Buy-Side vs. Sell-Side in Mergers and Acquisitions (M&A)
If you are interested in holding an investment banking job, you often find people talking about the buy-side versus the sell-side. You may not have asked that question yet, but perhaps you have heard exchanges about the buy-side and the sell-side M&A. So, how do these two actually differ?
When you refer to the sell side, it refers to firms who sell products like bonds, stocks, or the sale of an entire company (as in investment banking). Your job, if you are on the sell-side, is to make investors buy these products; hence, the term “sell” side.
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. You raise this capital from investors and from there, you will have to make your decisions as to where you want to invest them and what you will buy.
- In terms of M&A, the buy-side means working with the buyers and finding opportunities for them to acquire other businesses.
- Sell-side M&A, on the other hand, means working with the sellers who are trying to find a counterparty for the sale of a client’s business.
How Do Buy and Sell-Side M&A Advisors Earn Money?
For those who are still deciding whether they should be on the buy-side or the sell-side, you may want to know how you can earn money should you choose to be on either one of these sides. You either earn money as an investor yourself or as the agent of an investor/corporation, and therefore, through salary and commission. In the long run, you have a higher earning potential as an investor, rather than as an agent.
The buy-side is said to be better when it comes to making money, as it gives you the opportunity to earn more, especially when the investments generate high returns. This appears to be more lucrative compared to earning a commission on sales on sell-side M&A. But when deciding which side, keep in mind that there are differences as well. There are differences in the hours, compensation, and structure of work.
Buy-Side vs Sell-Side M&A Modeling
Both investment bankers (sell-side) and private equity professionals (buy-side) build M&A models for transactions. The bankers will prepare a model that’s shared externally with potential acquirers of the business, which means the model must be extremely presentable and easy for other parties to understand and use. While firms on the buy-side will receive this model from the banks, they will typically build their own financial model to ensure complete confidence in the analysis. Below is an example of a pro forma balance sheet in a sell-side M&A model.
The screenshot above is from CFI’s M&A Modeling Course.
Thank you for reading this guide to Advisory roles for both buy-side and sell-side M&A transactions. CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful: