If you’ve got a problem …
With their very survival at risk, many companies were forced to issue equity as Covid-19 wrought havoc in the markets. Other firms were, however, enjoying a bounce that allowed them to issue from strength. Whether desperate or in rude health, when they needed advice, they called on Goldman Sachs. The bank is IFR’s Equity House, North America Equity House and EMEA Equity House of the Year.
The evidence of 2020 shows that the buff Goldman Sachs business card is a powerful shield for issuers battling an unprecedented crisis. “When things get tough you turn to Goldman Sachs,” said an ECM veteran who has never worked at the firm.
But it could have been very different, with companies worrying about liquidity amid the coronavirus crisis calling on their lending banks to help.
“When you think about what happened during Covid and what happens during any stressful period, what would be natural is that credit banks would likely have had massive market share,” said David Ludwig, who was named as Goldman’s global head of ECM during the year.
Or perhaps worried companies might have turned to long-established broking relationships. But that didn’t happen either.
“People were looking at their brokers and saying ‘I don’t think they can do it’,” said a UK-based head of ECM at a smaller bank. “When your back is to the wall and you don’t trust your advisers, you hire Goldman Sachs.”
To put it another way: if you have a problem, if no one else can help, maybe you can hire Goldman Sachs.
But it is not the sign above the door that made Goldman IFR’s Equity House, North America Equity House, EMEA Equity House, Americas Structured Equity House and Asia-Pacific Structured Equity House.
It is the fact that issuers trust in Goldman bankers’ advice.
Its leadership across sectors, issue types and through products and innovations tailored to each phase of the crisis show how effectively the ECM team took their considerable experience and adapted to new challenges.
It was certainly a year to remember as banks raised more than US$1trn of equity for clients globally for the first time and activity stepped up significantly in late March once the Federal Reserve opened its liquidity taps to backstop capital markets.
Goldman’s unrivalled ability to get ahead of trends and secure access to equity capital for its clients in trying circumstances only saw its share of the underwriting fee pot expand. In the fourth quarter of 2020 Goldman earned over US$1.1bn in equity underwriting taking full-year ECM earnings to a record US$3.4bn.
A 15% market share in US common stock was impressive (achieved in both 2020 and the longer awards period of November 16 2019 to the end of 2020) and in fact crucial to its global leadership as its US$7bn lead in the US is the same gap as it holds globally across ECM.
It is a measure of the dominance in the US that Ludwig was promoted from running Americas ECM to global head, a position that had been vacant for three years. Gabe Gelman, head of Americas healthcare ECM, and Simon Watson, who led structured equity and privates, stepped up to lead Americas ECM.
No time to lose
In the US, Goldman advised on the first nine PIPE private placements of the pandemic as many public companies found it easier in the March to April period to raise money from the limited pool of investors (such as private equity firms) that were prepared to invest amid the heightened uncertainty. Then in late April, Goldman led the first major restaurant recap, a US$527m follow-on from Olive Garden owner Darden Restaurants.
In May, the bank also bookran the first gaming recap, a US$676m dual-tranche offering from Penn National Gaming, and stitched together a US$2.4bn four-tranche equity/equity-linked/PIPE offering for Norwegian Cruise Line even though the company’s operations were shut down and generating no revenue. The latter is IFR’s North America Structured Equity Issue of the Year.
“When the Fed acted we had to react really quickly and one of the things I was personally most proud about our team – and our entire financing group – was when we saw private deals become public deals, debt deals turn into equity deals, equity deals turn into debt deals. We were able to move so much faster than our competition … to address our clients’ needs and help them get the most financing at the most attractive terms,” Ludwig said.
“This helped us take a lot of market share at that point in time and quite frankly it helped a lot of companies survive and thrive as best they could during the crisis,” he said.
It was a similar situation in Europe where Goldman led the first major post-coronavirus fundraising – a £216.25m deal for SSP Group in late March. Goldman deals along the same lines that followed in the UK included a £2bn placing for catering firm Compass Group (that also tapped retail investors) and massive back-to-back rights issues for airline owner IAG (€2.74bn) and aeroengine maker Rolls-Royce (£2.06bn).
Quick to adapt
Goldman was also on the top line of the first major float once the pandemic hit – JDE Peet’s €2.6bn IPO – and drove the first two major fully virtual IPOs for tech names in Europe – deals for The Hut Group (£1.88bn) and Allegro (US$2.78bn). Allegro’s Warsaw trade is IFR’s EMEA IPO of the Year and all of the above delivered attractive terms for issuers and handsome profits for investors.
On Peet’s there was just a three-day bookbuild to minimise market risk (and capitalising on physical meetings ahead of launch). On the later IPOs the lack of international travel was turned to an advantage by leveraging video calls to meet more often with investors from across the world. The greater depth of relationships formed with key accounts led to demand for cornerstone and anchor positions in several IPOs.
“We have a lot of years of experience. I was in Asia during SARS and Singapore Post was the first IPO ever to be done with just a virtual roadshow,” said Richard Cormack, co-head of EMEA ECM. “We have legacy memories that we're able to use for breaking some of the taboos – such as that there has to be a physical meeting.
“We were able to use cornerstones in a front-footed way with investors on highly sought after IPOs wanting to be in the club. We developed it through the course of the year to have people competing for stock and do earlier price discovery, which meant that the back-end of the process [the public phase] could be much shorter,” he said.
Goldman, as joint sponsor, also brought the HK$2.5bn Hong Kong IPO of Chinese biotech company InnoCare Pharma to the market in March. The IPO was the first to conduct virtual marketing and hold an online listing ceremony as ECM activity in the other regions was coming to a halt.
Another dramatic pivot was with at-the-market transactions. Where previously these programmes to dribble primary stock into the market over time were completed by REITs and utilities, they became a popular capital-raising option during Covid-19 as companies looked to increase their liquidity in the least painful way possible. That was taken to its extreme when Goldman helped Tesla wrap up a US$5bn ATM in September, and then did the same again in December. The latter took two days, making a mockery of the term “dribble-out” by which ATMs are often known.
In tough spots
Goldman executed some of the most complicated deals of the year, transactions that often hinged on creativity. In addition to Norwegian Cruise’s financing, there was a US$9.25bn three-tranche offering (common/PIPE/mandatory convert) from Californian power utility PG&E Corp as it emerged from bankruptcy and the US$20bn monetisation of SoftBank’s quarter-share of T-Mobile US via block, rights issue and exchangeable bond – the biggest ECM deal of the year.
The T-Mobile sale brought together the teams in the US, Japan and Germany – as major shareholder Deutsche Telekom was actively involved in the structuring – and also included the sale of call options to DT and stock to former Sprint CEO Marcelo Claure.
“One thing we have done really well this year is we have always been at the forefront of what was doable at the time,” said Christoph Stanger, co-head of EMEA ECM alongside Cormack until assuming the title of chairman within the same group in November 2020.
Again and again companies that did not use Goldman as their corporate broker picked the bank to lead their fundraisings. IAG, Rolls-Royce, Compass, Informa, Hiscox and SSP were all trades where Goldman was global coordinator but not broker and five of the six were landmark transactions at the time in the UK. Goldman got some stick for letting another bank take more underwriting on Rolls-Royce, but these trades show the bank was being hired for its advice not its cheque book.
There were also plenty of occasions when the bank took on risk by executing block trades, including the ¥316.8bn (US$2.9bn) primary ABB by SoftBank in May where Goldman had half of the risk.
Goldman also had a sole books role on a US$1.1bn secondary ABB in Keurig Dr Pepper, the first of over US$4bn of blocks it led in the drinks company during 2020.
Another block of note was the HK$7.9bn (US$1.02bn) sole books sale of shares in Chinese smartphone maker Xiaomi by a co-founder that reassured investors by including a very lengthy five-year lock-up.
Silicon Valley IPOs
Though some see the bulge-brackets as less than keen to embrace changes to the US IPO process, Goldman led what was arguably the year’s biggest innovation in the new issue market when it executed a so-called “hybrid auction” for Unity Software. The direct order process was adopted on the subsequent IPOs of DoorDash (which Goldman also led) and Airbnb (Goldman was a bookrunner behind Morgan Stanley).
Unity, which is IFR’s North America IPO of the Year, led this new breed of tech IPOs that provide management with more detail on demand with a view to potentially getting a better price. They also enabled employees to sell stock sooner via more lenient lock-ups.
“Obviously there’s some noise around how well it works. But I have no doubt in my mind this process is getting companies a higher price than a traditional IPO process would get them,” Ludwig said.
“We will still make new improvements to the process whether it be the way you build demand or the way you release supply over time to continue helping clients achieve their objectives. What’s key to me is that we are at the forefront of innovation and making sure we are not getting stuck in what we historically do.”
Goldman also worked on another direct listing (as lead financial adviser to Palantir Technologies when it debuted in late September) and joined in the SPAC explosion as another IPO alternative (Goldman was third on the SPAC underwriting league table).
This did not diminish the bank’s dominance as a lead left underwriter on traditional US IPOs, where it led more than half of the US$1bn deals during the year, including DoorDash, Snowflake and Rocket Companies.
Those jumbo floats also showed Goldman’s strength in cross-border trades with Asia. The bank led four of the five largest US ADR IPOs in the year, with 52% market share by capital raised.
For those companies moving in the opposite direction Goldman was again the most popular choice for the homecoming IPOs that represented the majority of funds raised in Hong Kong IPOs. Goldman was a lead on four, all in September, including the largest sole sponsor Hong Kong listing since 2010 for YumChina that totalled US$2.2bn.
The cherry on top
The bank’s presence in structured equity is clear from its leading position in PIPEs and similar strength in public equity-linked transactions in the US and Asia, but it has traditionally been an area of weakness in Europe.
Yet in 2020 the bank made significant progress, moving into the top five and leading the first green convertible bond in the region – a €170m transaction for Neoen – and all bar one of the green CBs that followed. That meant another role on an award-winning deal – the €2.4bn EDF green bond that is EMEA Structured Equity Issue of the Year.
The convertible product in one year went from an add-on product at Goldman to a core offering with 25 trades in the awards period, up from six the previous year.
The transformation is partly due to head of structured equity in EMEA Celine Assouline’s success in marketing the product internally – with the backing of Antoine de Guillenchmidt who was promoted to co-head of EMEA ECM in November – as Goldman bankers now regularly pitch convertibles and exchangeables to clients.
Several CBs were done as part of cross-asset packages, with Dufry’s US$1bn refinancing, including an ABB and convert, with Ocado doing the same pairing to raise US$1bn, and ArcelorMittal selling a US$1.25bn mandatory convertible alongside a US$750m ABB. Goldman was also on the top line of Cellnex’s boundary-pushing €1.5bn 11-year convertible, a welcome return for the US bank that missed out on the Spanish infrastructure company’s previous CB.
Perhaps the standout deal was one that some investors found too small to bother with, yet did capture Goldman’s attention. The SFr97m (US$103m) seven-year bonds issued by Basilea Pharmaceutica were to term out debt, but Swiss rules treat a tender for CBs the same as for equity. As a result, the new bonds were placed in June, but final sizing, allocations and a delta placing to set the reference price all came more than three weeks later. Goldman had not been involved in the company’s previous bond issue.
“In a year where there is incremental volatility, tougher decisions to make, windows to evaluate, investor sentiment changing from one week to the next, there's a premium on sound advice and the judgement that we've built our franchise on,” said De Guillenchmidt. “That's why I think we won so many deals.”
The bank’s haul of awards across equity and structured equity is quite remarkable in a year when the expectation was that it would fall behind and the volatility would create room for others to grow.
But Goldman remains the go-to bank – followed closely by Morgan Stanley.
Even as syndicate sizes have grown, the bookrunner title has been diminished and lending banks have sought to exert pressure on clients for capital markets work (prompting the UK’s regulator to fire off a warning letter to bank CEOs), tough times have reminded corporates that it’s worth paying for the best advice.
“There are so many deals where there was no way we would have been considered because we were not lending, because the issuer only went to domestic banks or whatnot,” said de Guillenchmidt. “And yet, we got the call because they needed the incremental security of Goldman Sachs' value-add.”
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