Sell Side vs Buy Side M&A
Hi,
I did a sell side internship at a regional investment bank and was recently offered an interview at a firm that pre-dominantly does buy side M&A.
After doing some research, I realised I was a little confused between the difference in the process between the two:
1) For buy side M&A, would you be doing marketing materials and modeling similar to the sell side? I would assume that the sell side banker is already preparing an IM and a model and if so, would the buy side banker still need to do a model? Is he then just running comps to find potential targets?
2) I have seen a lot of people against a junior level person doing buy side M&A as you would be learning much more on the sell side. Is that true and if that is, would it severely affect exit opportunities?
Thank you!
Buyside M&A advisory has more technical modeling than sellside in my experience. I have been staffed on both and have found sellside to be predominantly revolving around creating marketing materials, some modeling (alot of which is just plugging and updating old models) and running the VDR. Most of the work on a sellside is running the deal process and making sure everything is going smoothly, in addition to framing the target in an attractive way. Buyside M&A is significantly more due diligence/modeling intensive. From the process of finding a target (modeling dozens of potential acquisitions and creating decks for the buyside group to evaluate) to determining purchase price, everything is granular and much more in the weeds. On a sellside, a company often has a price/multiple that they want to hit, they have the power of accepting bids and thus if their ideal number isn't hit, they do not accept, if they reach their number, your client is usually done with the company and does not care about the effects to the buyer (some stock transactions make this messier). On a buyside, you have to "predict" how every aspect of the acquisition will effect the buyer and what price/"value" is the best.
TLDR: Sellside you often have a goal price/multiple and do your best to market/run the process to hit that number. Buyside, you have a thousand different aspects of a deal to consider, and "value" is something you must determine, not something that the client is providing a "guideline" on.
Thanks for the detailed explanation!
A few followup questions I had, when there is an M&A process and there are advisors on both sides, whose model gets used or do both parties create their own model?
Based on your explanation, is it thus far to say sellside m&a is more process driven, whereas buyside m&a has more of a strategic angle to it as the buyer has some "skin in the game"?
However, I have seen people saying that the buyside advisor acts as a conduit between the buyer and the sellside advisor. Is this discrepancy with the above due to nature of the deal and the firm?
Responses to your questions:
"when there is an M&A process and there are advisors on both sides, whose model gets used or do both parties create their own model?"
Everyone makes their own model. The sell-side is responsible for providing management forecasts and will run a model to show the story they want to tell. It's the buyer's job to do their own diligence and create a model that aligns with their view of the business, so a model will always be built on the buyside. Usually the buyside models are more detailed because buyers want to analyze every scenario with a lot of granularity which sell side wouldn't be thinking about (those considerations are specific to each buyer so sell side cant model them")
"Based on your explanation, is it thus far to say sellside m&a is more process driven, whereas buyside m&a has more of a strategic angle to it as the buyer has some "skin in the game"?"
I would say that sellside M&A is more process driven, yes. Scheduling DD sessions, managing DD requests, management capacity, etc is done by the sell-side. Buyside advisors spend more time thinking about the merit of the deal, the structure, the price, the strategic considerations. There is obviously a fair amount of process work in a buyside too, but the bulk of the bid process is managed by the sellside and the buyside only has to follow the process organized by the seller.
"I have seen people saying that the buyside advisor acts as a conduit between the buyer and the sellside advisor. Is this discrepancy with the above due to nature of the deal and the firm?"
The buyside advisor does act as a conduit between the buyer and the seller. The reason for that is that bankers are experienced with dealing with M&A processes and negotiation. It's crucial not to reveal sensitive information to the seller to avoid giving leverage away. Therefore, buyside bankers will handle the communication to avoid the client accidently using words that can signal important information. Senior bankers spend a lot of time crafting emails/letters to make sure the communication best represents the client and allows to give a position of strength. A client who's not used to that might jeopardize themselves accidentally.
Speaking for sponsor side but would imagine it would be similar for public m&a as well. If a buyside advisors are hired then they are either there because we need financing or they are there for true value add. If it’s the latter the work can be very technical. This is because normally we wouldn’t need an advisor for buying
Sell side advisors can do a lot more bitch work especially if it’s a sponsor-backed sell side. We just want the highest price so ur just back solving for that. Also bankers will have to put together bs CIMs which can get to 100+ pgs.
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