Herding wolves? Centre members publish Harvard Business Review piece on how to navigate the modern M&A advisory arena
Acquisitions are central to corporate restructuring because they allow companies to acquire new assets, technologies, market share, and talent. This can help them streamline operations, increase profitability, and grow their business. However, acquisitions can also drive the failure rate of corporate restructuring because they can be complex and challenging to integrate. If not executed properly, they can lead to cultural conflicts, operational inefficiencies, and financial losses, all of which can harm the success of the restructuring effort.
Killian McCarthy, Rick Aalbers and Arjan Groen, all standing members of the Centre for Organization Restructuring recently published on this phenomenon in the Harvard Business Review. In their study they outline how every year, companies pursuing M&A deals spend nearly $40 billion on advisors. These investment bankers, lawyers, and other professionals are hired to provide domain-specific expertise to the acquirer or acquiree, an independent “second opinion” for the board, or other services to help close a deal.
But do these advisors as external subject matter specialists actually add value to the mergers and acquisitions they’re meant to support? Or is some nuancing in place in terms of their alleged value added? The authoring team analyzed market reactions to more than 10,000 U.S.-based acquisitions and found that indeed, companies that announced the involvement of one advisor, on average, outperformed those that did not announce any. However, they also found that companies with two advisors performed worse than those with none, and every additional advisor after that led to even worse stock market reactions. So what drove this surprising effect? Check out the full answer here from the source.