Bank for Financial Sponsors: Goldman Sachs

IFR Review of the Year 2017
8 min read
Gareth Gore, Steve Slater

Sponsor support

Coming up with new transaction ideas while navigating a crowded field of private equity firms, family offices, sovereign wealth funds and other asset managers has been crucial for sponsor bankers in a busy year. One firm has cemented its lead over rivals, making Goldman Sachs IFR’s Bank of the Year for Financial Sponsors.

Generating ideas is the differentiator among banks when it comes to serving private equity firms and other asset managers: those clients have mountains of cash to put to work, but low yields and a lot of people fighting for assets means new ideas will win the day – and the fees.

It’s an area in which Goldman Sachs says it has an edge over rivals, and a raft of complex deals in the past year back up its claim.

The bank’s top ranks also noticed: in September, Goldman announced the formation of the investment banking division’s Innovation Lab to develop ideas and content for clients across the world.

The lab had been incubating in the financial sponsors group over the past three years, where it had been known as the Ideas Lab.

“If you said to sponsor clients ‘what is really differentiating among the banks?’, they would say ‘we really need ideas because we’ve raised so much capital’,” said Rob Pulford, head of Goldman’s financial and strategic investors group in Europe, the Middle East and Africa.

“That has been a huge strategic focus for the global group. It’s taken three years to get to the point where it has, and 2017 is the first year where you can really see what we’ve achieved because it’s generated more business,” he said.

That included the landmark deal to create a new healthcare company from McKesson Technology Solutions and Change Healthcare. Goldman was exclusive financial adviser to McKesson, and led the bond financing.

The deal used an unusual private joint-venture structure so McKesson could realise synergy benefits and allow the new company to integrate the assets before it became publicly traded, in a tax-efficient and flexible method.


US life sciences outfit Avantor’s US$6.4bn purchase of lab supplies company VWR was another complex deal that showed off Goldman’s increased financing clout even more. Goldman has long been a leading leveraged finance player. But it is committing more capital for clients and ramping up its debt advisory skills as that area becomes more strategic and integral to transactions and advisory work.

Indeed, Goldman deployed US$15.5bn of capital to its sponsor clients in the first nine months of 2017 – more than double the US$6.8bn it provided to them in the same period in 2016.

For the Avantor deal it also brought in its merchant banking division, which it says gives it an edge rivals can’t match. Together the investment bank and merchant bank committed US$6.1bn of capital across the capital structure, including US$2.65bn across both preferred equity tranches.

There was some pushback from investors on both McKesson’s and Avantor’s financings, especially on the latter deal, forcing adjustments to the structures to get them over the line.


Goldman may have had a difficult year in parts of the bank, but it remained way out in front of rivals on fees from financial sponsors, where it has had a formal coverage group for almost 20 years.

Sponsors are more important to Goldman’s top line than at most other firms: they are estimated to provide about 10% of investment banking fees for the industry, but that share is probably nearer 20% at Goldman, rival bankers estimate. Goldman does not break out its revenues for the unit.

Goldman executives say their strengths in sponsor coverage include long-standing relationships, the longevity of partners running the business and the bank’s geographic reach. Then there are its execution and distribution capabilities in key product areas – M&A and carve-outs, IPOs and other equity deals, debt financing, and leveraged loans.

Given the variety of work with sponsors, where big PE firms can own dozens of companies, that’s crucial.

“I would say that every single one of the most important global private equity players and most of the regional ones would say we are without a doubt among their top relationships,” said Alison Mass, Goldman’s global head of the FSIG group.

Mass said FSIG has about 600 entities as clients, and they have between 5,000 and 6,000 portfolio companies.

Goldman brought in US$1.05bn in fees from financial sponsor deals in the year to November 15 covered by IFR’s awards, according to Thomson Reuters data.

That gave it a 9.1% share of the wallet, well ahead of the roughly 6.2% (about US$720m in fees) for each of Morgan Stanley and JP Morgan in second and third, respectively.

Goldman’s fees were up 70% from the previous year, Thomson Reuters estimates, easily outpacing a 22% rise across the industry and the biggest rise for any of the top 20 firms.

What’s more, it ranked first in every part of the sponsor-fee breakdown apart from acquisition finance, where it was shaded by Credit Suisse. Goldman was first for fees from sponsor exits during the year (US$420m), fees for portfolio deals (US$372m) and for buyouts (US$123m).


Goldman, like its clients, isn’t sitting still. It formed the financial and strategic investors group in 2016, marking a subtle but significant shift from its previous incarnation as the financial sponsors group.

The move expanded coverage to include family offices, sovereign wealth funds, pension funds, infrastructure funds, energy funds, SPACs and real estate sponsors, and came about because new pools of capital are competing with traditional private equity firms. Adding to the complex mix, a sponsor client one day may be a counterparty, partner or a competitor on the next deal – and often they want transactions kept quiet.

“We’ve spent the last year trying to get our arms around who are these emerging buyers, how should we be covering them, how do we add value to what they are doing,” Mass said.

“And new entrants are coming into the market every week … from a family office or a new financial entrepreneur or a pool of capital that’s trying to directly invest in companies where they were not doing it historically.”

Other landmark transactions that Goldman worked on last year that spanned the wider sponsor community included the US$8.7bn spin-off of Parks Hotels & Resorts by Blackstone Real Estate-owned Hilton Worldwide, and Stone Canyon-owned BWay’s acquisition of Mauser and financing.

Another was CVC Capital Partners’ €4.5bn sale of Ista, an energy efficiency services company, to a joint venture of Hong Kong’s Cheung Kong Property Group and CK Infrastructure Holdings.

Goldman is also broadening its coverage to smaller clients, especially in the US, to cater for mid-sized companies among the thousands of portfolio firms.


Goldman also claims another advantage in the world of sponsors – its alumni network.

“We have a very robust alumni network, and a lot are driving very important financial institutions,” Mass said. “It does help because they understand the strength of the Goldman franchise and have personal relationships with partners around the world.”

Avantor’s owner New Mountain Capital, for example, was founded in 1999 by Steven Klinsky, who had helped start Goldman’s leverage buyout group in the early 1980s.

In a competitive market, the bank is trying to drive home that edge. In September, it hosted an alumni and private equity event in New York. There were more than 400 attendees.

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Bank for Financial Sponsors: Goldman Sachs