LBO Buy-Side

LBO transactions for buy side professionals

LBO Buy-Side

This article is specifically about LBOs on the buy-side. In a leveraged buyout (LBO), buy side firms are advising institutions concerned with making investment decisions. LBO buy-side entities include private equity firms, life insurance companies, hedge funds, pension funds and unit trusts. These entities have pools of funds that they are ready to invest in profitable ventures and generate returns either for themselves or for their clients. They rely on sell-side reports to carry their own analysis and make recommendations.

Read more about LBO transactions and LBO models.


What is the work of a Buy-Side Analyst?

Buy side analysts work in non-brokerage firms, and they conduct research on potential investments and give recommendations to the company’s money managers. Unlike sell side reports (equity research) that are made public, buy side recommendations are kept confidential. The aim of buy side firms is to identify and purchase underpriced assets and earn high returns on the investments.

In a situation where the buy side analyst conducts market research and identifies a high performing company that is being sold, he isolates that information so that other investors do not influence a price hike. If he is convinced that the business is profitable and the stocks are competitive, he makes a buy recommendation to the firm or high-powered clients. If both parties agree that the company is worth investing, they go ahead in financing the purchase, with a mix of both equity and leveraged debt, to ensure higher returns on investment.

The buy analyst success is measured based on the number of profitable recommendations that he makes, with the aim being to buy low and sell high. They earn commissions and bonuses on every successful investment.


Buy-Side LBO models

Below is an example of a financial model used in an LBO transaction.  There are many types of financial models, and LBO is just one of them.


LBO Buy-Side model


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Buy Side vs. Sell Side

In a leveraged buyout, there is a sell side and buy side. The sell side entities comprise brokerage firms like investment banks, stockbrokers and market makers. They keep track of stocks and performance of various companies which they analyze and come up with research reports. The reports are usually made available to the public. The LBO buy-side entities take up these reports to do their own analysis and make recommendations to their seniors. Buy side entities take speculative positions and aim to gain from market movements and accruals.

Read more about the buy side vs sell side in M&A.


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