Buy-side vs sell-side M&A: Definitions and best practices

Since M&A practitioners are looking for a rebound of deal activity in 2024, let’s refresh ourselves on the roles and responsibilities of the buy- and sell-sides of M&A investment banking on the financial markets.

What is buy-side vs sell-side M&A?

The buy-side of an M&A transaction refers to the individuals and organizations involved in the acquisition process. Buy-side firms and specialists work with the acquiring company to ensure it gets the most beneficial conditions during the transaction.

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.

Buy-side and sell-side: understanding key differences

The primary difference between the buy- and sell-sides lies in their differing perspectives: the buy-side M&A focuses on the buying process, while the sell-side M&A focuses on the selling process.

Those differences can be explained in three, broad categories: motivation, organizational structure, and involved entities.

Buy-side 

The buy-side of the deal is represented by the acquiring company and other specialists who work with the acquirer. These parties are concerned about financial analysis, acquisition, and investment.

Motivation

The main goal of the buy-side in investment banking is to make a successful investment or acquisition and get the best investment returns.

The buy-side of mergers and acquisitions performs buy-side research and analysis to identify potential sellers. Based on this research, they decide on the securities, businesses, or assets to purchase.

Organizational structure

During the acquisition process, an acquirer typically works with the following specialists:

• Buy-side analysts
• Institutional investors
• Retail investors
• Asset managers
• Financial advisors
• Tax specialists
• Industry experts
• Lawyers
• Equity research analysts

The buy-side investment banking team analyzes the reports made publicly available by the sell-side team, makes its analysis, and decides on investment opportunities. The reports prepared by buy-side companies are not typically publicly available. 

Involved entities

The institutions usually involved in the buy-side of M&A transactions are:

• Hedge funds
• Asset management firms
• Private equity firms
• Mutual funds
• Private and public companies
• Pension funds

Sell-side

The sell side of the transaction is represented by the selling company itself and other outside specialists that help with the selling process, making up the sell-side team. The sell-side of the deal is all about advertising, generating interest, and attracting potential buyers.

Motivation

The main goal of the sell-side in the M&A process is to successfully sell securities, a business, or its assets. 

The selling company hires outside specialists who help it with advertising and advising on every step of the selling process so that the seller gets the best deal possible.

Organizational structure

During the selling process, the selling company typically works with the following specialists:

• Sell-side analysts
• Stockbrokers
• Commercial bankers
• Investment bankers
• Market makers
• Financial and tax advisors
• Marketing specialists
• Due diligence specialists

The sell-side M&A team performs research, identifies a selling company’s investment potential, and provides insights into current financial projections and trends. Based on the findings, sell-side advisors create publicly available reports that buy-side analysts can use later.

Involved entities

Among the institutions that usually perform on the sell-side of the financial transaction are:

• Commercial banking institutions
• Advisory firms
• Investment banks
• Stock market brokerage firms

M&A modeling on the buy-side vs sell-side

M&A models are built on both the sell-side and buy-side, each serving distinct purposes and stakeholders in a transaction.

A sell-side firm, investment banker, or sell-side analyst builds detailed M&A models to present to potential acquirers. The M&A model should be easy to understand. 

Buy-side firms, including private equity specialists or buy-side analysts, receive seller’s models and then build their own financial models. This allows the buyer to validate the seller’s analysis, identify potential risks, and ensure that all critical aspects of the transaction are thoroughly considered.

Both perspectives are essential to making informed decisions in the M&A process.

Sell-side and buy-side roles in an M&A transaction

Naturally, the buy-side and sell-side of the deal also differ in the roles and responsibilities they carry out during the transaction. Let’s take a look at what the buy- and sell-side teams do during the M&A process. 

Role of M&A advisors in the sell-side and buy-side of M&A

M&A advisors are external specialists and institutions that play a critical role in facilitating successful transactions. These professionals and firms provide expertise to ensure the deal achieves its objectives, whether on the buy- or sell-side.

Buy-side M&A advisors assist acquirers in making the most profitable purchase. They help clients identify targets, conduct due diligence, assess synergies, and negotiate favorable terms.

Sell-side M&A advisors, on the other hand, work to secure the most beneficial sale conditions for the target company. They focus on maximizing the sale price by preparing marketing materials, identifying potential buyers, and managing due diligence. 

Virtual data rooms for buy-side vs sell-side

Buy-side or sell-side investment banking is one of the most common use cases for virtual data rooms (VDRs). 
Modern VDR providers offer numerous benefits when it comes to secure data sharing between third parties, and promote effective collaboration, essential for the health of the financial market and especially the investment banking industry.

Let’s briefly review what advantages VDRs bring for the buy-side and sell-side in mergers and acquisitions. 

VDR benefits for the buy-side

• Streamlined due diligence
  VDRs centralize all relevant documents and data, making it easier for buy-side professionals to conduct due diligence. They can efficiently review financial records, legal documents, contracts, and other critical information, accelerating the decision-making process.
• Improved collaboration
  VDRs facilitate collaboration among buy-side teams, legal advisors, financial analysts, and other stakeholders. They can share insights, exchange comments, and collaborate in real-time, regardless of geographical location.
• Cost and time savings
  VDRs help buy-side entities save time and money by eliminating the need for physical data rooms, printing, and logistical expenses. The streamlined workflow also reduces the overall duration of the M&A transaction.

VDR benefits for the sell-side

• Facilitated due diligence readiness
  VDRs allow sell-side companies to quickly prepare all the documentation for the due diligence with a bulk upload. It’s also easy to invite all relevant stakeholders to view documents by sharing a single link. This can significantly speed up the review process.
• Controlled data sharing
  VDRs allow sell-side entities to control access to confidential documents and information during the due diligence process. They can set permissions, track user activity, and revoke access if needed, ensuring that sensitive data remains secure.
• Informative analytics
  VDR analytics tools help the sell-side to gain insights into buyer behavior, document engagement, and other areas of interest. This information can inform strategic decisions and optimize the presentation of key assets during negotiations.

Additional resources

The Ideals blog offers a series of articles about the M&A market, helping M&A professionals navigate the complexities of the industry or keep up with current market trends. 

Here are some extra resources to explore when deep-diving in the M&A sector:

• Top 10 M&A advisory firms and investment banks
• A guide to acquisition financing
• The landscape of mergers and acquisitions law
• Best practices for M&A evaluation
• Why do companies merge with or acquire other companies

Key takeaways

• The buy-side and sell-side of capital markets have different perspectives. The buy-side focuses on the acquiring process while the sell-side focuses on the selling process.
• The main differences between the buy-side and sell-side lie in their motivation, organizational structure, involved entities, and responsibilities.
• The main goal of the buy-side is to make a successful investment or acquisition and get the best investment returns.
• The main goal of the sell-side is to successfully sell securities, business, or its assets.