What is the role of the investment banker in a buy-side M&A?
On a buy-side engagement, the investment bank's responsibilities include: Evaluating the potential target and its industry to set a preliminary valuation. Assessing the strategic fit of a potential target with the client; identifying and, to the extent that it's possible, quantifying synergy opportunities.
The role of a buy-side investment bank
Their goal is to optimize contract terms for the buyer while also closing a successful deal. Some techniques a buy-side advisor will use to improve outcomes for their clients include: Limiting competition for a target company through exclusivity agreements.
The role of bankers in M&A deals (M&A banking) is to advise other companies and execute transactions where the owners sell their business to buyers, acquire smaller companies (targets), and divest or acquire specific divisions or assets from other companies. In broad bankers execute sell-side and buy-side M&A deals.
As the name suggests, a buy-side M&A analyst works for the buyer in the deal. The duties of a buy-side M&A analyst include developing a list of potential target companies, instigating contact with those companies, and ultimately pitching an offer.
Fees paid to banks in a sell-side M&A deal are a percentage of the sale price (the equity value of the deal, not the enterprise value), and that percentage scales down as the size of the deal increases. For a $500 million deal, the bank might negotiate a 1% fee and therefore earn $5 million if the deal closes.
The role of the sell-side M&A banker is to look for the purchase price, with a special focus on working capital requirements. As far as legal clauses are considered, the bank may form a legal team to advise the sellers, or the sellers may hire a law firm from outside to assist with the agreement.
Analysts employed on the buy-side engage in financial research of companies and investment strategy development, which typically involves in-depth research and financial modeling. They may also talk directly to companies in which they have an investment interest.
An entry-level M&A analyst likely has some prior experience as an investment banking analyst, very strong analytical skills, and a bachelor's degree in accounting, economics, finance, or mathematics.
While ZipRecruiter is seeing annual salaries as high as $212,500 and as low as $36,500, the majority of M&A salaries currently range between $86,000 (25th percentile) to $139,500 (75th percentile) with top earners (90th percentile) making $174,000 annually across the United States.
One of the biggest differences between investment banking and M&A consulting happens after the sale has been finalized. Investment bankers focus on ensuring the sale goes through to a business owner's benefit, but an M&A consulting firm will also assist with what comes next.
What is the difference between buy-side and investment banking?
Investment banks, market makers, and broker-dealers are typical sell-side firms. They provide investment services to the rest of the market. Buy-side firms consist of asset managers, hedge funds, and other firms that buy or sell securities on behalf of their clients.
| Annual Salary | Monthly Pay | |
|---|---|---|
| Top Earners | $130,000 | $10,833 |
| 75th Percentile | $115,000 | $9,583 |
| Average | $91,965 | $7,663 |
| 25th Percentile | $62,000 | $5,166 |
With the right skills, you can start a career in M&A but expect a lot of travel and long stressful days at the office filled with tight deadlines. On the flip side, it is lucrative, and the job involves working alongside shareholders and influential clients on stimulating deals that enable professional development.
The estimated total pay range for a Vice President Investment Banking at J.P. Morgan is $220K–$401K per year, which includes base salary and additional pay. The average Vice President Investment Banking base salary at J.P. Morgan is $171K per year.
Typical Investment banker fees for mid-sized business transactions typically range from 1% to 2% of the total transaction value. The fees for M&A transactions for large businesses can range from $2 million to $10 million or more.
Fee Clarity
Mid-market companies – the typical companies seeking sell-side advisory – are usually looking at a success fee of 3-5%, but what that percentage is of deeply impacts your takeaway from the deal. The two options are company valuation and price received on closing.
JPMorgan Chase, Goldman Sachs, and Morgan Stanley are examples of sell-side firms. These companies offer investment banking, sales, and trading services to institutional and individual clients.
Investment banks charge fees to act as advisors for spinoffs and mergers and acquisitions (M&A). In a spinoff, the target company sells a piece of its operation to improve efficiency or to inject cash flow. On the other hand, acquisitions occur whenever one company buys another company.
If an offer is accepted, the investment bank begins due diligence, often gaining access to a data room provided by the sell-side. Due diligence can last for up to 3 months. If the company passes due diligence, a firm offer is made and the transaction draws to a close with the approval of both sides.
Common examples of buy-side institutions include insurance companies, pension funds, private equity firms, and hedge funds. Unlike career paths on the sell side, buy-side roles usually do not engage with banking services.
What is an example of a buy-side?
The best examples of buy-side firms are private equity firms, hedge funds, and venture capital firms. They all raise money from Limited Partners (LPs), such as pension funds, sovereign wealth funds, endowments, and insurers, and invest in companies and securities.
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.
Investment banks are financial institutions that offer capital raising, M&A advice, and trading services. Their staffing hierarchy typically includes Analysts, Associates, Vice Presidents, Senior Vice Presidents, and Managing Directors.
The primary role of an M&A analyst is to conduct research and analysis on their client's potential targets, competitors, and growth opportunities. They do most of the preliminary legwork for possible deals, such as approaching target companies and collecting vast amounts of data and information.
J.P. Morgan advises corporations and institutions of all sizes on mergers and acquisitions (M&A), meeting the most complex strategic needs in local markets as well as on a global scale.
