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Difference Between Buy Side vs. Sell Side M&A

The global financial markets have witnessed an uptick in M&A transactions in recent years, with projections indicating that this activity will continue to increase for the foreseeable future. 

  • Between 2005 – 2009, the average number of M&A transactions per year was 13,500.
  • From 2014 – 2018, that average increased to about 21,500.

Understanding the varying roles of buy side versus sell side M&A is crucial in achieving a nuanced perspective on how these strategic transactions fit into the global financial market. Still, many people fail to grasp a complete comprehension of the function of each side. Here we give you a full overview of buy side vs. sell side M&A and the particulars of origination strategy.

Buy Side vs. Sell Side in Financial Markets

Before going into the specifics of buy side versus sell side within the M&A sector, it will be useful to acquire a more general understanding of these two roles within finance. Generally, the sell side is made up of investment banks or advisory firms that assist companies to sell securities to the buy side. The buy side is made up of institutional investors. At times, investment banks also conduct activities on the buy side, but this is generally the exception – not the rule. There are also various other firms that participate in the buy side but are less relevant when discussing the market as a whole.

These two sectors within the financial services industry are not exclusive to M&A transactions. 

Sell side firms provide various services to companies interested in selling securities (debt and equity), most notably raising awareness and then facilitating these strategic transactions. 

Institutional investors make up the buy side of securities transactions and include several key actors that you are probably familiar with:

  • Hedge Funds
  • Mutual Funds
  • Pension Funds
  • Sovereign Funds
  • Private Equity Firms
  • Private and Public Companies

When looking at M&A transactions specifically, there are several key features worth noting. 

M&A Transactions

Mergers and acquisitions refer specifically to the transfer or consolidation of company assets. There are several key types of transactions that make up the M&A sector:

  • Merger – when two companies combine
  • Acquisition – when one company purchases a majority stake in another
  • Consolidation – when two or more companies combine to create a new firm
  • Tender Offer – when a company purchases all of the outstanding stock of another company
  • Acquisition of Assets – when a firm purchases a company’s assets 
  • Management Acquisition – when the company’s management leadership purchases the company from the shareholders

Sell Side Role in M&A Transactions

For the sell side, there will always be an investment bank or advisory firm facilitating the transaction. This role would also apply to a merger or consolidation, where the facilitator would represent the sell side outright. 

The major roles of the sell side in an M&A transaction include:

  • Creating awareness about the deal from the outset and attracting specific financial buyers (usually private equity firms)
  • Providing advisory on how to go about the M&A transaction to both the sellers and financial buyers
  • Modeling and evaluating the company 
  • Facilitating and mediating any potential deal

Buy Side Role in M&A Transactions

Buy side roles vary depending on the transaction in question. Generally, a private equity firm is the most active player on the buy side of the M&A market. 

When investing on the buy side, there are several key activities at play:

  • Searching for potential M&A transactions through deal origination
  • Modeling and evaluating the company to determine whether to go through with a transaction
  • Researching and conducting due diligence on potential transactions
  • Continued management of the portfolio 

Private equity firms play such a prominent role in the buy side M&A market because these companies are continuously making acquisitions. Most of their activities include determining whether to buy, hold, or sell their various assets to continuously generate profit through their portfolio. 

Deal origination represents a critical part of buy side activities for both sell side and buy side firms.

Deal Origination 

In simple terms, deal origination is the process of uncovering potential M&A transactions.

Firms are continuously monitoring the market for potential acquisitions through research, lead generation, and communication with clients. However, origination strategy has witnessed a shift in recent years, as various fintech companies have streamlined deal sourcing through technology.

Online deal origination refers to the virtual integration of deal opportunities into online platforms, which buy side and sell side companies access in order to uncover new opportunities in the M&A market. With this, we’ve seen a huge impact of technology on the investment banking industry.

This enhanced accessibility of deal management software is a major reason for increased activity in the M&A sector, with companies like SourceScrub streamlining the investment banking deal sourcing process for both sell side and buy side firms.  

Sources:

  1. Corporate Finance Institute. Buy Side vs Sell Side M&A. https://corporatefinanceinstitute.com/resources/careers/jobs/ma-buy-side-sell-side/
  2. Corporate Finance Institute. Deal Origination. https://corporatefinanceinstitute.com/resources/knowledge/deals/deal-origination/
  3. Deal Room. Sell-side vs Buy-side M&A: What is the Difference?. 
  4. https://dealroom.net/faq/sell-side-vs-buy-side
  5. Deloitte. The state of the deal: M&A trends 2019. https://www2.deloitte.com/tw/en/pages/mergers-and-acquisitions/articles/2019-ma-trend.html
  6. Investopedia. Mergers and Acquisitions – M&A. https://www.investopedia.com/terms/m/mergersandacquisitions.asp
  7. Wall Street Prep. Sell Side vs. Buy Side.