Sell-Side VS Buy-Side in M&A: Concept and Differences

These individuals perform research and make recommendations to the money managers of the fund that employs them. Buy-side investment banks are usually contracted by large strategic acquirers or private equity firms to search for companies they can acquire or invest in, as well as to evaluate the integrity of a potential investment. Their goal is to optimize contract terms for the buyer while also closing a successful deal. Sell-side investment banks are most often retained by founders and private equity firms to liquidate all or a portion of their equity in their company. Founders who hire a sell-side firm sell-side vs buy-side recognize that an experienced investment bank will be better positioned to negotiate with an experienced buyer during the transaction process. Being a data-driven firm means you are more informed and can find opportunities earlier and faster than your competition.

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They also recognize the value of having existing industry connections since, for many decades, the private equity industry functioned almost entirely on “who you knew.” To reiterate, sell-side equity research analysts are typically part of an investment bank and focus on a universe of stocks within one or two industries in order to provide insightful investment ideas and recommendations. When talking https://www.xcritical.com/ about financial market institutions, it is common to make an artificial distinction between buy-side and sell-side companies.

Case Studies of Successful Sell Side and Buy Side M&A Deals

A sell-side analyst is an analyst who works in investment banking, equity research, commercial banking, corporate banking, or sales and trading. For instance, a buy-side analyst who is monitoring the price of a technology stock observes a drop in the price, as compared to other stocks, yet the tech company’s performance is still high. The analyst may then make an assumption that the tech stock’s price will increase in the near future.

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That’s because when a seller has retained an investment bank, they usually decide to sell, increasing the likelihood that a deal will happen and that a bank will collect its fees. Meanwhile, investment banks often pitch to buy side clients, which doesn’t always materialize into deals. Until several decades ago, most funds relied on sell-side research from brokerage firms. However, as the industry grew and became more competitive, many large institutional investors began to build their own in-house research teams to gain an edge in the market.

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We, at Devensoft, specialize in assisting companies in streamlining and optimizing their entire M&A process. In this article, we’ll explore the key differences between sell side and buy side transactions, including the benefits and drawbacks of each approach. Whether you’re a buyer or a seller, having a solid understanding of these differences can help you achieve your desired outcomes in M&A markets. Modern VDR providers offer numerous benefits when it comes to secure data sharing between third parties and effective collaboration, which is essential for the financial market and especially the investment banking industry. The buy-side investment banking team analyzes the reports made publicly available by the sell-side team, makes its reports based on that, and decides on investment opportunities. That’s because asset management firms like Blackrock tend to have somewhat different operations and roles than does Blackstone’s private equity fund.

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Their goal is to drive trading activity and support their firm’s sales and trading operations, often with a shorter-term focus. Buy-side research is conducted by institutional investors such as mutual funds, hedge funds, and asset managers. These analysts focus on developing in-depth, proprietary insights to support their firms’ investment strategies and maximize portfolio returns.

The Ultimate Guide to Post Merger (M&A) Integration Process

Mike Kimpel is the Founder and CEO of Finance|able, a next-generation Finance Career Training platform. Mike has worked in Investment Banking, Private Equity, Hedge Fund, and Mutual Fund roles during his career. If the firm invests in Stocks, they collect cash flows (Dividends for Stocks and Interest for Bonds) and then the investors aim to sell the Stock or Bond again. Going Long is what you’d think of as a typical Stock purchase in your brokerage or retirement account. When you buy a stock at a certain price, you make money when it goes up in value and you sell.

Buy-side role in an M&A transaction

The end goal is to generate a return when they sell (liquidate) that investment down the road. Broadly speaking, the Buyside consists of firms that take in capital from investors and aim to generate a return. The fee is usually based on a percentage of the money the firm manages and/or the profit generated.

One example of a successful sell side M&A deal is the sale of Lucasfilm to Disney in 2012. Lucasfilm was looking to divest itself of its non-core business units, and Disney was looking to expand its market presence. The deal was valued at $4.05 billion and allowed Disney to acquire the Star Wars franchise, which has since become one of the most successful movie franchises in history. However, while the research reports can contain practical insights surrounding a specific company (and industry), the recommendations should not be taken at face value for a multitude of reasons.

• Institutional investors value one-on-one meetings with company management and will reward those analysts who arrange those meetings.
• For instance, an asset management firm has a fund that invests in alternative energy companies.
• The sell-side of Wall Street includes investment bankers, who serve as intermediaries between issuers of securities and the investing public, and the market makers who provide liquidity in the public market.
• Elon Musk’s takeover of Twitter is the most notable leveraged buyout in recent history, and the public reaction to that illustrates the backlash that may accompany an LBO.
• When you are considering a sell-side recommendation, it’s important to determine whether the recommendation suits your individual investment style.

On the other hand, the sell-side refers to the entities and individuals involved in the sale process. Sell-side firms work with the selling company and assist in finding the best acquirer and selling the company for the best price and conditions. In all these roles, you are coordinating financial transactions and the underwriting of new securities.

However, there are also some significant drawbacks to buy side M&A, including the potential for overpaying for a business or asset and the risk of inheriting hidden liabilities or other issues. One of the key advantages of sell side M&A is that it allows the seller to control the process, setting the terms and conditions of the sale and choosing the most favorable offer. This can be particularly advantageous if the seller is looking to maximize their return on investment or is seeking to exit the market quickly. Additionally, sell side M&A can be a more straightforward process than buy side M&A, as the seller is only dealing with one potential buyer. Due to the nature of their responsibilities, quant researchers tend to have the most impact on the performance of quantitative hedge funds or proprietary firms. As a consequence, quantitative researchers also tend to have very attractive salaries with large upside.

Sell side M&A can be a good strategy for those looking to divest themselves of a business or asset, while buy side M&A can be a good strategy for those looking to expand their market presence and gain a competitive advantage. However, both approaches have their advantages and disadvantages, and it’s important to carefully consider your goals and prepare thoroughly before entering any M&A transaction. With the right approach and preparation, M&A can be a powerful tool for growing and expanding your business. On the other hand, if you are on the buy-side, what you do is use capital to purchase these securities or companies that are for sale.

Conversely, the sell-side could use DealRoom to find a counterparty for the client’s business. Buy-Side Analysts Focus on creating detailed, long-term investment strategies for their firm’s portfolio. Their analysis tends to be more in-depth and proprietary, aimed at achieving high returns over time. Accuracy is critical, as their firm directly acts on their recommendations, impacting the overall performance of the managed funds.

They may earn bonuses based on the revenue generated from their research through trading commissions or investment banking deals rather than direct investment performance. Examples of institutional investors include private equity firms (PE) and hedge funds. Buy-side analysts often work closely with portfolio managers and traders to align their research with their fund’s investment strategies. Sell-side analysts, meanwhile, might collaborate with investment bankers, sales teams, and brokers.

The theme, context, and subject of messages, stories, cases, and testimonials on this website are factual, while the supporting images/ graphics, etc., have been used only for effect, with due permissions, if required. A buy-side analyst is much more concerned about being right than a sell-side analyst is. In fact, avoiding the negative is often a key part of the buy-side analyst’s job, and many analysts pursue their job from the mindset of figuring out what can go wrong with an idea.

If you look at this in terms of Deals vs. Public Markets vs. Support, “Deal” roles have less predictable hours, with plenty of spikes up and down based on what different buyers, sellers, and target companies are requesting. In “Support” roles, the work is driven by monthly processes in areas like corporate finance, and it’s more about projects, research, and long-term planning in something like strategy. They earn money from a management fee charged on their assets under management (AUM) and a performance fee, often 20% of the profits above a certain hurdle rate. Level up your career with the world’s most recognized private equity investing program. Overall, these regulatory changes have improved the quality, reliability, and transparency of research, benefiting both buy-side and sell-side analysts in making informed investment decisions. Although both sell-side and buy-side analysts are charged with following and assessing stocks, there are many differences between the two jobs.