The New York Times asks, "Is Merger Advice Worth the Price?"

Today's DealBook blog notes that the big Wall Street investment banks don't seem to be the bankers representing buyers with the best returns. As I noted in my comment, it would be useful to have access to the study. Those really interested in the question of whether M and A pays should read Robert Bruner's analysis of the analyses in Applied Mergers and Acquisitions. A link to the blog posting and comments is in the sidebar. My comment is reproduced below:

The surprising aspect of this study is in the penultimate paragraph of the story: “buyers in the analysis have outperformed their peers, some significantly.” As Wannabe Banker suggests, go read Bruner’s Applied Mergers and Acquisitions, in which he devotes a chapter to analyzing numerous studies using a variety of methodologies (including market performance) and concludes that buyers on average don’t do very well. (In his view more than offset by the gains of sellers.) In the case of the Capital IQ analysis, the period covered was one of rising stock prices, but the comparison between the market success of those doing big deals and those not doing big deals is striking. It would be interesting to have the methodology and results generally available.

But what does any of this have to do with the investment banking firm hired? What is the cause of the lack of relative success of certain deals? Did the buyer overpay (the usual market perception) or did the buyer fail to execute (the usual fact). The former may have little to do with the banker and the latter none whatsoever. Perhaps the banks that did relatively poorly just happen to represent large, less skilled corporations.

Do investment banks add value in a deal. Of course. Their analysis and guidance is usually skillful and insightful. They give great comfort to CEOs (”We hired the best.”) Are they objectively worth the fees they receive?

Deal Lawyer