96

Top 10 advisors (tier-one)

1,534

-42,472.96

-27.69

Other advisors (tier-two)

2,259

13,546.39

6.00

Undisclosed

2,446

-5,025.85

-2.05

140

-115,681.31

-826.30

In-house deals

The table presents the performance of acquirer financial advisors for deals that were completed between Jan 1985 and April 2004 as reported by SDC excluding all financial institutions deals; where the deal value is at least $1 million and the acquirer gains control of a public, private or a subsidiary target firm. The total dollar gain is calculated as the market capitalization 2 months prior to the announcement of the merger multiplied by the CAR (-2, ?2). CAR (-2, ?2) is the 5-day cumulative abnormal returns estimated using the market model. The mean dollar gain is the total dollar gain divided by the number of deals advised by each advisor. Dollar amounts are in millions

inconsistent with the high ranking of those banks; instead, they support the deal completion hypothesis, which stems from the agency conflict between acquirers and their investment banks who may be purely motivated by fee income (Rau 2000). In order to investigate the performance of acquirer advisors further, I rank investment banks in the sample based on the mean dollar gains generated by acquiring firms. Similar to Michel et al. (1991), the analysis is restricted to the advisors who participated in at least 15 M&A transactions during the sample period.9 It is found that only two tier-one banks rank among the top ten (Salomon Smith Barney, and Merrill Lynch & Co. Inc. ranked fourth and sixth respectively). 4.2 Does the performance around the internet bubble explain the results? The speculative internet bubble is believed to have occupied roughly the period of 1995 to 2000, for instance, according to Goldfarb et al. (2006) the NASDAQ index peaked at 5,132 on March 10, 2000 before it crashed on Monday March 13, 2000. Right after the burst of the bubble, the market rallied downward until around the end of September 2002. These upward and downward surges in stock markets are worth being taken into account so that to examine their effects on the results in Table 2. Hence I identify the Internet Bubble period (Jan 1995 to March 10, 2000) and the bear market period (March 13, 2000 to end of September 2002). The results in Appendix A show that during the bubble period (Panel A) tier-one and tier-two acquirer advisors generated large total gains ($61.57 billion and $25.37 billion, respectively) to their clients and that tier-one advisors outperformed 9

The ranking tables are available upon request.

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tier-two advisors in that period. Conversely, the performance outside the bubble period (Panel B) shows huge acquirer losses irrespective of the advisor tier however, larger losses are generated by tier-one advisors compared to tier-two advisors (-$104 billion vs. -$11 billion). Such results imply that the findings in Table 2 are mainly driven by the performance outside the bubble period. In Panel C, the results for the bear market period (March 13, 2000 until Sept. 30, 2002) lead to very interesting conclusions, these are, the findings in Panel B are mostly explained by the performance after the bubble burst. For instance, for tier-one (tier-two) advisors, nearly 77% (55%) of the losses recorded in Panel B appear to have been incurred during the bear market period. On the other hand, if I compare the results in Panel C with the earlier findings in Table 2, I conclude that if the bear market period is excluded from the sample (Panel D), most of the losses will be converted into gains and most importantly, earlier results that tier-one acquirer advisors lag behind tier-two advisors will be inverted. 4.3 Does size matter? Tier-two banks attract the smaller bidders who earn higher abnormal returns than large acquirers (Moeller et al. 2004). In addition, tier-one advisors attract large acquirers, which are the source of large dollar losses (Moeller et al. 2005). Therefore, it is worthwhile investigating the size effect on the results in Table 2. I define small and large acquirers as the first and the fourth quartile of the sample, respectively. Table 3 (panel A) shows that in terms of total dollar gains, acquirers advised by tier-two investment banks outperform those advised by tier-one advisors regardless of their size, large or small ($17,062 million vs. -$45,528 million and $2,466 million vs. $307.45 million respectively). Additionally, the same pattern is observed for the mean dollar gains ($55.58 million vs. -$75.25 million and $3.04 million vs. $1.73 million, respectively). Therefore, it does not seem that the earlier results reported in Table 2 were driven by size. 4.4 Do the advisors’ incentives differ when they take on large deals vs. small deals? Rau (2000) argued that financial advisors have strong deal completion incentives as their fees are partially contingent on the completion of the deal. But, McLaughlin (1990) contended that even if investment banks are motivated by fee income, they may not want to increase the acquisition prices, because this type of behaviour would reduce the value of their reputation capital. I reason that perhaps the trade-off between hurting the reputation in the future, and receiving a one-time higher fee today, differs between large and small deals. In other words, for a large enough deal, the investment banks might want to maximize the fee they receive even if that means that their reputation will suffer in the future. On the flipside, smaller deals might not present a high enough incentive for the advisors to take advantage of their clients so in those cases they may have a higher incentive to keep the premium lower in order to build their reputation. I inspect the performance of investment banks when they advise on large deals as opposed to small deals. Small and large deals are defined as the first and the fourth quartile of the sample respectively. Table 3 (panel B) indicates that large deals result in smaller dollar gains to the acquirers, irrespective of the investment bank tier. The comparison across the investment banks tier reveals, once again, that tier-one advisors lag behind tier-two investment banks in both large and small deals sub-samples, owing to larger gains generated by their clients (-$17 billion vs. -$55.5 billion and $9.5 billion vs. $1.85 billion respectively). Furthermore, I investigate whether value

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Are good financial advisors really good? Table 3 Comparative performance of acquirers financial advisors by acquirer size and deal size Financial advisor

No.

Total dollar gain

Mean dollar gain

Panel A: acquirer gain sorted by acquirer size large and small Large acquirers Top 10 advisors (tier-one)

605

-45,528.41


307

17,061.59

55.58

Undisclosed

621

-12,614.13

-20.31

63

-115,791.66

-1,837.96

In-house deals

-75.25

Small acquirers Top 10 advisors (tier-one)

178

307.45

1.73


811

2,466.14

3.04

Undisclosed

585

893.51

1.53

21

99.91

4.76

In-house deals

Panel B: acquirer gain sorted by deal size large and small Large deals Top 10 advisors (tier-one)

785

-55,449.55

-70.64


472

-17,002.93

-36.02

Undisclosed

293

-54,328.76

-185.42

45

-56,332.20

-1,251.83

In-house deals Small deals Top 10 advisors (tier-one)

83

1,847.96

22.26


635

9,486.01

14.94

Undisclosed

847

52,151.24

61.57

30

6,253.17

208.44

In-house deals

The table presents the performance of acquirer financial advisors for deals that were completed between Jan 1985 and April 2004 as reported by SDC excluding all financial institutions deals; where the deal value is at least $1 million and the acquirer gains control of a public, private or a subsidiary target firm. In Panel A the distribution is made by acquirer size small vs. large where small and large represent the smallest and the largest 25% of the transactions in the sample respectively measured by acquirer market value 2 months prior to the announcement of the merger. In Panel B the distribution is made by deal size small vs. large where small and large represent the smallest and the largest 25% of the deals in the sample respectively measured by consideration paid. The total dollar gain is calculated as the market capitalization 2 months prior to the announcement of the merger multiplied by the CAR (-2, ?2). CAR (-2, ?2) is the 5-day cumulative abnormal returns estimated using the market model. The mean dollar gain is the total dollar gain divided by the number of deals advised by each advisor. Dollar amounts are in millions

creation in small deals vs. value destruction in large deals are driven by the merger premium. In this respect, the premium paid for public firms is computed as the deal value, as reported by SDC, divided by the market value of equity for the target firm 2 months prior to the deal announcement date. It is found that the mean premium paid in large deals (99.35%) is significantly larger than that paid in small deals (63.61%), (P-value being 0.0018). Additionally, because the premium results in troubling outliers, Moeller et al. (2004) and Officer (2003) truncate it so that it takes values between zero and two. This procedure was followed and it emerged that the mean truncated premium paid in large deals (74.38%) is also significantly larger than that paid in small deals (61.44%), (P-value being 0.0031). The analysis was replicated to learn whether the results hold for each advisor tier. The earlier findings were confirmed for tier-two advisors as the corresponding merger premiums were 97.62 and 53.3% for large and small deals respectively, the

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difference being significant at the 1% level. But for tier-one advisors it was found that the difference between the mean premium paid in large and small deals was not significant at the conventional levels as the P-value was 0.1071.10 4.5 Are the results affected by large loss deals? Moeller et al. (2005) found that the losses of acquiring firm shareholders from 1998 to 2001, wiped out all the gains made between 1990 and 1997. The authors showed that these losses are caused by a few large loss deals. Therefore, the possibility that the results from this study are driven by large loss deals is examined, adopting the criteria for ‘large loss deals’ used by Moeller et al. (2005), those being transactions that result in a dollar loss of at least $1 billion for acquiring firm shareholders. One hundred and seventy-eight (178) such deals were identified. Those resulted in an accumulated loss of nearly $870 billion for the acquiring firm shareholders.11 On the other hand, out of the 178 large loss deals, the share of tier-one advisors was 80 deals ensuing in a total loss of about $250 billion, while tier-two advisors’ share was 22 deals that accumulated a total loss of $49 billion.12 Table 4 shows that when these deals were excluded, acquirers advised by tier-one advisors generated a much larger dollar gain than their counterparts who were advised by tier-two investment banks ($207 billion vs. $62.8 billion). 4.6 Determinants of acquirer abnormal wealth gains It is worthwhile accounting for other factors such as deal and firm characteristics and examining whether the findings of the earlier univariate analysis still hold in a multivariate setting. Kale et al. (2003) used the total abnormal dollar gain as their dependent variable, but in order to control for the influence of outliers, they used a trimmed sample by deleting extreme values from both sides.13 This procedure was adopted and therefore, the sample was trimmed by deleting 5% of the largest and smallest wealth gains. Three regression models were run using the following independent variables: In order to examine the effect of the advisors’ reputation on the acquirer wealth gains three dummy variables are used set equal to one if the acquirer advisor is tier-one, the target advisor is tier-one, and the target advisor is tier-one while the acquirer advisor is tiertwo (superior reputation of target advisor), zero otherwise. Other variables include dummies set equal to one if the target is public, or a subsidiary firm; the method of payment is cash, or equity; the target and acquirer share the same two-digit SIC codes (related industries); the target is a foreign company, the deal attitude is hostile as defined in the SDC database, and whether the acquirer had a toehold, 5% ownership, in the target firm prior to the acquisition announcement. Additional variables include the relative size of the 10 For tier-one advisors’ clients, the mean premium paid in large deals was 100.8% while that paid in small deals was 42.42%. The difference was not significant as there were only 11 small deals advised by tier-one banks. 11

Similar to Moeller et al. (2005), over the 20-year period of the study, most of the losses (87%) were found to have taken place between 1998 and 2001. The aggregate losses accumulating from large loss deals between 1998 and 2001 reached nearly $757 billion created from 127 deals.

12 The remaining losses were created in In-House deals and Undisclosed advisor deals ($173 billion and $398 billion respectively). 13 Kale et al. (2003) followed another procedure that is: they ranked bidder’ wealth gains in ascending order and used each deal’s rank as their dependent variable. I used the same method and found that the results were robust.

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Are good financial advisors really good? Table 4 Comparative performance of acquirers financial advisors excluding large loss deals Financial advisor

No. of acquirers

Total dollar gain

Mean dollar gain

Goldman Sachs & Co

236

66,396.90

Morgan Stanley

241

23,460.22

97.35


208

32,556.19

156.52


147

20,871.63

141.98

79

32,586.89

412.49

132

11,031.18

83.57

78

19,582.42

251.06

Salomon Smith Barney Lehman brothers JP Morgan Lazard Donaldson Lufkin & Jenrette Bear Stearns & Co Inc

84

-1,445.94

-17.21

151

-1,037.01

-6.87

98

3,394.64


1,454


2,237

62,834.9

Undisclosed

2,383

393,232.2

In-house deals

281.34

127

207,397.1

57,703.41

34.64 142.639 28.08891 165.0156 454.3576

The table presents the performance of acquirer financial advisors for deals that were completed between Jan 1985 and April 2004 as reported by SDC excluding all financial institutions deals and excluding deals that result in acquirer dollar loss of at least $1 billion; where the deal value is at least $1 million and the acquirer gains control of a public, private or a subsidiary target firm The total dollar gain is calculated as the market capitalization 2 months prior to the announcement of the merger multiplied by the CAR (-2, ?2). CAR (-2, ?2) is the 5-day cumulative abnormal returns estimated using the market model. The mean dollar gain is the total dollar gain divided by the number of deals advised by each advisor. Dollar amounts are in millions

target to acquirer and the acquirer size (Ln (equity)). Year and one-digit SIC code dummies are included in all models but are not reported. The results are presented in Table 5 where the coefficients for the acquirer reputation dummy in models (1) and (2) are not significantly different from zero, which indicates that employing highly reputed advisors does not result in larger abnormal dollar gains to the acquiring firm shareholders. There is no need to adjust for large loss deals, since a trimmed sample is used which already excludes large loss deals. The negative coefficient for the target advisor reputation dummy in model (2) indicates that the higher the reputation of the target advisor, the lower the acquirer dollar gains. This result implies that the target advisor might have negotiated a higher premium for his client which resulted in a lower return for the acquirer. The latter finding is supported by the negative coefficient (although not significant) on the superior reputation dummy of the target advisor in model (3) which, consistent with Kale et al. (2003), signifies that when the target advisor is more reputable than that of the acquirer, lower gains are accumulated for the acquirer firms. The coefficient on cash deal is positive and significant in all models, suggesting that such transactions generate higher gains than equity and mixed financing acquisitions. The coefficient on equity deals is negative but significant only in model (1) implying that equity offers are less value-adding than cash offers. The significant negative coefficients on the public deals dummy support the previous evidence that the acquisitions of public firms result in lower returns than the takeover of subsidiary and private firms (e.g. Moeller et al. (2004), Fuller et al. (2002). Moreover, the coefficient of the size variable (Ln (Acq. equity) is significantly negative in model (2), being consistent with earlier findings of a size effect (Moeller et al. 2004).

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A. Ismail Table 5 Determinants of acquirer wealth gains (1)

(2)

(3)

Intercept

9.221

45.904**

46.886**

Acquirer advisor tier-one

3.850

9.415

Target advisor tier-one

-15.306**

Target advisor tier-one and acquirer advisor tier-two

-9.556

Shares

-10.796**

-6.063

Cash

11.399***

24.759***

-5.890 24.763***

Public

-20.059***

-28.033***

-26.007***

Private

0.607

-5.463

-3.806

Industry relatedness

-0.853

7.144

7.126

National

-5.519

-7.288

-8.459

Hostile

-13.266

-9.549

-10.515

Relative size

0.328

-2.699

-3.354

Toehold

5.622

16.215

16.064

Ln (acquirer equity)

0.046

-6.114***

-6.328

Adj R-Sq

0.0148

0.0203

0.0184

F-value

5.68***

4.75***

4.71***

Number of observations

3,431

2,173

2,173

The table presents ordinary least square regressions of the total dollar gains for the acquirer shareholders for deals completed by US acquirers between Jan 1985 and April 2004 as reported by SDC excluding all financial institutions deals where the deal value is at least $1 million and the acquirer gains control of the target firm. The sample was trimmed by deleting 5% of the largest and smallest wealth gains. The independent variables include dummies for acquirer advisor tier, the target advisor tier, the target advisor tier relative to acquirer advisor tier, cash, shares, public, private, industry relatedness, national, hostile, and toehold that take the value one if acquirer advisor is tier-one, the target advisor is tier-one, the target advisor is tier-one while the acquirer advisor is tier-two, for acquisitions using pure cash, pure equity, acquisitions of public targets, private targets, acquisitions of firms that share the bidder the same two-digit SIC code, acquisitions of US targets, hostile acquisitions as defined in SDC, and deals where the acquirer had at least 5% ownership in the target firm prior to the acquisition, respectively. Relative size is the target market value of equity divided by the acquirer market value of equity 2 months prior to the acquisition announcement, and Ln (Equity) is the natural logarithm of the acquirer market value of equity 2 months prior to the deal announcement. I also include year and one-digit SIC code dummies in all models but do not report them ***, **, * Significant at the 1%, 5% and 10% respectively

4.7 Performance of target advisors In this section I examine whether the conclusions about acquirer advisors’ performance are maintained when these banks advise target firms. Table 6 shows that targets advised by tier-one investment banks generate, on average, $119.94 million per deal compared to the $28.65 million earned by tier-two advisors’ clients. These figures translate into total dollar gains of $63.3 billion and $27.1 billion for targets advised by tier-one and tier-two investment banks, respectively. Additionally, it is found that Goldman Sachs & Co. leads tier-one advisors with nearly $22 billion total dollar gains generated for its target clients. In sum, these results, contrary to those of the acquirers’ advisors, are supportive of the superior deal hypothesis. Similar to the procedure that I use for acquirer advisors, I also rank target advisors. The rankings of target advisors show that JP Morgan, a tier-one advisor, ranks first with a mean

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Are good financial advisors really good? Table 6 Comparative performance of target financial advisors Financial advisor

No. of targets

Total dollar gain

Mean dollar gain

Goldman Sachs & Co

163.20

134

21,869.15

Morgan Stanley

87

10,951.60

125.88


55

5,784.43

105.17


60

8,160.49

136.01

Salomon Smith Barney

27

-1,315.00

-48.70

Lehman Brothers

41

3,199.78

78.04

JP Morgan

24

5,250.92

218.79

Lazard

19

3,340.60

175.82


52

2,787.08

53.60


29

3,301.76

113.85


528

63,330.81

119.94


943

27,106.25

28.65

Undisclosed

64

460.24

7.19

In-house deals

10

151.85

15.19

The table presents the performance of target financial advisors for deals that were completed between Jan 1985 and April 2004 as reported by SDC excluding all financial institutions deals; where the deal value is at least $1 million and the acquirer gains control of a public target firm The total dollar gain is calculated as the market capitalization 2 months prior to the announcement of the merger multiplied by the CAR (-2, ?2). CAR (-2, ?2) is the 5-day cumulative abnormal returns estimated using the market model. The mean dollar gain is the total dollar gain divided by the number of deals advised by each advisor. Dollar amounts are in millions

dollar gain of $218.79 million. Additionally, contrary to the ranking of the acquirers’ advisors, the comparisons based on the mean dollar gains and even the total dollar gains were very much consistent with the advisors’ reputation. It is found that eight tier-one banks rank among the top ten target advisors by the mean dollar gains earned by their clients.14 4.8 Determinants of target abnormal wealth gains Table 7 presents the findings on the effect of advisor reputation on target abnormal wealth gains after controlling for various deal and firm characteristics as in Table 5. The findings lend support to the univariate results in Table 6 as the coefficient on the target advisor reputation dummy is positive and significant in models (1) (2) and (3).15 Moreover, similar to Kale et al. (2003), it is found that when the target advisor is more reputable than the acquirer, target gains are bound to be higher, as in model (4) the coefficient of the superior reputation dummy is significant at the 5% level. The equity payment dummy which is negative and significant in model (4) only, indicates that equity exchange offers result in lower dollar gains than cash and mixed settlement deals, which is consistent with the standard M&A literature (see for example Huang and Walkling 1987; Franks et al. 1991). However, the cash payment dummy is significantly negative in models (2), (3) and (4) implying that cash settlement deals 14

The ranking tables are available upon request.

15

The number of observations in Model 2 is smaller than in Model 1 because the sample in Model 1 is a trimmed sample where 5% from both sides of the distribution of acquirer abnormal dollar gains are excluded; whereas in Model 2 only large loss deals are excluded.

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A. Ismail Table 7 Determinants of target wealth gains

Intercept

(1)

(2) Excluding large loss deals

(3)

(4)

-58.422***

-153.865***

-83.862***

-102.515***

Acquirer advisor tier-one Target advisor tier-one

5.538 29.728***

54.705***

33.809***

Target advisor tier-one and acquirer advisor tier-two

12.675**

Shares

1.404

-13.454

-6.137

-7.697*

Cash

-4.399

-29.994**

-8.254***

-8.559*


6.249**

11.217

12.015***

14.694***

National

3.427

8.303

8.272

16.853**

Hostile

18.725***

95.483***

26.424**

33.240***

Relative size

7.337***

18.594***

7.549***

9.624***

Toehold

-14.131**

-27.825

-15.811*

-14.498

Ln (acquirer equity)

10.664***

25.844***

14.271***

17.475***

Adj R-Sq

0.2845

0.1253

0.311

0.2525

F-value

59.36***

23.28***

43.71***

36.58***


1,321

1,400

948

948

The table presents ordinary least square regressions of the total dollar gains for the target firm shareholders for deals completed by US acquirers between Jan 1985 and April 2004 as reported by SDC excluding all financial institutions deals where the deal value is at least $1 million and the acquirer gains control of the target firm. The sample was trimmed by deleting 5% of the largest and smallest wealth gains. The independent variables include dummies for acquirer advisor tier, the target advisor tier, the target advisor tier relative to acquirer advisor tier, cash, shares, industry relatedness, national, hostile, and toehold that take the value one if acquirer advisor is tier-one, the target advisor is tier-one, the target advisor is tier-one while the acquirer advisor is tier-two, for acquisitions using pure cash, pure equity, acquisitions of firms that share the bidder the same two-digit SIC code, acquisitions of US targets, hostile acquisitions as defined in SDC, and deals where the acquirer had at least 5% ownership in the target firm prior to the acquisition, respectively. Relative size is the target market value of equity divided by the acquirer market value of equity 2 months prior to the acquisition announcement, and Ln (Equity) is the natural logarithm of the acquirer market value of equity 2 months prior to the deal announcement. Model (2) controls for large loss deals; these are defined as those that result in acquirer dollar loss of at least $1 billion. I also include year and onedigit SIC code dummies in all models but do not report them ***, **, * Significant at the 1%, 5% and 10% respectively

result in lower gains than mixed offers.16 The hostile dummy is also positive and significant as such deals are accompanied with higher merger premiums. The negative and significant coefficient of the toehold dummy in models (1) and (3) indicates that toehold presence reinforces the bidder’s position during the deal negotiation process, or it could lessen information asymmetry about the true performance and value of the target firm. In the same vein, Ismail (2008) found that deals with acquirer toehold result in paying lower premiums. The significant positive coefficient of the industry relatedness dummy implies that industry 16 The negative coefficient on the cash payment dummy may look contradictory to the standard M&A literature. However, it is worthwhile noting that such literature uses the CAR as a dependent variable, while this study uses the dollar gains which are a function of both the CAR and the deal size. Moreover, a univariate analysis of target mean dollar gains controlling for the method of payment shows that those gains are larger for mixed offers, than for equity offer which are also larger than for cash deals ($102.07 million, $68.94 million and 65.81 million, respectively).

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focus deals are more favourably received by the market than diversified acquisitions. The acquirer size and relative size coefficients are both significantly positive. On the other hand, the acquirer advisor reputation does not seem to have a significant effect on the target wealth gain as the coefficient is insignificant in model (3). 4.9 Can inference be drawn from the differential reputation of acquirer and target advisors? In this section the analysis is restricted to deals that are either advised by tier-one or tiertwo advisors, that is, In-House and Undisclosed deals are excluded. The performance of investment banks is analyzed across the tier of the target and the acquirer advisors simultaneously, using, in addition to target and acquirer gains, the combined dollar gains for both parties. Table 8 shows that even in the presence of a tier-one acquirer advisor, in terms of total abnormal dollar gains, acquiring firms lose more (-$28.83 billion vs. -$10.22 billion) while target firms and the combined entity gain more ($44.77 billion vs. 17.34 billion and $15.9 billion vs. $7.12 billion, respectively) when targets employ a tier-one advisor than when they utilize a tier-two bank. The mean dollar gains also show the same outcome. A very similar pattern of dollar gains is observed when the acquirers employ a tier-two bank, except that the combined entity’s gain is lower (-$6.9 billion) when targets employ tier-one banks, which is, obviously, driven by the large acquirer losses in this sub-sample. However, if the comparison is conducted based on the target advisor’s reputation level, it is found that, irrespective of the target advisor tier, acquirers’ gains are worse (-$28.8 vs. -$19.1 billion) while the targets and the combined entity’s gains are better ($44.77 vs. $12.24 billion and $15.94 vs. -$6.94 billion respectively) when acquirers employ a tier-one advisor than if they use a tier-two investment bank. Table 8 Simultaneous comparative performance of tier-one and tier two acquirer and target advisors Acquirer advisor tier Target advisor tier

Tier-one

Tier-two

N

Total dollar gains

Mean dollar gain

N

Total dollar gains

Mean dollar gain

-122.91

Tier-one Acquirer

282

-28,833.77

-102.25

156

-19,173.20

Target

282

44,770.84

158.76

156

12,237.38

78.44

Combined

282

15,937.07

56.51

156

-6,935.83

-44.46

Tier-two Acquirer

275

-10,221.35

-37.17

341

-2,337.77

-6.86

Target

275

17,340.61

63.06

341

5,573.55

16.34

Combined

275

7,119.26

25.89

341

3,235.78

9.49

The table presents the comparative performance of tier-one and tier-two financial advisors for deals that were completed between Jan 1985 and April 2004 as reported by SDC excluding all financial institutions deals; where the deal value is at least $1 million and the acquirer gains control of a public, private or a subsidiary target firm. The total dollar gain is calculated as the market capitalization 2 months prior to the announcement of the merger multiplied by the CAR (-2, ?2). CAR (-2, ?2) is the 5-day cumulative abnormal returns estimated using the market model. The mean dollar gain is the total dollar gain divided by the number of deals advised by each advisor. For the combined entity here I define the total dollar gains as the sum of the gains accruing to each party. Dollar amounts are in millions

123

A. Ismail

These results imply that target advisors are able to extract more gains for their clients, which lead to a higher combined gain at the expense of the acquirer. This, once again, is consistent with the superior deal hypothesis for the target advisors and with the deal completion hypothesis for the acquirer advisors. Additionally, the combined wealth results support the superior deal hypothesis, as larger gains are attributed to the high reputation of both parties’ advisors. 4.10 Determinants of combined abnormal wealth gains The results on the combined wealth gains to the acquirer and target firms are presented in Table 9. In addition to the variables used earlier in this study, two additional dummies are included; these are set equal to one if one advisor is tier-one and if both advisors are

Table 9 Cross sectional regression analyses (1)

(2) Excluding large loss deals

(3)

(4)

(5)

Intercept

16.244

15.262

31.020

13.261

35.241

Acquirer advisor tier-one

30.481**

30.007**

Target advisor tier-one

28.095**

32.285**

Both advisors tier-one

40.077**

Either advisor tier-one

41.758***

Target advisor tier-one and acq. advisor tier-two

5.309

Shares

-30.073*

-29.795*

-31.866*

-30.345*

-33.455**

Cash

29.095

27.785

29.263

27.762

27.116


12.813

14.349

13.159

13.271

14.151

National

-26.078

-26.139

-23.179

-24.066

-17.934

Hostile

68.426*

67.632*

69.266*

74.857*

80.669**

Relative size

-1.016

-0.662

-1.720

-0.897

-1.955 -33.836

Toehold

-35.181

-35.571

-35.896

-33.695

Adj R-Sq

0.0266

0.0278

0.0228

0.0254

0.0161

F-value

3.88 ***

3.99***

3.77***

4.09***

2.94***


948

942

948

948

948

The table presents ordinary least square regressions of the combined dollar gains for the target and acquirer firms’ shareholders for deals completed by US acquirers between Jan 1985 and April 2004 as reported by SDC excluding all financial institutions deals where the deal value is at least $1 million and the acquirer gains control of the target firm. The sample was trimmed by deleting 5% of the largest and smallest wealth gains. The independent variables include dummies for acquirer advisor tier, target advisor tier, both advisors tier, either advisor tier, target advisor tier relative to acquirer advisor tier, cash, shares, industry relatedness, national, hostile, and toehold that take the value one if acquirer advisor is tier-one, the target advisor is tierone, both advisors are tier-one, either advisor is tier-one, the target advisor is tier-one while the acquirer advisor is tier-two, for acquisitions using pure cash, pure equity, acquisitions of firms that share the bidder the same two-digit SIC code, acquisitions of US targets, hostile acquisitions as defined in SDC, and deals where the acquirer had at least 5% ownership in the target firm prior to the acquisition, respectively. Relative size is the target market value of equity divided by the acquirer market value of equity 2 months prior to the acquisition announcement. Model (2) controls for large loss deals; these are defined as those that result in acquirer dollar loss of at least $1 billion. I also include year and one-digit SIC code dummies in all models but do not report them ***, **, * Significant at the 1%, 5% and 10% respectively

123


tier-one, zero otherwise. In model (1) the coefficients of the advisors’ reputation dummies are both significant at the 5% level implying that combined wealth gains are larger for deals with a tier-one acquirer advisor and a tier-one target advisor. The results are confirmed in model (2), which excludes large loss deals and in model (3) as the coefficient on both advisors’ reputation dummies is significantly positive. On the other hand, model (4) shows that when one of the parties’ advisors is in tier-one, the combined wealth gains would be significantly higher as well, this is consistent with Bowers and Miller (1990) and with the univariate analysis of Table 8. Moreover, the remaining coefficients were consistent across all the models. For instance, the significant negative coefficient of the equity settlement dummy indicates that lower gains are expected for equity deals; this is consistent with prior M&A studies (see e.g. Eckbo and Langohr 1989; Franks et al. 1991; and Ismail and Davidson 2005). Furthermore, the positive coefficient of the hostile deal dummy denotes that such deals result in larger wealth gains as well.

5 Conclusion The study investigated whether employing high quality financial advisors results in larger gains to targets, bidders and the combined entity. For a sample of 6,379 US M&A deals completed between 1985 and 2004, the study found that employing prestigious financial advisors (tier-one) destroyed value of more than $42 billion for acquiring firms’ shareholders; whereas acquirers advised by tier-two investment banks generated a total dollar gain of more than $13.5 billion. Six advisors, out of the top ten, wiped out the gains created by the remaining four investment banks. These results hold irrespective of the acquirer size and the deal size (large or small). I also found evidence that larger premiums are paid in large deals as compared to small deals, which indicates that investment banks might have different incentives when they advise on large deals as opposed to small ones. On the other hand, it is also found that tier-one banks were involved in most of the large loss deals, and that if they had not advised on those deals, they could have outperformed tier-two advisors. Moreover, another key finding was that during the internet bubble period both type of advisors generated large gains to their acquirer clients but tier-one advisors outperformed tier-two advisors. I also find that most of the losses incurred by acquiring firms were in fact, during the bear market period, and if this period were excluded from the sample, tierone acquirer advisors could have outperformed tier-two advisors. The ranking of investment banks showed that less prestigious advisors occupied the highest positions in terms of the mean dollar gains earned by acquirers, however, tier-one advisors rarely occupied high rankings. The industry implications of these results are that advisors’ reputation league tables, based on market share, could be misleading as they do not necessarily propose that top-tier banks will generate high gains to their clients; and therefore the selection of investment banks must be based on the advisors’ track record in generating quality gains to their clients in prior acquisitions. On the other hand, the results for target advisors were consistent with the superior deal hypothesis as tier-one investment banks’ clients generated larger gains. Moreover, the ranking of target advisors showed that most of the tier-one investment banks were at the top of the league table. Additionally, the paper found that the existence of a prestigious advisor on at least one side of an M&A transaction results in higher wealth gains to the combined entity. There is

123

A. Ismail

also evidence that target advisors are able to extract more wealth gains for their clients which lead to higher combined gains at the expense of the acquirer. After controlling for various deal and firm characteristics, multivariate analyses on acquirer, target and combined wealth gains were all supportive of the univariate results. The regressions documented no relation between the acquirer advisor tier and the acquirer wealth gains. However, the results also showed that acquirers’ gains are smaller when the target advisor is tier-one. Targets also gain more when their advisor is more reputable than that of the acquirer.

Appendix A See Table 10.

Table 10 Comparative performance of acquirers financial advisors accounting for the internet bubble Financial advisor

No. of acquirers

Total dollar gain

Mean dollar gain

Panel A: the performance during the bubble period Top 10 advisors (tier-one) Other advisors (tier-two)

766

61,574.87

80.38

1,068

25,374.59

23.76

Undisclosed

967

102,851.27

106.36

In-house deals

132

-66,049.88

-500.38 -135.48

Panel B: the performance outside the bubble period 768

-104,047.83



1,191

-11,828.20

-9.93

Undisclosed

1,479

-107,877.11

-72.94

8

-49,631.43

-6,203.93

In-house deals

Panel C: the performance during the bear market period between Mar 13, 2000 and Sept. 30, 2002 Top 10 advisors (tier-one)

309

-79,644.50


380

-6,452.81

-16.98

Undisclosed

546

-124,607.01

-228.22

6

-49,643.02

-8,273.84

In-house deals

-257.75

Panel D: the performance EXCLUDING the bear market period between Mar 13, 2000 and Sept. 30, 2002 Top 10 advisors (tier-one)

1,225

37,172

30.34


1,879

19,999

10.64

Undisclosed

1,900

119,581

62.94

134

-66,038

-492.82

In-house deals

The table presents the performance of acquirer financial advisors after accounting for the internet Bubble where the bubble period is between Jan 1995 and March 10, 2000 (Panels A and B). The Table also shows the results during the bear market period between Mar. 13, 2000 and Sept. 30, 2002 and the results after excluding this period from the total sample (Panels C and D). The deals were completed between Jan 1985 and April 2004 as reported by SDC excluding all financial institutions deals; where the deal value is at least $1 million and the acquirer gains control of a public, private or a subsidiary target firm The total dollar gain is calculated as the market capitalization 2 months prior to the announcement of the merger multiplied by the CAR (-2, ?2). CAR (-2, ?2) is the 5-day cumulative abnormal returns estimated using the market model. The mean dollar gain is the total dollar gain divided by the number of deals advised by each advisor. Dollar amounts are in millions

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