What is The Difference Between Buy-Side and Sell-Side M&A Transactions?

In finance, you will frequently hear the words buy-side and sell-side. Finance professionals use both words to describe their work. Even though these terms are used in the financial industry, they can be confusing. We need to know the difference between the buy and sell sides to understand these terms better. 

You may know these terms before we explain the differences between the sell and buy sides. 

What is the Buy Side? 

The term “Buy” is included in the Buy-side. This means that Buy-Side firms primarily focus on investing and acquiring money to generate millions of dollars. Investment assets for a Buy Side firm can include companies, grains, and precious materials such as silver, gold and other metals. Private Equity, Hedge Funds and Mutual Funds are some of the most popular types of Buy Side Firms. 

The investment strategy is easily understood. The funds include a group of investors and companies. The firms persuade these investors to invest money in their funds, and then they pour the money into lucrative investments. These assets are sold to Buy-Side firms, who make money. When an asset’s price increases over time as a company grows, Buy-Side companies can sell it at a premium and make millions, if not billions, of dollars. 

What Is the Sell Side? 

Sell-Side is financial service companies that offer a broad range of financial products for corporations and Buy-Side Firms. Sell-Side firms help corporations issue securities to raise capital. Another primary goal for Sell-Side companies is to help corporations who need money to find prospective institutional investors and buy-side firms looking for opportunities. 

Investment Banks are the most typical representative of Sell-Side. Investment Banks are third-party that connects sellers and buyers on the capital market by offering services to both parties (Sellers & Buyers).

| Read More: Comparable Companies Analysis  

Differences between Buy-Side and Sell-Side 

The following are the key differences between sell-side and buy-side: 

✔️Equity Research 

• Buy Side  

Buy-side is the term used in equity market research to describe the companies that invest their or clients’ money in the capital markets. In some cases, these companies and individuals would base their investment decisions on not only the company’s performance or stock of the company but also the performance and macroeconomic factors. Buy-side analysts primarily validate research conducted by sell-side firms. It is best to consult with experts and make financial calculations. 

• Sell-side 

Equity research is the term used to describe the brokerage and financial research firms that track and analyze equity stocks and provide an opinion to their clients. Many companies usually specialize in a specific industry or company type (blue-chip, mid-caps, small-caps, etc.). ). The sell-side companies closely monitor stocks, companies, performance and forecasts. They usually work with annual reports, quarterly results and published data. 

✔️Goal 

• Buy Side  

Buy-side firms’ leading objective is to assist their clients in making successful investments and achieving investment returns. The sell-side firms conduct financial analyses and research to help them make investment decisions. The mission of a buy-side company is to generate profits for its clients after an investment or acquisition that has been beneficial. 

• Sell-side 

Sell-side firms’ primary objective is to assist businesses in selling securities. Sell-side firms do this primarily by advising companies on each financial transaction step, doing internal research to identify potential investment opportunities, and then pitching that investment to investors. Many sell-side analysts aim to sell the idea and strategy to large accounts. 

✔️ Skills 

• Buy Side 

The skills of a buy-side professional include: understanding market movements, creating reports, financial modelling, identifying potential risks, excel, internal summary and convincing investment reasoning, etc. 

• Sell-Side 

To excel in a professional career in investment banking, the person on the sell-side needs the following skills: excellent analytical and numerical skills, willingness and ability to work long and irregular hours, multitasking, knowledge of financial concepts, the ability to analyze financial statements, excel proficiency, presentation of facts and convincing valuations to prospects. 

✔️Working Hour 

• Buy Side  

Rarely do people discuss the hours of work at Buy-Side companies. However, the working hours are less stressful than those of Investment Banks. While the operating hours may not be as pleasant as they seem at mega-funds, you will at least avoid being woken at night and assigned emergency tasks at weekends, as is the case at bulge-bracket investment banks. How long you will have to work depends on the fund size and how many deals there are. 

• Sell-Side 

Investment Banking has insane working hours. You can work up to 70-90 hours a week during the busy season. You may be required to work until midnight in an emergency. It doesn’t necessarily mean that all Sell-Side positions are so active. Sell-Side workers in core and smaller investment banks can achieve work-life harmony by working, going to the gym or going out with family and friends. 

✔️Differences in the Firms Involved 

• Buy Side 

The majority of buy-side firms have massive operations. They constantly seek excellent investment opportunities to deploy the money they have raised through the market/investors. They usually need more analysts. 

• Sell-Side 

The sell-side firms have more analysts. Each analyst monitors specific companies or industries, scouts investors, or recommends securities to their clients. 

Overview of M & A in Investment Banking

The role of investment bankers in cracking the M&A deals is to suggest other firms and execute the transactions where the business owners keep on selling their business to buyers, obtain smaller targets, and divest or get certain divisions or assets from other firms. They execute sell-side and buy-side deals of M&A.

In other terms, investment banking (IB) is the industry that fuels the engines of M&A. The merger of two or more firms via M&A is a process, which is quite complicated as there are a lot of areas that are moving. It demands certain expertise in fields like valuations, capital raising, communication with investors, deal negotiations, and many more.

Investment banking professionals make sure to gain enough specialization in all of these fields, enabling them to act as intermediaries for firms that want to get or merge with other firms.

Conclusion 

The buy-side represents parties looking to acquire assets or companies, while the sellers represent parties wanting to sell their assets or businesses in a merger & acquisition investment banking deal. Investment banks and financial advisory firms are crucial in facilitating communication between the sell and buy sides. This helps to achieve an agreement that is successful for both parties.