Equity House, Asia-Pacific Equity House, EMEA Equity House and Americas Equity House: Goldman Sachs

IFR Review of the Year 2013
15 min read
Owen Wild

Pure Goldman

Goldman Sachs dominated equity capital markets this year. Whether sliced by region, product, risk appetite or sector, the US bank emerged in the top slot across the board. It was the bank of choice for corporates, sponsors and governments alike. In a first ever global sweep, Goldman Sachs is IFR’s Equity House of the Year, Asia-Pacific Equity House, EMEA Equity House and Americas Equity House of the Year.

Goldman Sachs’ haul of every equity house award IFR has to offer in 2013 is unprecedented – and entirely deserved. It added to its strengths from the previous year, and filled in the gaps where it had fallen short.

Take European IPOs: Goldman went from completing just one IPO in the previous awards period to 19 in the 12 months to November 15 2013. And this was not a result of the bank being tagged on to the end of syndicates at late stages; it held the most global co-ordinator slots on IPOs as well.

In fact, it is difficult to find any point of weakness among Goldman’s deal tombstones this year. Without any manipulation the bank has a US$18.8bn lead over its next nearest rival, JP Morgan; this equates to 27% of the rival bank’s league table credit.

The bank is top in the US, EMEA and Asia-Pacific. When it comes to jumbo issuance of US$1bn and up – whether split by IPOs or blocks – it is also number one.

And no other firm continues to make ECM such a top priority.

“We are as proud of our performance in ECM this year as we have ever been,” said Stephen Pierce, global head of ECM.

“We feel we have been able to do something special for our clients, and that has manifested in the performance across all of the regions – which is very consistent at number one so far this year. We are dominant in all of the regions that matter,” he said.

“Not only do we feel dominant in each of the component regions but also in the sectors that matter. And if you look at just the biggest, most high-profile deals in each of the regions, we have had well more than our expected market share in each of those.”

Goldman’s presence on the largest deals is even more impressive considering the geographical and sectoral spread that involved.

Many foreign banks have wavered in their commitment to Japan, for example, not least because of years of disappointing issuance and subsequently poor revenues. Yet in 2013 Japan hosted both the largest deal globally – the ¥747bn (US$7.8bn) follow-on in Japan Tobacco – and the second-largest IPO, a US$4bn deal for Suntory Beverage and Food.

Goldman was joint global co-ordinator with Daiwa on the JT sale, in which the government cut its stake to 40% at a tight 2% discount. And it was joint bookrunner on Suntory, which is IFR’s Asia-Pacific Equity Issue of the Year.

In fact, the bank dominated jumbos across the globe. It retained top slots on the transactions that marked the US government’s US$7.6bn exit from AIG as well as AIG’s US$6.5bn sale of AIA. Other banks have come and gone during the selldown processes, but Goldman has been an active lead on every deal.

Add in bookrunner roles on telecoms firm KPN’s €3bn rights issue, the Swedish government’s SKr21.6bn (US$3.375bn) sale in bank Nordea, the US$5.5bn rights issue by China Merchants Bank and the US$3.6bn IPO by PICC, and Goldman was a bookrunner on eight of the top 10 issues globally.

“Everyone knows the goal – number one in whatever you are focused on,” said Pierce.

Winning at home

Perhaps Goldman’s biggest challenge in 2013 was at home, where it had not taken top spot in six years. After last year’s fourth-place finish in the US, the bank was ubiquitous, whether on block trades or marketed offerings of new issues.

And a changed attitude towards risk was required to regain first place in the US.

“Certain firms have made using their balance sheet and risk trades a major part of their strategy,” said Pierce. “We are not going to do that, but we changed the way we do block trades, the way we target them, and focused on … where [capital commitment] would matter most.”

No block trade better represented that philosophy than Goldman’s US$810.6m commitment to JC Penney.

The trade followed a US$4bn loan recapitalisation with Goldman in a leadership position. The refinancing addressed a potential US$750m financing shortfall expected in November 2014. Selling stock would further derisk the distressed retailer’s capital structure.

A marketed deal would have been preferable to Goldman, but would have opened a vulnerable stock up to aggressive short-selling. That JC Penney is still around today is testimony to a successful trade.

Size is certainly another thing that matters for the bank, as illustrated by five block trades in excess of US$1bn, including sole book commitments to sellers of LyondellBasell Industries, AvalonBay Communities and Equity Office Properties. The bank shared risk in trades with another firm on the other two – sales of Realogy and Hertz Global Holdings.

Indeed, it is not often that Goldman can claim to be most improved in ECM (such is its status in the top tier). Yet the bank priced 187 deals overall for US$32.6bn of book proceeds – a 13.6% market share in the IFR awards year. That was a staggering 47% improvement in overall market share versus 2012.

Balancing act

The requirement to aim for number one in every slice of the business made for a balanced portfolio of issuance. Technology, media and telecoms has always been one of Goldman’s major sectors. Even with its lead-left underwriting post on the Twitter IPO, IFR’s North America Equity Issue of the Year, tech accounts for just 15.4% of the bank’s overall US underwriting activity.

Twitter’s US$1.8bn float, rising to US$2.09bn with the greenshoe, set a new benchmark as arguably the first internet IPO of size to succeed at every step from launch through marketing and trading.

Up against big lenders, Goldman still managed to price 14 issues for REITs, making those clients a surprising 12% of the bank’s activity. Included was the listing of New York’s iconic Empire State Building.

And rounding out an enviable collection of IPOs was Plains GP. At US$2.9bn it was the largest IPO in the US in 2013, and included just three active bookrunners. It provided investors with exposure to master limited partnership assets within the confines of a traditional corporate structure.

“Twitter, Tesla [for which the firm arranged a US$1bn CB/equity combo] and Empire State are all known to the masses – but being able to do the largest IPO in the US in the form of Plains at US$3bn or doing the largest sole-managed transaction in the US for Valeant as it bought Bausch & Lomb matters to us,” said John Daly, the bank’s head of Americas ECM.

It is not just the size of Valeant Pharmaceutical’s trade that makes it stand out but that Goldman shouldn’t really have been involved at all. Occasionally the strength of Goldman’s M&A franchise means the ECM team can lose out as it is on the wrong side of a situation. In this case the bank was sell-side adviser, alongside JP Morgan. Yet when it came to raising equity, the buyer appointed Goldman. The win was especially sweet, as Goldman was not a top-line bookrunner on the planned B&L flotation.

Consistently aggressive

Leaving aside a patchy performance in convertibles, Goldman’s European business similarly illustrates its cluster of goals: balance between products, diversity by sector, privatisations, leading the biggest deals, innovation and measured aggression.

“The goals were simple,” said Alasdair Warren, who began the year running EMEA ECM and is now head of the financial sponsors group in the region.

“Innovate and differentiate to create opportunities for clients and investors; balance across products – if we are going to be sustainably the leader then we need to be there in every product type; and maintain league table leadership.”

Innovation is not just about complexity, of course; it also has to do with meeting client needs. Sometimes that includes speed, such as on HellermannTyton’s IPO, which went from pitch to pricing in just 52 days (in order to be squeezed in before Easter).

One Goldman employee briefly attained the title of world’s most expensive courier, as the US bank trumped peers on the sale of shares in Volvo. Renault had been wooed by many banks over the 138.6m A shares it owned in the Swedish car maker, but there was a problem – the market wanted the liquid B shares, and Volvo acknowledged that conversion could take up to three weeks.

Goldman differentiated itself by offering Renault the same price for either A or B shares (avoiding a full auction among banks in the process) and then offering the market whichever form investors wanted without any delay.

A Goldman employee embarked on a round trip of nearly 4,500km by picking up the share certificates in France from Renault, flying to Volvo in Gothenburg and then on to the Swedish Companies Registration Office in Sundsvall, all in time to deliver B shares to those that wanted them after the T+3 settlement.

Such transactions differentiate the firm just as much as the provision of the call spread attached to Daimler’s final sale of EADS shares or the margin loan to Patrick Drahi to allow the founder to increase his stake in cable TV operator Numericable at its €652m IPO. (The latter is more remarkable, considering Goldman was not involved in the flotation.)

League table in Europe is driven by financials and secondary transactions, but revenues and future deal flow are determined by IPOs. When Goldman won EMEA Equity House for 2012 – though the bank had topped the league table for a third consecutive year – the single IPO completed in the period was well below par.

The change this year could not have been more dramatic. The bank ran more IPOs as global co-ordinator than any other, including a clutch of US$1bn-plus issues for amusement park owner Merlin Entertainments, energy vehicle Riverstone, Russian pair Tinkoff Credit Systems and diamond firm Alrosa – and the privatisation of the UK’s Royal Mail.

“Our performance and the momentum shift in IPOs in Europe versus last year is a function of the way Goldman Sachs operates,” said Pierce. “We swarmed that problem – and it was a good year to fix it.”

Plans are in train to give equity-linked in Europe the same treatment next year, he said.

Bigger in a smaller pool

It was a difficult year in Asia-Pacific as issuance dipped to a post-crisis low and switched from IPOs to lower paid follow-ons. Nonetheless, a rebalancing of issuance helped Goldman’s position in the region.

“2012 was very much the year of South-East Asia,” said Jonathan Penkin, Goldman’s head of ECM for Asia ex-Japan. “But 2013 has been far more balanced, with a resurgence in North Asia, in particular China and Australia/New Zealand.”

Dominance in Hong Kong and China was shown in two prominent transactions: the US$6.4bn selldown in AIA and the US$3.1bn H-share private placement ofSinopec stock.

The placing in Sinopec highlighted Goldman’s ability to maintain long-term relationships with top-tier clients: the bank had led eight transactions by the oil firm since 2007.

February’s mega-offering was mandated to Goldman alone – and was the largest sole books follow-on ever in Asia ex-Japan. Appointing one firm was an effort to minimise the risk of leakage, and Goldman wall-crossed select investors in a private placement to ensure the share price was untouched.

A far more common Asian syndicate model was seen on the US$1.8bn Hong Kong float of Sinopec Engineering and the US$1.1bn Hong Kong offering of China Galaxy Securities. The former employed a 13-member syndicate while the latter had 21 banks involved – but Goldman had a leading joint global co-ordinator role in steering both transactions.

It is rare for New Zealand to merit even a passing mention in a regional round-up, so it speaks to Goldman’s ability to seize the initiative that as the market sprang to life, the bank was lead on the country’s two major privatisations: the NZ$1.7bn (US$1.4bn) and NZ$1.9bn IPOs of Mighty River Power and Meridian Energy. Add to that a leading role on the US$679m IPO of fuel distributor Z Energy, and Goldman looked dominant.

Real estate continues to dominate flows across the region, and Goldman’s roles stretched from joint global co-ordinator on the US$1.4bn IPO of Mapletree Greater China Commercial Trust, Singapore’s largest REIT IPO ever, to the same status on the IPO of Nippon Prologis REIT in February. The Japanese REIT was back just three months after the ¥85bn (US$910.1m) IPO with a follow-on for ¥71.1bn and again just after the end of the awards period in late November for a further ¥30bn. Goldman retained its top line slot each time.

For one house to win all of IFR’s ECM awards is a remarkable achievement, and Stephen Pierce may be forgiven for feeling a bit like the Michael Phelps of ECM. It was an astonishingly good year.

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