Essays in Mergers and Acquisitions: Roles of the Third Party

Merger and Acquisition market is a very active section of the financial market,involving multi-trillion dollar businesses every year. Extensive research has been done on this field, mostly focusing on the two parties of the trade, namely the acquirer and the target. However, the third party like deal advisors and risk arbitrageurs play very important roles in these transactions too. They not only get directly involved by negotiating the price and the terms, but also indirectly influence deal outcomes and facilitate price discovery by trading both party's equities. In the first part of this study, we focus on risk arbitrageurs. They participate the Mergers and Acquisitions games by providing the target shareholders a safe exit and make money from the speculative spread . But if and why risk arbitrageurs earn risk adjusted excess returns is a big unanswered question in the Mergers and Acquisitions literature. Our empirical study shows that deal characteristics, as well as market conditions affect risk arbitrageur's return. More importantly, after considering the liquidity risk (for which we use VIX as the proxy) Mergers and Acquisitions arbitrageurs are not making excess return.

In the second part of this study, we turn our attention to financial advisors. We examine the effect of using boutique vs. full service investment banks as financial advisors on deal outcomes and shareholder's wealth in Mergers and Acquisitions transactions. Boutique investment banks are defined as independent financial advisors whose focus is Mergers and Acquisitions advising. This is the first paper to examine the role of financial advisors from this perspective. We find that deal size and target management's attitude towards the deal are important factors that affect acquirer's choice of boutique versus full service advisors. We also find that on average, boutique advisors achieve a higher deal success rate while it takes them a longer time to complete deals. Boutique bank's expertise in valuation is more appreciated than their independence by both the client and the market. They are better advisors in particular deals because of their expertise.