Prime Brokerage Case Study Model

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BUY SIDE INTRODUCTION This is a terminology used to include institutions which are involved with purchase of investment services such as Private Equity funds, Mutual funds, Hedge funds, Life insurance firms, Pension funds etc. This concept has to be viewed from the perspective of securities exchange services and “buy side” are the buyers of the services. On the other hand, ‘sell side’ are the sellers of the services. They are also known as ‘Prime brokers’. IMPORTANCE The buy-side makes up one of the financial market with the sell side comprising the second half. • Firms on the buy side are the money managers aiming to create value for their clients by purchasing assets which are potentially under-priced. • Analysts on the buy side make…show more content…
Regulatory requirements are stringent including certain mandatory examinations for the analysts. There is just about no scope for making errors since it can impact the final performance They can afford to be lenient in terms of modelling or picking correct stocks but absolutely perfect while providing information to the buy-side analysts. It is also to be note that both the buy-side and analysts are coming from the far end of the spectrum and with the Chinese Wall, it becomes difficult to communicate on a regular basis. It is here that Prime Brokerage is coming in the picture to bridge the gap. The below image can give an understanding of how a trade can be executed:…show more content…
A buy-side engagement shall include the following:  Target Identification – it usually requires significant knowledge or market research to assess the potential firms which match the criteria of the buyers.  Target Assessment – This involves mandatory research on the financial performance of the target as well as the existing management team for determining if it fits in the overall future plans of the acquirer.  Valuation – This typically includes value of the target based on the position in the specific industry or what the buyer is willing to pay.  Structuring – This involves making assessment on what capital structure suits best for the buyer while satisfying the expectations of the target.  Letter of Intent (LOI) – This step consists of crafting and presenting the LOI on behalf of the buyer. It generally consists explanation on how the Enterprise Value (EV) is computed and the break-down of the proposed capital structure.  Due Diligence – Buy-side advisors are heavily involved in the due diligence generally for the buyer. The primary responsibility is to prove the various assumptions considered during the target assessment and valuation

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