Most investment banks focus on the sell-side of a transaction, for the following reasons:
- The engagement includes a retainer for initial advisory work and conducting a process to find the best buyer(s).
- The success fee is larger than for buy-side advisory. This size difference results from the significant labor expended over a much longer timeframe to closing.
- There is the concept that sell-side bankers can exert more control over the process. The “control” can also be specious, especially with fickle sellers and/or buyers.
Contrary to the above “benefits” of sell-side banking, there are IBankers devoted solely to working with buyers. These include both Private Equity firms (PE) and strategic buyers. In some ways, PE’s are more fruitful clients, as follows:
- PE’s raise funds (actual and virtual) that must be spent in about 7 years or less. Otherwise, the monies are returned to their investors.
- PE’s usually have numerous platforms or industry verticals for their target acquisitions. A strategic business buyer is much more focused as to their core operations.
- Strategic buyers which are growing organically do not have a time limit on when they make deals. And, their financial criteria are normally more narrowly defined as to the target’s performance.
- Retained searches can be obtained from both PEs and strategics.
- Because of the limits on holding fund capital, most PE’s react faster to capture a target. However, many PE’s shy away from “auctions” and strategies often will complete for those best fits with their product lines.
- Lastly, the time expended to source and lightly “scrub” targets (to ensure they meet the PE or strategic criteria”) is significantly less than for a sell-side. The IBanker is really working as a finder.