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Written By Tom Hall

Published February 4, 2025

Updated February 4, 2025

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What Is Buy-side M&A

 

 

The expertise of an analyst is invaluable during times of significant stock increases or declines for a company. However, while the sell and buy sides are in charge of observing markets and securities, the focus differs. Sell-side analysts aim to inform clients of a brokerage firm, while buy-side analysts shape investment decisions within institutional funds. This contrast helps explain “what is buy side means” — prioritizing internal investment strategies rather than external recommendations.

Buy Side Definition

Within the finance industry, the buy side is responsible for raising capital on behalf of institutions and the wealthy. Those who search for the term “what is buy side” will learn that they perform financial analysis as institutional investors, money managers, or private equity professionals.

They mainly help with capital investments, such as pension funds, mutual funds, hedge funds, and insurance companies. Buy-side analysts work within these organizations, focusing on making profitable investment decisions for their firm’s portfolio. Their role includes in-depth research on investment opportunities, analyzing company financials, and building projections to anticipate future returns. Unlike sell-side analysts, who advise external clients, buy-side analysts make recommendations strictly for their internal investment managers.

Buy-side professionals often act with great caution by carefully assessing risks to avoid potential losses. This is especially crucial for pension funds. Since these funds are accountable to retirees, their buy-side analysts prioritize stability and long-term growth over high-risk bets.

Buy Side Meaning in M&A

In mergers and acquisitions (M&A), the term “buy side” represents buyers as they look for businesses to acquire. Essentially, buy-side advisors, like investment bankers or private equity firms, support their clients—the actual buyers—by looking into companies they can potentially acquire. 

Buyers need to be confident that the targeted companies are financially sound, which is why the bulk of the tasks of the buy side of an M&A deal are in-depth analyses. Investment bankers are present for a necessary step: Preparing the detailed M&A models, which present the following.

  • A target company’s financials
  • The risks that come with acquiring it
  • The growth potential. 

These models are shared with potential acquirers so that they can make the best decision.

Those searching for “what the buy side means” will learn that it applies to the firms representing the buyers. Private equity firms, for example, work for investors who are looking for promising businesses to which they can allot their capital. While they may start with a model from the investment bankers, buy-side firms also have to validate data on their end. They will devise their own financial models to discover growth opportunities post-acquisition. It is an extra level of due diligence that creates a feeling of security regarding the investment. Whether it’s a small business or a larger enterprise, buy-side advisors offer valuable guidance to ensure that the M&A deal aligns with the buyer’s strategic goals and provides a path to future returns.

Buy Side Examples

Buy-side firms are part of why companies seize investment opportunities. They do so by managing funds and raising capital on behalf of clients. These firms, including well-known names like BlackRock, Fidelity, and KKR, focus on purchasing securities that are in line with the investors’ financial goals. Their purpose is not to sell assets to clients but to maintain them in portfolios, growing wealth and ensuring long-term financial gains.

Examples of buy-side entities include hedge funds, asset management firms, private equity firms, and pension funds. Each of these firms observes market conditions to identify promising securities, ultimately helping clients and limited partners achieve their investment objectives.

Instagram’s Acquisition: A Buy-Side Deal Example

One standout example of a successful buy-side deal is Facebook’s acquisition of Instagram. When Facebook saw Instagram’s potential, particularly its unique photo-sharing feature and rapid user growth, it seized the opportunity to bring Instagram under its umbrella in 2012 for $1 billion. 

This buy-side acquisition demonstrated how firms identify and capitalize on valuable assets that fit with their long-term goals—in Facebook’s case, acquiring Instagram not only expanded its social media reach but also unlocked new ways to engage users and raise capital through advertising.

What is Buy-Side M&A: Goals

A buy-side analyst can be considered a guide in making investment decisions for potential buyers. Their end goal is for their clients to complete a transaction with a company that will provide attractive returns, which will then contribute to the monetary growth of the institution or the individual investor.

Mutual funds are what fuels growth and broaden opportunities for companies. When mutual funds assess potential M&A deals, their primary focus is on making sound investment decisions that yield high returns for their clients. 

Mutual funds also impact the whole M&A landscape with their strategic analyses of which companies to support, especially in particular industries. For instance, if a mutual fund is focused on alternative energy investments, it will explore acquisition opportunities or stock offerings from companies in this space. They will only look for opportunities that line up with the growth goals and interests of clients.

The evaluation process during M&A involves a detailed analysis by buy-side research analysts and portfolio managers. These professionals investigate each potential buyer’s financial health, market potential, and long-term growth prospects. It is through their efforts that clients can then make smart investment decisions. The well-researched data they hold, coupled with their accurate interpretation, leads to a win-win outcome — high returns for clients and new horizons for businesses.

Buy Side Overview

During the transaction, what can targeted companies expect once they deal with buy-side analysts and M&A advisors? Let’s take a look at the process from the buy side, which is discussed in the steps below.

  • Building a solid M&A target list requires focus. Analysts should have clear goals discussed with the investors and ask questions so they can refine the list to be presented.
  • Leadership or family challenges in smaller firms can open doors for partnerships or acquisitions. Many buyers use intermediaries, such as investment banks, to explore options. Since some companies won’t be open for selling, shortlisting comes with the process.
  • In M&A transactions, it’s important to understand the seller’s expectations and offer a reasonable Letter of Intent to protect future negotiations.
  • Thorough due diligence by accounting and law firms uncovers legal, financial, and operational risks for informed decision-making.
  • To make the transaction final, a legally binding contract is signed. Share transfers with the goal of enforcing mutual agreements and creating a smooth transition are outlined within the document.
  • Both parties will enter the post-merger integration (PMI) stage.

Buy-Side Benefits

Buy-side investment firms hold a distinct advantage in the trading landscape, especially when it comes to making large-lot transactions. Firms can keep their investments profitable as they can effectively minimize trading costs when engaging in sizable trades. Although they have the ability to execute significant orders, they don’t have a large impact on market prices. These are just some of the benefits that keep them competitive.

Another advantage of the buy side is access to various internal trading resources. Advanced analytics and real-time data are on their side. In other words, investment decisions can be efficient as they can quickly detect trends faster than competitors.

Additionally, while buy-side firms and M&A advisors must disclose their holdings through 13F filings, this information is only available quarterly. This limited transparency can work to their advantage, allowing them to keep their research and trading strategies proprietary.

Collaboration within buy-side firms also breeds a dynamic investment environment. Analysts can directly influence capital allocation and the firm’s overall investment strategy by engaging with portfolio managers and other key decision-makers. This not only empowers analysts to make a tangible impact on investment performance but also enhances job satisfaction. Coupled with higher compensation packages, buy-side firms attract top talent eager to thrive and be inspired to produce better results in a competitive marketplace.

Buy Side Analyst

Buy-side analyst duties center on providing valuable insights and strategic advice to buy-side investors, such as potential buyers looking to invest in promising assets. These analysts focus on finding high-value investments by examining companies, industries, and asset classes to identify those that are potentially undervalued. 

They’re skilled in financial modeling, creating detailed projections that estimate future performance based on past financial data, revenue potential, and industry standing. This work helps buy-side investors gauge whether a company’s fundamental value aligns with their investment goals.

In addition to number crunching, buy-side analysts keep a close eye on broader trends and changes that might impact investments. 

They track macroeconomic shifts, regulatory developments, and market dynamics, which requires an in-depth understanding of global economies and the forces that drive them. By staying attuned to these factors, buy-side analysts equip their firms with the knowledge to make timely, informed adjustments to their portfolios, ultimately helping their organizations achieve solid returns.

Conclusion

When in search of the answer to the question “What is the buy-side?” always remember that they’re made up of analysts and advisors who lead investors through the acquisition process, focusing on securing profitable and strategic investments. Buy-side analysts conduct in-depth research, evaluate potential acquisitions, and negotiate terms to help institutional and high-net-worth clients make smart investment choices that drive portfolio growth.

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