Why Buy-Side M&A is So Important

Most of the time, when you think about M&A investment banking, you think about sell-side advisory. I think this is fine and all, but over time, I've learned to have increased respect for the importance of buy-side M&A with strategics. There are several reasons for this:

1) On buy-sides, you have to know your client in addition to the targets. They're likely in the same competitive space, so you can very quickly learn about an industry. On sell-sides, you really only get to learn about your client because the buyer could either be a financial sponsor who isn't in the industry at all or is a strategic buyer who isn't sharing info with you. This slows down the learning curve.

2) Buy-sides train investment bankers to have more of a long-haul mentality. On a buy-side, the client's performance with the transaction after the deal is done reflects on the IB that represented them. This is not as much of the case with sell-sides, where check size is more of a one and done. Even in the case of contingent consideration and earnouts, people don't generally blame the bank, so there's less of an incentive for bankers to get deep knowledge of an industry.

3) Bankers that do buy-sides often do multiple deals with the same client. Not only is this repeat business good for the bottom line, it also gives you the deep knowledge you need to be a better banker and know your companies forwards and backwards.

4) Not all bankers do buy-sides, so you can set yourself apart by saying you have experience looking at things from the other side of the table. This gives you the industry-specific knowledge you need to get the best price for your sell-side clients.

Overall, the bankers who think about buy-sides more than the average have impressed me more than those who don't regard it as much or exclusively do sell-sides. You can be really successful doing that, but I find that the people are often much less knowledgeable than they should be.

Comments (6)

Oct 18, 2021 - 12:50pm
Sinner G, what's your opinion? Comment below:

When it comes to lateraling or recruiting for PE/HF, would you say there is an important distinction between the quality of an internship or analyst experience focused on sell-side M&A compared to buy-side M&A?

For context, I'm going to be interning at a boutique doing sell-side tech M&A. Hoping to eventually get into PE somewhere like Vista, explore hedge funds, or go to a corporate finance or development role.

Oct 18, 2021 - 10:52pm
kellycriterion, what's your opinion? Comment below:

Almost everybody does some sell-side work, so you know you're going to get that except in extreme cases. I don't think there's a clear edge either way, because it's a lot of useful stuff. Buy-side mandates get you thinking like a PE investor, so you can definitely bring that out in interviews if that's the background you're getting from your experience.

Oct 18, 2021 - 2:21pm
rabbit, what's your opinion? Comment below:

Buysides have their positives for sure, especially with strategics. More attunement with product roadmap, good view into industry trends, product evolution, competitive landscape etc.

Unfortunately the incentives are not as attractive from a business perspective. Could spend a fuck ton of man hours grinding on a buy-side mandate only to have seller pick a competing bid.

Oct 18, 2021 - 10:50pm
kellycriterion, what's your opinion? Comment below:

It can definitely be pitchier than sell-sides, so I see why people can neglect it sometimes. Over time, I've learned that it's a helpful part of the business. Thanks

Oct 19, 2021 - 6:49pm
reformed, what's your opinion? Comment below:

Feel like you missed the point.

If it's an auction process, the sell side advisor has say ~80% of getting paid, whereas a bank advising a buyer might have ~10% chance of getting paid, so you would never take the buy side over sell side mandate if you didn't have the option.

you can also get conflicted out of other processes if you are on a buy side for a competitor, so obviously you need to be careful in terms of what you accept.

that says, negotiated transactions are a completely different story.

the question of what you take has nothing to do with the analysis itself and everything to do with the economics.

Also, no bank will ever win 100% of the time. Every banker will go for the buy side for a major deal in their space if they lose the bake-off for the sell side.

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Oct 19, 2021 - 11:54am

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