When SunTrust Banks put in a hostile bid for Wachovia in mid-May in an attempt to steal it away from friendly bidder First Union, Wachovia felt it needed to bolster its advisory team. It called Goldman Sachs.
It’s not an unusual move. Goldman’s M&A franchise is broad-based, but its financial institutions group is one of its strongest sectors, and it has long had a reputation for being the best defence M&A adviser.
Another example of its deft defence work came earlier this year when Shell put in an unsolicited bid for Barrett Resources of $55 a share. But Goldman had been working on defence strategies with Barrett for a while. “We look at this deal as a textbook case of how to run a defence,” says David Baum, Goldman’s co-head of M&A for the Americas. “We felt Shell had come in light on valuation, so we immediately put our defence plan into action.” That involved seeking out a white knight, which they duly found in Williams. The price they offered was $73 per share. “The deal worked out great for all involved,” says Baum. “The shareholders, and Williams each got what they wanted.”
But defence work isn’t the only string to Goldman’s bow, as its role in advising AIG on trumping the Prudential of the UK’s offer to buy American General shows. Goldman has a broad and deep franchise that has not only helped cushion the blow as Goldman’s M&A deal volume has dropped over 25% in the past year, but has also kept the firm at the top of the league tables. The impression that tech was everything to the likes of Goldman and Morgan Stanley was clearly false.
In addition to the AIG and Wachovia deals, Goldman has also advised Dresdner on its sale to Allianz, and E.On on its acquisition bid for PowerGen – and these make up four of the five largest deals announced this year. And getting the bigger deals is crucial for keeping the fees rolling in. In fact, Goldman is the lead bank for the 12 months up to the start of June in advising on M&A deals worth $1 billion or more, accounting for $245.7 billion – although Merrill Lynch gives it a good run for the money with $241.2 billion.
Its cross-border franchise still leads the way, as well. In addition to the $15.7 billion E.On deal, Goldman advised PaineWebber on its $10.8 billion sale to UBS, Seagram on its $40.9 billion merger with Vivendi and Deutsche Telekom on its $30.8 billion acquisition of Voicestream.
The challenge for Goldman, as for other houses, over the past year has been to manage the drop in business as prospective clients mull over their 52-week-high problem. Potential sellers are put off as they remember the glory days when their stock price was 20%, 30%, 200% higher than its present position. “It’s not been the most eventful year,” says Baum. “It’s been more a case of three yards and a cloud of dust rather than going for the touchdowns.”
But, he says, “a good number of clients recognize that although today might not be a good time for a deal, they have to be well prepared for whenever the markets pick up. And a lot of discussions do revolve around potential defence strategies.”
