Awards for Excellence 2018
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Also shortlisted |
Morgan Stanley |
Lazard |
| View full 2018 results |
Goldman Sachs may be going through a rather messy change of leadership as it strives to build new revenues in consumer lending and financing to compensate for declining and volatile markets revenues. Tellingly, however, even its fiercest rivals are not celebrating yet.
“They may have lost some franchise bankers, but I’ve heard Goldman Sachs written off several times over the decades,” says one. “And look where they are.”
As usual, the firm is right at the top of the M&A advisory league tables. For full-year 2017, Dealogic counts global M&A revenue at Goldman of $2.6 billion, ahead of second ranked JPMorgan with $2.1 billion, third-placed Morgan Stanley with $1.7 billion and Bank of America Merrill Lynch with $1.5 billion.
Presumably its clients know what they are doing and are paying it for something valuable. They are not giving it M&A league table credit in partial recompense for handling their cash management or providing revolving lines of credit.
“Our primary focus, unlike the universal banks, has always been on strategic M&A,” says Dusty Philip, co-head of global M&A at Goldman. “We have built a franchise and a global network that invests in covering key decision makers and that also includes experts in all the industry verticals and a deep bench of experienced M&A practitioners.”
They have been busy.
“After a relatively quiet first half of 2017, activity in the second half of 2017 accelerated and has carried through to 2018,” says Michael Carr, co-head of global M&A. “There have been a number of complex, transformative deals in the last six months, including cross-border transactions and large structured transactions.”
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| Gilberto Pozzi |
Carr points to the firm’s work for Flipkart, often called the Amazon of India, which it is advising on the sale of a 77% stake to Walmart in a $16 billion deal. This includes $2 billion of new equity to help the local leader in e-commerce continue growing in a market of 1.3 billion people, where Walmart operates cash and carry stores for now.
“That deal starts with our coverage team in India,” says Carr. “We worked on multiple rounds of investment, including new investors last year. All of this culminated in a change of control transaction, which generated significant interest.”
As well as working for the Amazon of India, Goldman also worked as lead adviser for the Amazon of Seattle on its $14 billion acquisition of Whole Foods.
“That has been a long relationship, although Amazon has not done much large M&A,” says Philip. “We opened a Seattle office, which we had never had before, two years ago as part of an effort to shift our bankers closer to key clients.”
“We have long been known as a sell-side firm. But over the past year a lot of our marquee transactions have been on the buy side” – Gilberto Pozzi
The Whole Foods deal was a memorable one, partly for the sheer surprise of the bid at a time when established supermarket stocks were falling amid pressure from new discounters.
“Clients like having just one lead bank for advice and to arrange financing so as to keep their strategic plans confidential,” says Philip. “Otherwise, when targets start their out-going calls, the risk of a leak grows.”
Goldman provided bridge financing for the deal, with Amazon also seeking support from Bank of America once the transaction was well advanced.
“We have long been known as a sell-side firm,” says Gilberto Pozzi, co-head of global M&A. “We still do a lot of work on the sell side and on defence – such as advising Rockwell Automation against the unsolicited bid from Emerson, and Qualcomm against Broadcom. But over the past year a lot of our marquee transactions have been on the buy side. It’s not just Amazon buying Whole Foods. It’s also CVS bidding for Aetna; Keurig Green Mountain acquiring Dr Pepper Snapple; Unibail-Rodamco buying Westfield; and others.”
He highlights the firm’s role in advising and also arranging financing for Unibail-Rodamco’s recently completed $23 billion acquisition of Westfield.
“This was a French company that has been a client for many years, looking to grow in a consolidating sector – shopping centres – bidding for an Australian target with flagship assets in the UK and the US. It was complicated from a structuring point of view, given the staple unit that existed at Westfield,” says Pozzi.
“It is also interesting to note that, even if we worked for a long time on this, there was no leak whatsoever,” he adds.
Today’s leaders of the well-established Goldman Sachs M&A franchise are not just milking deals from old clients. There is a lot of innovation in M&A, such as so-called spin mergers, where typically a diversified company spins off a division into a public company that promptly merges with a new industry partner. Tax considerations are a big driver of these deals, often structured in a so-called Reverse Morris Trust and often presented as a response to shareholder pressure for conglomerates to be more focused.
Goldman is a leader in the business. It is working on the largest for Wabtec, a $12 billion acquisition of GE Transportation.
“We’re advising our client on buying a carved-out division that still relies heavily on GE, and we need to gauge investors’ reaction to the industrial logic and to how the new company is likely to trade,” says Philip. “It’s highly complex. And it requires bringing together not just industry experts and M&A advisers but also tax, capital markets and financing specialists.”
