The Impact of Past Syndicate Alliances on the Consolidation of Financial Institutions

Abstract

The impact of past syndicate alliances on the consolidation of financial institutions is examined. The odds of two lenders combining increases with the intensity and exclusivity of their prior syndicated loan alliances. The impact is higher for international mergers and acquisitions (M&As) and for prior syndicate co‐relationships where the acquirer and target were participant and lead, respectively. The odds of a particular lender being a target decreases as its return on equity (ROE) and earnings/price (E/P) ratios increase and as its size and growth opportunities decrease. The intensity and exclusivity of the syndicated loan alliances leading up to M&A announcements are significantly higher for non‐US versus US M&As. The significantly lower short‐ and long‐term performances for both acquirers and targets with prior syndicate co‐involvements disappear in the presence of control variables that account for the less frequent use of cash payments, the greater incidence of divestitures, and the higher percentage of shares acquired through their M&As. Acquirers with versus those without past syndicate target co‐involvements exhibit greater outperformance for control‐firm benchmarked ROEs and lower underperformance for control‐firm and prior‐to‐M&A benchmarked ROEs.

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