Definition - What does Buy Side mean?
A buy side engagement is one where an investment banker or M&A advisor works with a buyer to identify an acquisition target. A buy side engagement typically includes the following work:
- Target identification - this usually requires significant local knowledge or significant market research to assess all the potential companies that match up with the buyer's criteria.
- Target assessment - this would entail the qualification of the target's financial performance as well as the existing management team to determine if it is a good fit.
- Valuation - this typically entails determining a value range based on comparables typical in the specific industry or what the buyer is willing to pay.
- Structuring - this would assess what capital structure works best for the buyer and still satisfies the target's expectations.
- Letter of intent - this would entail crafting and presenting the letter of intent on behalf of the buyer. It usually requires a proper explanation of how the enterprise value is calculated and a break down of the capital structure proposed.
- Due diligence - a buy side advisor is deeply involved in the due diligence, oftentimes leading it for the buyer. The main responsibility is to prove out the various assumptions made during the target assessment and valuation stage.
- Closing - work with the other advisors, accountants, lawyers and tax counsel to ensure all aspects of the acquisition are looked after so the transaction closes.
Divestopedia explains Buy Side
Buy side engagements are usually conducted by financial buyers, such as private equity firms, when they have a general investment approach (meaning they don't focus on a specific industry) or they are looking to invest in a different geography. If the PE firm has identified an industry that they want to get into (say, health care), but they don't have the expertise, they will often engage an investment bank on a buy side engagement to find suitable candidates.
Similarly, a niche private equity firm that works in a specific industry (say, oil and gas) may have the skills to find good candidates, but not the local expertise required if they are looking to penetrate a specific geography (for example, a U.S.-based firm looking for companies in the Middle East). In this case, the buy side engagement is extremely valuable because of the local expertise that the advisor can provide.