Awards for Excellence 2014: Best emerging markets M&A house

Best emerging markets M&A house:

Goldman Sachs

For years, Goldman’s rivals scoffed that the bank’s relatively modest DCM position, the limited supply of lucrative bespoke and structured trades compared to the pre-crisis era, and challenges of generating returns from principal investments in a new regulatory environment, would imperil its emerging market franchise.

Goldman’s EM franchise is now more diverse across product offering, from debt, IPOs to margin financing, propelled by an ever-expansive geographic footprint. Meanwhile, its onshore China presence highlights Goldman’s under-appreciated on-the-ground advisory as well as sales and trading presence in growth markets, which has compensated for limited deal flow in other markets.

The heart of Goldman’s strength – and ability to derive ancillary business – lies in M&A, where it is famed for its prowess as a dealmaker in both developed and emerging markets. From domestic champions buying locally or in developed markets, or Western corporates pouncing on targets in emerging markets, Goldman’s bankers remain the natural M&A advisers from the perspective of corporate executives, thanks to their industry expertise, breadth of contacts and market instincts, from asset disposals to strategic M&A, where it won a good number of sole buy-side advisor mandates.

Qatar Foundation’s acquisition of 5% of Bharti Airtel showed the diversity of Goldman’s franchise

In M&A globally, where either the target or the acquirer was an emerging market corporate, Goldman advised on the largest number of transactions at 106 over the awards period, worth $86 billion in total, a 10.55% market share.

Though Morgan Stanley and JPMorgan sneaked ahead in market share terms, Goldman deserves credit for the number of transactions, and their high-profile nature, over the awards period, across new and diverse emerging markets. In a very weak year for M&A activity in emerging markets, more generally, amid macro volatility, political stresses, and risk aversion among private equity sponsors and corporate chiefs with respect to macro bets, EM represented just over 10% of Goldman’s global M&A volume of $735 billion. This is akin to global M&A transaction patterns seen a decade ago. By contrast, emerging markets have represented around a third of global activity in recent years.

High-profile talent

However, Goldman continues to dedicate high-profile talent to the sector – in a volatile year that has seen the departures of top personnel elsewhere – positioning itself for the structural shifts in corporate growth in emerging markets, and rising south-south flows.

In the first quarter of 2014, strategic M&A deals Goldman has been discussing with clients for years finally began to bear fruit. Over the awards period as a whole, Goldman was ranked number one advisor in Singapore, Indonesia and South Korea with a 19% market share in the Asia Pacific region, and worked on eight of the top 20 completed deals in the region, completing 128 transactions across 15 Asian markets.

M&A is the core business that drives Goldman Sachs and is part of the firm’s DNA Gregg Lemkau

Goldman has a reputation for being particularly reliant on financials or commodities, and/or heavily weighted towards China, where it has advised on complex and innovative deals from the private insurance market to cross border technology acquisitions.

But the firm boasts a diverse M&A franchise across industries. For example, it acted as the buy-side adviser for Japan’s Sumitomo Mitsui Banking Corporation’s $1.6 billion acquisition of a 40.0% stake in Indonesian lender BTPN, the largest-ever M&A deal by a Japanese corporate into Indonesia, as well as advising on vanilla commodity transactions, such as the two landmark sales of oil & gas assets to Sinopec in Egypt and the US. Goldman also planted its advisory flag in the large South Asian markets, including Qatar Foundation’s $1.3 billion acquisition of 5% of Bharti Airtel, the largest private equity investment in India.

In the highly competitive Latin American market, where the likes of UBS and BTG Pactual boast strong capabilities, over the past five years, Goldman has advised on as many as a quarter of all transactions, including some of the most complex and innovative, such as the merger of CorpBanca and Itaú in Chile and Colombia.

Gregg Lemkau, co-head of global M&A at Goldman, sums up the broker-dealer’s M&A philosophy: “While playing a trusted adviser to corporate clients provides further capital market opportunities, from an investment banking perspective, M&A is the core business that drives Goldman Sachs and is part of the firm’s DNA. The whole orientation of our management structure pivots around emerging markets because our clients expect us to provide global connectivity.”

It is a testament to the fact that, as a capital-light business, the competition between global houses for a piece of the limited M&A pie remained strong, with the likes of Credit Suisse, UBS, Morgan Stanley and Barclays jockeying for advisory positions, even as they have over the years shrunk their cores.

What’s more, given volatile supply, Goldman’s prowess in market share terms looks less fierce over the awards period this year compared to its top position last year, when it boasted a 19% market share.

Lemkau accepts strong competition in the emerging market advisory space is here to stay. “M&A is a relatively capital-light business so it will be the last area that investment banks will disinvest from, ensuring this will remain a competitive business,” he says. Amid an uptick in strategic transaction volumes globally, and amid weaker fee prospects for equity underwriting in Asia, in particular, M&A advice is likely to remain a fiercely contested battleground.