Tag Archives: Sell side investment research

Introduction

Investment banks are engaged in the business of sell side research services to broad categories of clientele within the financial industry. The main clientele, however, remains those involved in the business of sourcing funds or selling securities, and they include corporations, financial institutions, management companies, private equity, venture capital firms, and so on, that remain on the sell side of the market. One must also consider that the provision of sell side research is not some sort of service that investment banks, exalted with deep expertise, immense capital, and exceptional understanding of the markets at their command, offer in their purely transactional capacity. Rather, it is a researched service that is for their sell-side clients.

It is through this intense market segmentation, company analysis, and critical examination of the various factors that may characterize the market that investment banks help clients to make the right decisions, deal with challenges in the markets, and realize their strategic goals.

There are several reasons why a sell-side client would look up to an investment bank. This research will help to enrich their understanding of market trends and investment opportunities, strategic management, optimize capital allocation, and embolden movement amidst regulatory and macroeconomic challenges.

Types of Sell Side Research

Types of Sell-Side Research

Equity Research

Equity Research refers to the study of individual business entities listed with the stock bourse, the historical performance of the business, expected performance, and models for the calculation of business values. This research also helps in determining the rightful price of IPO, secondary offering, or equity placement at times of underwriting. Therefore, with an accurate breakdown of the SWOT analysis, it allows investment banks to get the right target audience and come up with attractive marketing materials for their sales and trading divisions.

Sector Research

General outlook for large industries and their evolution; this would involve evaluations of, among other factors, economic, regulatory, and technological that impact a certain industry.

Target Identification & Valuation: Sector research helps in the identification of possible acquisition targets in a growing industry for M&A, and their valuation is assessed based on industry benchmarks for Debt Capital Markets.

Market Risk Assessment: Understanding the debt levels in an industry, the trends in financing, and associated risks aid in the designing of appropriate debt instruments for clients on the Debt Capital Markets and evaluating potential risks in prospective mergers and acquisitions.

Debt Pricing & Market Conditions: Research into interest rates, credit spreads, or studies about investor demand in an industry segment dictate the debt pricing for their offerings in the debt capital markets.

Company-Specific Research

Clients may require Company-directed research because of the nature of the business and the services that are rendered. This may further include the development of difficult tools for business financial analysis, competitor analysis, or even valuation reports.

M&A Due Diligence & Valuation: This consists of special studies concerning certain companies of interest to a client, including financial projections or competitive analysis or valuation, if needed.

Underwriting Due Diligence: Done for Underwriting itself, it provides elaborate analysis of the financial health, risk factors, and growth potential when a company issues an IPO or, similarly, secondary offerings.

Structured Finance Collateral Evaluation: It refers to estimating credit quality in the underlying assets for structured finance transactions, whether loans or any other type of account receivables.

Credit Research

Credit Research refers to analysis used to project an estimate of the ability of a company or government to repay lent money. It entails researching companies’ revenues, balance sheets, growth rates, debt levels, and other economic indicators.

Debt Issuance Structure: The quantum of interest, the time period for which money is borrowed, and the conditions for its repayment to obtain the lowest possible borrowing cost—based on the credit rating of the firm volumes issuing the debt.

Investor Targeting: Knowledge of investors’ preferences about various credit ratings means that advisors are able to approach the right investors for debt issuance, to achieve the right placement of the debt.

Regulatory Research

Research in laws and rules related to various financial transactions, such as the offering of securities, merging, acquisition, and debt issuance.

Compliance and Risk Mitigation: That every activity on the part of the client under the regime of pertinent regulations mitigates probable legal or financial risks.

Deal Structuring: Considering the associated regulatory requirements, advisors structure transactions in such a way so as to ensure that the legal and compliance standards for its execution process go smoothly.

Impact of Sell Side Research on Client’s Decision

Investment decisions

It is through investment banks that institutional investors are given specific information on stocks, sectors or industries in stock markets which have the power to influence investments in buying, holding or selling of shares. Corporate customers use these reports to gauge market sentiment and investor perceptions, helping them with strategic decisions regarding capital allocation, acquisitions, divestments and financial planning.

Risk Management

The sell side research assists clients to analyze risks associated with their investments or business strategies by giving them an insight into market trends, regulatory changes, competitive dynamics as well as macroeconomic factors. These reports are used by institutional investors who would like to assess risks and adjust their portfolio allocations so as to minimize possible losses and maximize risk-adjusted returns.

Accessing Capital Markets

Corporate clients receive help from investment banks in accessing capital markets through underwriting securities offerings such as secondary offerings (debt issuances), IPOs together with other forms of financing where a thorough research and analysis of the market exists behind it. These activities enhance the confidence of both firms’ investors as well as attracting interested parties thereby making it easier for them to exploit profitable opportunities.

Strategic Decision-Making

Research has been found to produce actionable opinions and strategic recommendations for sale-side customers that are specific to their goals and situations. Companies use such deductions to sharpen operational strategies, identify expansion opportunities, counteract competitive threats, and boost stockholder worth.

Stakeholder Communication

Reports not only provide sell side clients with a rich source of information for investor relations, but they also help in providing useful information to other stakeholders including the regulators, analysts, investors and media. Credibility and transparency in well-researched reports contribute towards building trust as well as collaboration among key stakeholders.

Benefits of Sell Side Research

Benefits of Sell Side Research

Market Analysis

The investment banks perform a thorough market analysis of the industry dynamics, market trends and individual securities thus providing our clients with important information about emerging trends in the market.

Informed Decision-Making

Through essential research reports, an investment bank guides its clientele towards making a satisfactory investment decision on the basis of sound analysis and data.

Risk Management

Sell side research helps clients identify, estimate, and address the potential risks associated with investment alternatives or strategies, in an effort to institute effective risk management systems toward minimizing potential losses.

Alpha Generation

It is through these institutions that most investors generate returns known as alpha since such companies discover low-priced stocks, possible mergers as well and some other activities which are presently undervalued by the entire market hence leading them to outperform other similar entities.

Strategic Planning

The insights given by sell side research enable our clients to formulate and improve their strategic plans through an understanding of the direction of industry trends, competition, and expansion opportunities.

Regulatory Compliance

The financial institutions try to get ahead of the regulatory change while remaining within the ambit of current legislation through its purposeful communication to the customers about any changes or updates in regulations concerning the investments.

Magistral Consulting’s Services on Sell Side Research 

Magistral Consulting specializes in sell side research and related superior services, thereby helping clients navigate financial markets optimally and justify respective decisions in the best possible manner.

Complete Equity Research 

Magistral Consulting maintains thorough equity research on organizational business entities represented by listed shares on a stock exchange. This will include historical performance reviews, future performance projections, and business valuation models. The company sees that IPOs, secondary offerings, and equity placements are priced satisfactorily with comprehensive SWOT analysis. Research of this nature helps an investment bank in focusing on the target audience or preparing marketing materials for their sales and trading divisions.

Sector Research and Market Insights 

Magistral Consulting provides full-scale sector research, analyzing the key industries based on various economic, regulatory, and technological issues. The services also provide insight into potential acquisition targets, estimate market risks, and measure debt levels by sector. Taking interest rates, credit spreads, and investor demand into account, it advises debt pricing strategies that ensure the best market conditions for a client in the debt capital markets.

Customized Company-Specific Research 

Company-specific researches are customer-focused analyses that form the magistral consulting company’s offerings to clients. These include general investigative due diligence, M&A due diligence, financial projections, competitive analysis, and valuation reports. The firm also provides underwriting due diligence, which entails an overall assessment of financial health, risk factors, and growth potential at initial public offerings and secondary offerings. Their structured finance collateral evaluation helps estimate credit quality for a range of structured finance transactions.

Credit and Regulatory Research 

Magistral Consulting excels in credit research, which deals with projecting the ability of a company or government to repay principal and interest. The analyses applicable in such a case are revenues versus balance sheets, growth rates, and economic indicators. This investment firm structures debt issuance to yield the lowest possible borrowing costs and tailors just the right mix for targeted investors for placements. Moreover, Magistral Consulting provides regulatory research on compliance issues much needed in dealing with mitigation in financial transactions. Their advisors structure deals to meet legal standards and meet execution smoothly, in a manner devoid of any controversy. The wide scope of sell side research services by Magistral assists clients with actionable insights to help them navigate financial markets and strategize goals.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com

 

The various kinds of sell side research provided by investment banks include equity, sector, and company-specific research, together with credit and regulatory research.

Equity research also enables client investors to analyze business units listed on the stock markets, to interpret the right price for IPOs and secondary offerings, to conduct a SWOT analysis for device hinterland target audience, and to frame the right marketing material.

Sector research defines the key sectors, identifies acquisition targets, quantifies market risks, and makes a case for the pricing strategy of debt so that the most optimal conditions for the client are brought to the fore in the capital debt markets.

Sell-side research professionals should enlighten clients on trends in markets, regulatory changes, competitive dynamics, and macroeconomic factors in the best possible way to provide better ways of investment decisions, risk management, capital market offering, strategic planning, or communication with stakeholders.

Introduction

Sell-Side Research services are going through a paradigm shift. A recent survey of Buy Side managers considers “Research” as an important element while deciding the investing avenues. At the same time, it is assumed that “Research” would be bundled with the offering, without being paid for separately. This leads to optimizing a loss leader, where controlling costs become as important as the depth of the research.

Outsourcing sell-side investment research services present a compelling proposition. It leads to maintaining almost similar quality while bringing in the savings in terms of operations’ cost.

In the article, we will evaluate the various functional areas of Sell-Side research that could be outsourced effectively

Fund Raising Services

Buy-side managers are flooded with requests from all sorts of financial instruments and Fund Managers. For smaller funds, the best chance of raising funds is from their personal network. Once those opportunities are exhausted, more reach out could be outsourced for cost efficiencies. Also, for smaller emerging managers, it takes quite some time to close the maiden funds. The best option is to carry on with providing the returns to existing investors and improving the track record while attending all the investor meetings that come their way. Success is hardly overnight. Outsourcing the fundraising process saves precious dollars of a smaller fund while still maintaining the reach-out process effectively.

Sell-Side Research

We have categorized the sell-side research by the organizations that undertake them. They could very well be categorized by their specialization or industry

Sell Side Research Services

Sell-Side Research Services

Sell-Side Research- Corporate M&A

Sell-side research in corporates revolve around M&A. Carving out a division and finding a suitable buyer for the division is a typical sell-side research assignment in the sell-side M&A process value chain. Here, the companies that might be interested in buying the said business is researched, depending on the synergies that the business division offers. Once companies are identified, the personnel list is drawn to finally commission a reach out to set up meetings. A business division depending on its financial performance could be sold anywhere between 6 months to 2 years. Valuations are driven by situations, markets, and negotiations.

Sell-Side Research- Investment Banks

Equity Research coverage forms the backbone for Sell-side research and analysis at Investment banks. Equity research reports are prepared with all the relevant information on the stock related to past financial performance, future financial projections, industry, economy, and other quantitative and qualitative factors. All the analysis leads to the recommendation in terms of Buy, Sell, or Hold for the stock.

Sell-Side Research Platforms and Market Makers

For the research services for platforms, all the administrative services could be potentially outsourced along with the technical aspects of managing a website or an app where the transactions take place

Stocks, Bonds and Foreign Exchange Sell-Side Research

Stocks, Bonds, and Foreign Exchange are the assets that are most traded across the globe. Quantitative and qualitative analysis along with macroeconomic or sectoral research could be potentially outsourced by the Sell Side Managers

Sell-Side Research- Private Equity and Venture Capital

When we talk about Sell-side in the Private Equity or Venture Capital industry, we are talking about further rounds of fund-raising or exiting a portfolio company for various reasons. The exits could also happen via IPO or an M&A with a bigger player. Here research plays a vital role in finding the investor or the M&A suitor. The analysis and documentation support can also be outsourced

Sell-Side Research- Real Estate

Here the sell-side research is mostly concerned about raising funds or selling the assets that may have completed their financial life for the original investor

Sell-Side Research Activities

Across the types of Sell-Side managers, the following services can be effectively outsourced without any dilution in the quality

Sell Side Research Activities

Sell-Side Research Activities

Company Profiling and Analysis

These may be the companies that may be suitable for M&A. Preparation of profiles by a third party also leads to unbiased views. A typical company profile includes meeting notes, earning analysis, business strategy, company overview, markets, management, and valuation. Sell-side due diligence is also part of this exercise.

Thematic Research

A thematic research report explores a specific sell-side market. It carries all the details about the market, major players, innovations taking place, its future, and the scope of the play. Thematic research also builds on inputs from the experts in those areas. Expert interviews are conducted to uncover the insights not available in the secondary domain.

Pitch Book

Pitch books are created to pitch the sell-side offerings. Pitch books are assisted for the design that complies with global financial standards. Well researched content is also prepared from the client’s feedback and market study

Fixed Income Securities Analysis

Analytics services to calculate various scenarios of returns for securities is a typical assignment. The scenario analysis of interest or returns changes could be built into the model to showcase the security analysis. Other quantitative and qualitative research can be effectively outsourced.

White Paper and PoVs

White Papers and PoVs are effective marketing tools for fund-raising. It shows the command of the Asset Manager on the market and the shape that it is going to take in the future. White Papers and Point of View documents are circulated to investors regularly for fund marketing. A well-researched and well-designed white paper goes a long way in creating a great impression. The research for these marketing materials could be effectively outsourced.

Mergers and Acquisition Support

M&A support span through list building, company profiling, due diligence, detailed due diligence, data room management, and post-merger integration. Much of the data-intensive work could be effectively outsourced to bring down the cost of acquisition. These projects are usually taken up by Investment Banks and Corporates looking for M&A.

Financial Modeling

Financial Modeling is an essential step to find out the valuation of the asset that the sell-side has to offer. A great financial model builds on reasonable assumptions and is flexible to take feedback from all stakeholders. This goes a long way in convincing the buy-side managers about the attractiveness of the deal. A financial model can be effectively outsourced to a competent agency that has experience in the space

Lead Generation Support

When an ideal profile of a buyer is shared, the outsourced team gets busy with finding similar firms, and within those firms, the relevant personnel who may be of interest to pursue further. These leads could be actioned as well, by the outsourced team. The result is setting up of relevant meetings for the sell-side to sell its offerings.

CRM

All funds that want to be in touch with all their potential investors use effective CRM to distribute fund documents, fund performance, newsletters, market reports, and other knowledge documents. A well maintained CRM is key to be in the eyes of investors continuously. The CRM needs to be populated with the relevant leads and pruned for irrelevant or outdated ones. The outsourced team delivers on this effortlessly. Also delivered are the knowledge pieces or white-labeled content that could be distributed to investors periodically

Structured Product Research

Marketing Documents, PoVs, and Business case or Investment case are prepared that are customized as per the client’s requirements.

Real Estate and Commodities Reports

A well-written report dealing with a GP’s area of expertise in Real Estate or commodities is not only useful from a marketing point of view but is also critical for creating trading strategies. A templated report for Real Estate and Commodities could very well be delivered by an outsourced team. All the content delivered is white-labeled and can be branded as per the client’s requirements.

Sell-Side Equity Research

Equity research using DCF modeling and comps is done to arrive at the stock price and the recommendations, to buy, sell, or hold. An outsourced team could track far more stocks than an internal team and can go into more depth. Tracking more stocks improves the sell-side decisions

Regulatory Reports

In markets where a regulator plays a vital role, regulator reports are critical for operation. Any new law, new regulatory changes, or compliance requirement is analyzed in detail in the report. The report also suggests the recommended business action to take advantage of changes or avoid complications.

Confidential Information Memorandums/ Private Placement Memorandums

CIM or PPM and pitch decks are the most widely used fund documents. They serve an important marketing function but at the same time need to comply with regulatory standards. An experienced outsourced team could deliver on the requirements that are comparable to global standards of fund documentation

Macro-economic and Sector Reports

Macro-economic reports are prepared for geographies where the sell-side is interested. Sector reports are made for the specialized sectors for the Sell-side. Both these types of reports could either fulfill the Marketing or Strategy requirements of the Sell-side.

Coverage Reports

These are specifically customized reports covering a set of stocks or industries like sell-side credit research reports.

Magistral Consulting is a specialized research and analytics agency that has helped multiple sell-side firms in the US, UK, Europe, and Australia in outsourcing operations and delivering cost savings. To drop a business inquiry click here.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.