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Guide to Buy-Side vs. Sell-Side in M&A

Understanding the varying roles of buy side versus sell side M&A is crucial.

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October 28, 2022

There are always two sides in a transaction: a buyer and a seller. In the financial industry, these are generally referred to as buy-side and sell-side, respectively. Let's dive into the differences, as well as how modern investment bankers are using data to their advantage to make sure their side always comes out on top in a transaction.

Difference Between Buy-Side vs. Sell-Side in Investment Banking

One of the more familiar instances of buy-side and sell-side examples is the trading of securities "such as stocks and bonds "because of their prevalence for many types of investors, especially individual investors. However, for investment bankers, as well as the companies and private equity firms they work with, the concept of securities trading doesn't address all activity. 

In fact, private equity deals now make up nearly half the total deal value in the M&A industry. If this trend continues, PE deals will soon dominate the market as the primary type of transaction. To better understand the two sides of a deal, let's define and discuss buy-side vs. sell-side in M&A specifically.

Buy-Side in Investment Banking

The buy-side of investment banking involves finding potential investments. Most often, this means the investment banker works with private equity firms to find companies that may be looking for a round of funding or to be purchased outright.

These opportunities must match the PE firm's investment criteria and expand their portfolio of relevant companies. Sometimes, the goal is to make their portfolio stronger by helping them expand into a new industry, help an existing platform investment improve their product offering, or reduce their average entry multiple, for example.

Private equity firms can transact independently, but working with an investment bank gives them access to the bank's long-standing relationships, rich industry knowledge, special tools, and more. It's the job of the investment banker to leverage these resources to streamline and support the transaction. Tactics usually include reducing competition for the deal as well as building strong connections and rapport with the sell-side to try to sway negotiations to the buy-side's desired outcome.

Sell-Side in Investment Banking

The other side of the transaction is the sell-side. Instead of looking for a company to buy, the investment bank is looking for an investor on behalf of a company that they are representing. Often, companies look for funding because they are trying to spur the future growth of the business. Or, perhaps they wish to merge with a larger business to immediately gain access to more resources. 2 in 3 startups never see a positive return, and being acquired often gives founders and operators a much needed advantage, especially during a recession.

In some cases, the company the bank is representing may be attempting to go public and offer shares to interested investors. However, investment banks can sometimes sway the opinion of the company to seek out multiple paths for their exit strategy. As we mentioned on the buy-side, creating relationships and getting the best deal possible for the side the bank is representing (and the best deal for the bank itself!) is the ultimate goal, and while an IPO is one of many exit strategies available, it may not be the most lucrative.

Founders will often seek out investment banks to help with the sale of their companies simply because of how complex the process is, especially regarding due diligence. 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."

That said, investment banks cannot simply rest on their laurels and wait for the perfect opportunity to come to them. Modern firms are using data to their advantage to more easily and quickly source deals, ensure those deals close, and get the best deal possible for whichever side of the transaction they represent.

How Data Helps with Buy-Side vs. Sell-Side M&A

Regardless of whether your firm primarily operates on the buy-side or sell-side (or represents both equally), data can help you be more knowledgeable about the industries you serve. Being in tune with your target demographic will entice both buy- and sell-side clients to want to work with you. On top of that, being a data-driven firm also gives specific benefits to each side of the M&A transaction:

Advantages of Data in Buy-Side M&A

Being a data-driven firm means you are more informed and can find opportunities earlier and faster than your competition. Many leading investment banks use deal sourcing platforms to surface and even alert them about companies that match their private equity clients' investment criteria based on data signals like year founded, employee count, and more. The ability to identify investment-ready private or bootstrapped companies that no one else knows about further reduces the competition and increases the likelihood of getting a great deal for your client.

In addition, what better way to help buy-side clients show good faith toward sellers than coming to the table with potential add-on opportunities to spur future growth? Banks often surface these ancillary investments by frequently and thoroughly mapping markets and keeping an eye on new or up-and-coming players. All this knowledge and foresight can give your firm the advantage it needs to close the deal in your favor!

Data can also make it easier for banks to find new potential private equity clients. Some data sourcing platforms allow banks to quickly pinpoint companies that are similar to those they've supported in transactions before, see which PE firms actively invest in their space, and reach out with relevant marketing messages.

Advantages of Data in Sell-Side M&A

Data on the sell-side of M&A provides many of the same benefits as it does on the buy-side. The more data your firm has, the stronger its position can be in any potential deal: a pulse on the key players in a given sector, up-to-date and accurate valuations, better forecasts of your client's future, potential private equity firms that may be interested in investing, and more.

Just like on the buy-side, you can use software like Sourcescrub's deal sourcing platform to find investment-ready bootstrapped companies and bring them on as part of your portfolio. These tools make it easier to create market maps and find companies that are similar to those already on the books. Plus, you can also find potential investors for the companies in your portfolio based on recent transactions.

Learn More With Our FAQ

The difference between buy-side vs. sell-side in investment banking is just one of the many responsibilities of an M&A firm. To learn more and see other ways data can help dealmakers get ahead, check out our answers to the Top 25 Investment Banking FAQs.