Awards for Excellence 2014: Best global M&A house

Best global M&A house:

Goldman Sachs

Goldman Sachs often tops the global M&A adviser rankings but in the 12 months under review it extended its lead to a marked degree both in dollar volume and number of deals. It advised on 372 M&A transactions worth $735 billion, well ahead of second-ranked JPMorgan, which advised on 293 deals worth $696 billion. Meanwhile third-placed Bank of America Merrill Lynch advised on 241 deals worth $578 billion and Goldman’s great traditional rival Morgan Stanley advised on 297 deals worth $546 billion.

Every year, competitors try to write Goldman off for its conflicts of interest. Every year the biggest companies and private equity sponsors turn to Goldman for trusted advice.

It advised on many of the largest completed and pending deals over the past 12 months, such as Vodafone on the sale of its 45% stake in Verizon Wireless to Verizon Communications for $130 billion and DirecTV on its pending acquisition by AT&A for $67 billion. It was trusted advisor on many of the most complex transactions, for example advising Pfizer on its $13.2 billion split off of Zoetis. It has advised on some of the biggest LBOs, such as Safeway on its pending acquisition by Cerberus Capital, Kimco Realty, Klaf Realty, Lubert-Adler and Schottenstein Stores in a highly complex $9.2 billion deal.

As M&A picks up, following several years of apparently promising conditions but stubbornly muted activity due to CEO and board directors’ risk aversion, Goldman is winning a high share of rising business volumes. Gregg Lemkau, global co-head of M&A at Goldman Sachs, says: “Over the past few years, the activity has consisted of a lot of private equity transactions, minority buy-ins or spin-offs that bring league table credit but aren’t really classic, strategic M&A. But this year, overall volumes to mid-June 2014 were up 70% compared with the same period in 2013, while the number of deals over $10 billion is more than double that seen last year. That’s driven by the return of the big, corporate acquirer responding to a highly receptive equity market that seems to be rewarding companies for accretive strategic transactions.”

He continues: “In an environment of strategic M&A, clients need deep insights within industry sectors and across all industries around the world, and all that plays to the breadth of our global footprint and the depth of our industry knowledge.”

Reading the signals

Some of the strategic deals coming to fruition are ones that Goldman has been discussing with its corporate clients over many years. “Our team had been working with Vodafone for more than 10 years and this was always going to be a possible deal for them,” Lemkau says. “Our client had come close to selling down its stake a number of times over the years; each time they said no, the price kept going up. The eventual outcome was a phenomenal success for the client.” But Lemkau admits that reading the signals from the stock market is a key driver.

“For all the well-thought advice we present to boards and corporate executives, there’s invariably one key question that gets asked: ‘what will happen to my share price?’ And it’s typical of the way the firm works together that we’ve taken a senior banker from our equity capital markets business in Steven Barg, who had been running ECM in Asia, into a new role within M&A advising clients on this specific issue,” Lemkau says. “So we created an M&A capital markets team that provides a much more in-depth report than simple flow-back analysis of which shareholders can or cannot hold a buyer’s stock. It’s a much more detailed line-by-line run through of the likely response of each shareholder on the register: not just how a large shareholder may react to a strategic announcement but what is the track record of the individual portfolio manager in charge of the specific fund invested in the stock in responding to, voting on, continuing to hold stock after similar announcements. Added to that, as the share register turns over as public M&A situations unfold, we have seconded bankers to gather insights into the reaction of the event-driven investors around live M&A situations. This is quite powerful stuff, and it’s also a reminder that the most experienced and best advisers on complex M&A deals are more than just M&A tacticians, they are the people best equipped to quarterback all these other efforts around capital markets, financing, tax, competition issues and all of the elements of a merger transaction.”

Lemkau is particularly proud of advice the firm gave to Novartis over the sale of its Animal Health business, the acquisition from GlaxoSmithKline of its oncology business and the creation of a joint venture for the two companies to combine their consumer OTC businesses and generate new scale efficiencies. “The transactions for Novartis involved multiple businesses, some being acquired, some being joint ventured and some being sold with multiple counterparties. It was an extraordinarily complex series of transactions with the deals inter-conditional on each other. Solving this complexity and orchestrating the timing was important to Novartis as it allowed them to execute on their portfolio restructuring all at once and reposition the business to their investors by giving a complete picture of the transformed entity. It was one of the most complex sequences of deals you’ll ever see, and full credit to our client and our deal team for being able to pull it off.”

A revenue rankings is even more impressive than its lead in deal volume and number league tables. It commanded a 12.2% fee share in the first quarter of 2014, almost equal to the combined share of BAML (6.4%) and Morgan Stanley (6.1%).