As an integral part of the investment banking industry, mergers and acquisitions always involve two sides in every transaction—buy-side and sell-side.
What are the roles of each side? What are the main sell-side VS buy-side differences? And what is buy-side VS sell-side all about in M&A transactions? Get answers by reading the detailed guide below.
What is a buy-side?
In the financial market, the buy-side refers to the entities that are involved in the process of acquisition. Buy-side firms work with a buyer and find beneficial opportunities for them to acquire other businesses.
What is a sell-side?
On the other hand, the sell-side refers to the entities that are involved in the process of sale. Sell-side firms work with sellers and try to find a counterparty for a sale of the client’s business—the buyer.
Buy-side vs sell-side: Key differences
Although the difference between the sell-side and buy-side might be obvious on the surface, there’s still no strict borderline between both sides. Let’s dig deeper into the concept of each side of M&A transactions.
Buy-side VS sell-side differences are mostly identified within four categories: goal, role, structure, and institutions involved. Let’s compare these categories of each side in more detail.
On the sell side of the financial markets, there are specialists who assist their clients (businesses and corporations) in raising capital by selling securities.
For example, when a certain corporation wants to raise money to build a new plant or factory, it will contact its investment banker and ask to issue some debt or equity that allows starting the construction.
This will give a start to investment bankers working on the extensive analysis of the company by performing financial modeling to evaluate the business and determine the cost that potential investors—acquirers—might pay.
The next step is to advertise this potential investment to interested buyers.
The main goal of sell-side firms is to help businesses sell securities. Sell-side firms mainly do it by advising companies on every step of the financial transaction, conducting internal research to identify investment opportunities, and then pitching the potential investment to possible investors.
On a large account, the mission of many sell-side analysts is to sell the idea and strategy.
This is what exactly a sell-side does in the investment banking process:
- Pitch and advertise and sell strategy and potential acquisition
- Help companies raise capital and streamline that process
- Consult corporate clients on such major transactions as mergers and acquisitions
- Advise on effective due diligence process
- Perform private equity research on listed companies
- Conduct extensive financial modeling and business evaluation
- Build connections with new businesses
- Assist companies in getting in and out of positions
- Raise liquidity for listed companies
Below is the list of professionals who usually perform on behalf of the sell-side:
- Investment bankers
- Sell-side analyst
- Market makers
- Commercial bankers
They provide insights into financial trends and projections and do research on the company’s investment potential. Based on that information, they make publicly available reports that are later used by buy-side analysts.
When it comes to the institutions that are usually responsible for the sell-side research, the M&A market defines the following:
- Investment banks
- Commercial banking institutions
- Stock market brokerage firms
- Advisory firms
The buy-side of a deal is represented by specialists who help an acquirer buy securities offered by the sell-side.
For instance, an asset management firm has a fund that invests in alternative energy companies. The portfolio manager of the firm seeks opportunities to invest money in offers that seem the most attractive and beneficial.
One day, the vice president of equity sales at a major investment bank calls a portfolio manager, informing him that there’s an upcoming initial public offering in a company from the alternative energy sector. The project manager considers this offer a beneficial one and buys securities of the sell-side.
The main goal of buy-side firms is to help their clients make successful investments and get investment returns. They make investment decisions based on research of the financial analysis conducted by the sell-side and many other factors.
Simply put, the mission of the buy-side firm is to help its clients generate earnings after a beneficial investment or acquisition.
The buy-side analyst’s job comprises the following responsibilities:
- Manage clients’ money
- Make investment decisions that adhere to the firm’s investment strategy
- Advise on the fair purchase price
- Conduct financial analysis and evaluation
- Do internal research on the potential investment’s performance
- Find investors and raise capital to manage
- Increase the number of assets under management
The list of professionals who perform on the buy-side behalf includes:
- Buy-side analyst
- Asset managers
- Institutional investors
- Retail investors
They analyze reports made by the sell-side and make their own research based on it. Reports made by the buy-side are usually not publicly available.
Among the institutions that are responsible for the buy-side investment banking activity are usually the following:
- Hedge funds
- Pension funds
- Mutual funds
- Asset management firm
- Private equity firm
- Private and public companies
Sell-side vs buy-side M&A
Buy-side and sell-side in mergers and acquisitions focus entirely on finding the opportunities for M&A transactions. The buy-side finds the most beneficial opportunities for the buyer, and the sell-side—for the seller.
In short, the goal of the sell-side is to find a potential acquirer who is ready to propose a beneficial deal. On the contrary, the buy-side’s mission is to help clients generate capital from the acquisition.
Note: Discover our dedicated articles to learn more about sell- and buy-side roles in different types of deals: reverse triangular mergers, vertical and horizontal mergers, conglomerate integration examples, and SPAC mergers.
Finance specialists define the sell-side and buy-side as different parts of the M&A process, practically, the difference between them isn’t that strict but rather conditional. Moreover, they can switch roles during the actual transaction.
Now, let’s review each side’s M&A role in more detail.
Sell-side role in an M&A transaction
Among the main responsibilities of the sell-side in an M&A deal are the following:
- Advertising the sell-side offer and readiness for the M&A transaction
- Attracting specific financial buyers (usually private equity firms)
- Identifying investors who would be interested in a deal
- Advising on the transaction and due diligence process
- Evaluating the selling company and performing financial modeling
- Facilitating a potential deal and acting as an intermediary
Buy-side role in an M&A transaction
The roles of the buy-side greatly depend on the type of M&A transaction, however, they usually include the following:
- Looking for a potential M&A deal for a client to generate capital
- Evaluating the company and making an in-house financial analysis to find out whether it’s worth investing
- Conducting due diligence on potential transactions
- Continued management of the client’s portfolio
The roles of the buy-side and sell-side of an M&A deal are only based on the client they work with—the buyer or seller. The main sell-side VS buy-side differences in M&A deals in general are mostly identified within their goals, roles, structure, and involved institutions.
The sell-side is usually represented by investment banks, commercial banking institutions, advisory firms, and stock market brokerage firms. Sell-side analysts, investment bankers, and stockbrokers assist their clients in raising capital by selling securities.
The buy-side is represented by asset public and private companies, management firms, hedge funds, mutual funds, and private equity firms. Buy-side analysts, asset managers, institutional investors, and retail investors help their clients to generate investment returns by means of an M&A deal.