Buy-Side vs. Sell-Side M&A
As someone just starting their career, I understand the fundamental difference between a Buy-Side vs Sell-Side M&A transaction. However, I want to learn more about the finer details of working on the two separate sides...
How do the roles differ (if at all) on both a junior and senior level? Does one side offer experience that is more "attractive" to prospective employers? In an ideal scenario, which side would you spend most of your time on and why?
Any anecdotes or words of wisdom are warmly welcomed :)
Bump
Buysides tend to be mainly BS work at the junior level. At the senior level a banker usually wins a buyside mandate by providing some sort of differentiated advice (market, process, etc.), or the acquiring firm is just trying to buy some good faith for the next time that banker has a sellside. These often are tips (read: bribes) vs. expectation of much value-add. For the junior banker this means refreshing some comps, pretending to download the VDR and maybe making a few analyses that the PE associate doesn't want to do, but not much real process work.
Sellsides are where you want to focus from a junior standpoint as you're actually producing most of the work output on the deal. From an exit opp standpoint this is where most of the stuff you'll be able to talk about in interviews come from. From the senior standpoint sellsides will usually be a higher fee (% of deal completion vs. typically discretionary buyside fee) so you'll focus more prospecting time here.
Does this hold true when talking about strategic buy side advisory vs sponsor buy side advisory?
I'm not sure, but likely depends on the strength of the strategics corp dev team.
I've found that buy sides are much more interesting (and involve a lot more work) when working for a strategic (at least in the MM). Unlike a sponsor, building goodwill with an IB for the next sellside is not typically as important for a strategic, so they are usually engaging an IB for actual advice. Unless they are an acquisitive strategic, they may not have a ton of experience doing deals, so the buyside advisor can give them actionable advice on valuation, IOI/LOI terms, process strategy, due diligence etc. Oftentimes, my IB would be hired as buyside advisor by a former sellside/capital raise corporate client when they decided to opportunistically make an acquisition.
This is great, thanks! In the instance where a coverage team acts almost exclusively as a buy-side advisor - is this purely due to differentiated advice / key relationships? Will junior still do mainly BS work?
There are very very few groups that only do buyside. I've seen some boutiques that only do sell-side, never one that just does buyside (I'm sure someone can dig one up, but not common)
But buy side is still not all that much work and it's a low-fee transaction. Obviously juniors don't control their staffings, but you will have much more to talk about when working on a sell-side transaction.
Would agree with what the other poster said.
There are a few boutiques I've seen that do buyside only, but these are shops that are effectively outsourced deal sourcing arrangements for PE portcos and strategics (Third Coast Capital Advisors is a firm that comes to mind). I would class those type of firms more like business brokers than investment banks, but an example would be you're trying to execute a rollup strategy in an industry so you hire these guys to source 100+ prospect acquisitions in the space. Then the PE firm runs the process and pays a fee to the broker on any deals they sourced that closed.
I haven't seen any "real" banks with dedicated buyside coverage groups setup like that. Even there the junior work is focused on sourcing and trails off once a deal actually starts.
I would also add to this that there are occasions where strategic acquirers lack corp dev team or have a weak corp dev team and will completely outsource the corp dev team’s workload to an IB.
In those cases, buyside fees tend to be much higher than usual and closer to the sell side fee. Additionally, senior bankers are much more important as they lead the entire negotiation process for IOI, LOI, and PA. Can be the difference between a strategic paying 12x for $45M of adjusted EBITDA vs 10x for $35M of EBITDA. These are less common these days as more and more strategics have built out their own corp dev teams, which are effectively a buyside IB deal team.
/sponsor investment team
I work in a UMM bank and would say this is generally accurate for us. Sellsides are where the meat is at, buysides for us are more or less the same thing as BD work, put together some BS market slides just to keep the relationship going. That said I think for larger banks advising on public to public deals, buysides should be more value additive work that’s heavy on modeling, synergy analysis and structuring etc tho I haven’t been on any such deals as my experience is MM
This dude absolutely nailed it with explaining the dynamics of buy-side M&A.
PE Associate had a good summary. Sell side is where the real work and learning gets done. Buy side with a acquisitive client isn't bad either, but my most common buy side experiences consisted of making 250 iterations of a model with 75 scenarios and presenting a deck predominately made up of sensitivity tables to a board that isn't actually sure why they were interested in the acquisition in the first place. All that to be ousted in the first round.
There was a phenomenon in my industry where a certain type of buyer (bank) was HUGELY interested in a certain type of seller (wealth manager) because of favorable business dynamics (high FCF, cross-sell, recurring rev, etc.). The issue was the transactions created a massive amount of goodwill which nuked the bank's TBV. We knew this, they knew this, but I got pulled into 4 of these in one summer. 4 models, 400 iterations, 4 presentations, 0 submitted offers once they saw the impact on the TBV. Mind numbing work.
Damn, that sounds like a massive (and totally unnecessary) ballache.
I’m surprised by the responses here, but I’m at a boutique and we only advise strategics, not sponsors, so my experience is probably very different.
For us, we have mostly buyside assignments. We’re small, so we tend to just provide advisory for large clients on a retainer basis, as this is more productive for us than trying to compete with BB / EBs on large sell-side bakeoffs. We then advise them on transactions when they arise. I’ve personally learned more from these assignments than from any sellside I’ve been on.
Being on these retainer clients means you have to deal with a wide range of topics beyond normal finance. This can cover things like investor messaging, activism defense, etc. I found that on the sellside, it was way more just process work, which I hated.
Of course, these are non-transaction assignments, so to speak to the actual deal process, I think the scope of work is a bit broader than sellsides. Strategic buyers are constantly evaluating alternatives, so the analyses / modeling in my experience has been much more complex than on the sellside, as we have to consider how a deal stacks up against other opportunities (including maintaining the status quo) both in terms of direct competitors as well as adjacent industries, what are the returns our client, how do different sources of financing affect the value creation, different deal structures (spin-merge or direct acquisition? partner with a sponsor? cash / stock? earn out?), potential synergies, etc.
Perhaps a lot of this is done on the sellside as well, but in my few sellside experiences, I haven’t encountered them. They’ve all been pretty straightforward with the majority of the work being just marketing (buyer outreach / CIM creation), coordinating diligence, and doing basic valuation.
The sellside work did give more experience on dealing with legal matters like proceeds waterfalls and whatnot.
I'm going to a similar firm (EB strategic advisor, retainer model, buy-side slant). Was curious what your thoughts are on both the junior / analyst experience (building more of a generalist skillset)? Also what would you say really differentiates firms in taking on this buy-side angle -- is it mainly just niche sector / domain expertise?
My firm is pretty unique, so take what I say with a grain of salt, but assuming your retainer assignments look similar to ours, the junior experience can be extremely valuable because you’re getting such a broad exposure to topics in BUSINESS in general as opposed to just finance.
For example, I think one of the most valuable assignments was helping one of our tech clients shape their Analyst Day. We worked closely with their CFO and his team to model out a range of complex scenarios in order to set long-term targets and craft an investor story. Even as an An2 I helped to draft the script and develop the story which I thought was a cool assignment and taught me to think critically and think bigger picture. Helping a separate client fight an activist investor was also fun.
And on M&A, as I alluded to earlier, I think you really get a more complete picture of the strategy and thinking that drives transactions. For example, the last transaction I did was a public-public buyside mandate (few billion $). As tedious as it was sometimes, the amount of analysis that went into the development of synergies, determining the transaction structure, evaluating other alternatives in the space, etc. really made it a great learning experience.
Now, to be balanced, there are downsides as well. The retainer assignments can be hit or miss in terms of quality. Some bad ones I’ve had: Going through 100+ company transcripts to gather all quotes around M&A strategy so client IR team could figure out how to phrase it, doing massive regressions with heavily massaged data to justify the client’s financial targets to their board with a pretty graph, gathering reviews of competitors cloud software product from online forums. Separately, your role on transactions is much more volatile. I’ve had deals where our team is doing everything from synergies analysis to operating model to investor slides to financing and more. I’ve also had a deal where we sat in our armchair the whole time giving a few comments here and there on the client’s own model of the deal to collect a fee as a token of appreciation for years of retainer work.
So tl;dr can be extremely valuable, but mileage may vary….greatly
In terms of differentiation, it can be about sector expertise if you’re someone like Raine Group for sports, media, entertainment or Qatalyst for tech. In my experience though, where we really shine is being the staunch ally of one stakeholder in a company. CEOs and Boards don’t necessarily agree on a lot of things, so while Goldman may be the company’s banker hired by the Board, we are the CEOs advisor and we can be there to help him figure out how to manage his Board, how to deal with Goldman, and to help him with ad hoc analyses that Goldman doesn’t have time for. As you do this kind of work, you really develop deeper relationships with clients, and that’s what’s allowed us to continue getting new business – good reputation and word-of-mouth.
In Oil and Gas, buyside A&D work is absolute hell lol, the above anecdotes could not be further from the opposite at least in my experience. The modeling and diligence can get very intense, but i guess O&G work is a bit different than a traditional buyside M&A engagement.
Covered really well above…Do want to echo that there really isn’t much work done on buy side txns vs sell. Speaking in general of course but if you’re a bulge bracket, the buy side fee is kind of a favor for financing. The financing fees can dwarf the advisory fee for buyside. Seen mandates where we got ~$3mm in adv fees and $50mm+ on financing in certain scenarios. Buy side engagements are usually accompanied by other ancillary fees and the bank looks to become more sticky with the client, treasury mgmt, stuff like that.
All of this to say, you get more experience doing sell sides. You are actually running a process, the company WANTS to sell and they need your help. Buy side txns for large cap strategics that have a well seasoned Corp Dev team, they’re not salivating for your advice.
What I'd like to throw in the ring: you only get the buyside advisory fee when your client wins the deal. In my case, we advised a MF on a 1bn acquisition which at the end didn't go through and we got nothing. However, the fee was extremely attractive for essentially an analyst + intern working on stupid tasks outlined above such as iterations to the model, help on IC memo, etc. Upper levels had hardly anything to do and would have raked in 50x the analyst+intern annual salary if it worked out. So it seems worth the gamble.
Corporate here:
So why hire a busyide advisor?
BUT
That will drive the work we ask from banks on the buyside.
Smaller corporates will be different: for a former client they only built commercial forecasts in-house, as a banker I used to run their entire modelling workstream + their financing.
Competitive pe-style Sell-side is fun the first 3 processes, then interesting every time you move up in responsibility because you’ll focus on different aspects of the deal. All commercial & tactical, lots of client management as a junior.
In terms of « hardcore » corporate finance skills, a decent buyside for mid size corporate or PE is gold. Or strategic advice to corporates (retainer mentioned above - this is where I learnt the most because de were helping the client on everything complicated they were thinking about).
Ideally as a junior - a mix of everything.
Ideally as a senior banker? Depends on the bank behind you. Sell side boutiques do really well with volume (lower fee but higher certainty). Banks with leading debt capabilities generate huge fees on buyside…
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