The value of “boutique” financial advisors in mergers and acquisitions

Between 1995 and 2006 about a quarter of merging firms hired boutique banks as their advisors on mergers and acquisitions (M&A). Boutique advisors, often specialized by industry, are generally smaller and more independent than full-service banks. This paper investigates firms' choice between boutique and full-service advisors and the impact of advisor choice on deal outcomes. We find that both acquirers and targets are more likely to choose boutique advisors in complex deals, suggesting that boutique advisors are chosen for their skill and expertise. After controlling for the endogenous choice of advisors, we find lower deal premiums when acquirers hire boutique advisors. In addition, boutique advisors spend more time, probably on due diligence and negotiation, to complete deals. Overall, our findings suggest that boutique advisors are chosen in more complex deals and they achieve more favorable deal outcomes.

►We investigate how merging firms choose between boutique and full-service advisors. ►We also investigate how this choice affects deal outcomes in M&A transactions. ►Firms tend to choose boutique advisors when facing a deal with greater complexity. ►The premium is lower if boutique advisors are used on the acquirer side.