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What is the Buy Side?

Definition: Buy-side is to the part of Wall Street or the financial industry that purchases large amounts financial instruments to hold as an investment for clients or themselves.

What Does Buy Side Mean?

What is the definition of buy side? Private equity, growth equity, venture capital, insurance firms, hedge funds, mutual funds, pension funds, and institutional and retail investors are all part of the buy side of the financial industry.

Firms on the buy-side seek to create value for their customers (institutional and retail investors) by purchasing underpriced financial assets, expecting that their price will rise so that they can sell them at a higher price for a profit. In this context, they are using sophisticated strategies that can offer them a comparative edge, and will potentially expand their customer base.

Letís look at an example.

Example

George works as a merger and acquisitions advisor in a private equity firm. His main task is to advise corporations in merging with or acquiring target companies. He seeks to create value for his clients by helping them identify the proper acquisition target, performing his own due diligence on the target companies, presenting the upside and the potential downside of a prospect acquisition, and establish the terms of the acquisition deal before closing the agreement.

By performing due diligence, George is, in effect, performing a thorough analysis of the acquisition target to determine its financial health, using all available financial information that could be helpful in determining if the deal is beneficial for the buyer and what could be a reasonable target price.

Although George has an interest in closing the deal, his assessment about the target company should reflect no bias. In addition, he should use all financial tools and valuation methods available to determine the true value of the target firm. If the deal is worth closing, George should do his best to reach an agreement. If the deal is not worth closing, George should protect his client from entering a disadvantageous deal.

Summary Definition

Define Buy-Side: The buy side means the groups of investors in the financial market that purchase large numbers of securities for themselves or their investors.

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