The indispensable bank
Year in, year out, Goldman Sachs claims to be the trusted adviser of choice, pointing to its dominant market share in the mergers and acquisitions market. A record year for deals offered a golden chance for the bank to show its mastery in this arena. It excelled once again and is IFR’s M&A Adviser of the Year.
Pent-up demand after the early months of the coronavirus pandemic coupled with a flood of easy money meant dealmakers were in demand in 2021. A record US$5.9trn of M&A was announced and US$4.46trn completed.
Goldman Sachs retained its position as the number one adviser by all metrics, with a presence in almost a third of that pie, working on 512 completed deals with a total value of US$1.36trn, according to Refinitiv data. Its revenues from that work rose 84% to US$5.65bn, a new record.
Insiders say this is a measure of the excellence of the bank’s service, arguing that since clients are prepared to pay a disproportionately high fee for Goldman’s advice it shows they feel they are getting value for money.
The franchise is so dominant that in some quarters Goldman takes more from fees in this space than some other major US banks make in total investment banking fees across all primary and advisory activities.
Goldman kept up the pace in 2021. Although more frequently seen on the sellside, its now strong ability to provide hefty finance for buyers makes it a top choice for sponsors too. Normally more than two-thirds of its deals are for targeted companies. In 2021 that proportion dropped to 54%.
That was not surprising in a year characterised not by mega deals but by slightly smaller transactions carried out by sponsors flush with cash they needed to deploy, or special purpose acquisition companies seeking targets. Goldman was present in both areas.
“Our financing business goes toe to toe with the largest balance sheets from a structuring, creativity, aggressiveness perspective,” said Stephan Feldgoise, Goldman's co-head of global M&A. “There’s no impediment to what we can do as a full-service firm.”
Goldman’s financing prowess was in the spotlight when aviation leasing company AerCap stepped up to buy GE Capital Aviation Services from General Electric for US$31.2bn in a cash-and-shares deal.
The bank advised GE on the divestment and also teamed up with Citigroup to provide AerCap with US$24bn of committed financing for the transaction. It was one of the biggest deals of the year and created a leader in the aviation leasing industry.
The bank has been focusing on building its presence in mid-market deals – of between US$1bn and US$5bn – for a number of years as well. That paid off in 2021, with its number of deals surging by 45% and making Goldman the busiest bank by that metric among its peers.
“It was the most extraordinary year in every geography and area. In 2021 there was no hiatus in activity,” Feldgoise said. “We have never been busier.”
“Our franchise is highly integrated ... M&A is in the culture and fabric of the firm. The folks who run the firm were in the investment bank and they all still spend time with clients.”
Making it happen
Some of the trickier transactions involved keeping deals on track that were agreed before the pandemic so that they eventually completed. A prime example was the US$16.4bn sale of jeweller Tiffany to French luxury goods company LVMH.
“Because of Covid, it was not simple to get done,” said Feldgoise. The bank advised Tiffany on the transaction, which had originally been agreed in October 2019. It took until January 2021 to complete, however, and remarkably, given the economic turmoil, LVMH’s original offer stood.
More straightforward was the work Goldman carried out for long-term client ConocoPhillips, which was active in M&A during the year. It advised the oil major on the acquisition of Shell’s Permian Basin assets for US$9.5bn in cash.
For Shell, the deal marked an exit from the largest US oilfield as it shifts its focus to clean energy. For Conoco, it was the second large acquisition of the year and a drive deeper into the heart of the US shale industry.
One of the defining trends of the M&A market in 2021 was the ever-increasing presence of private equity. Goldman was front and centre of the trend.
“Sponsors business has been a bigger proportion of the market than traditionally,” said Mark Sorrell, co-head of global M&A alongside Feldgoise. “There was tremendous activity which was very significant in the US and even more so in Europe.”
Again this is an area, like mid-markets, that the firm has built on in recent years. That foresight paid off in 2021 as Goldman made the most of the active market for sponsors.
“The M&A market is very different today than how it was 10 years ago when it was 80% corporate. Now it is 50% private equity,” said Sorrell. “We have to choose where we make these selective investments in our franchise. We are very thoughtful about this.”
A highlight was the leveraged buyout of US healthcare supplies provider Medline by a consortium of Blackstone, The Carlyle Group and Hellman & Friedman as well as sovereign wealth funds from Abu Dhabi and Singapore. Goldman acted for Medline.
No financial details were disclosed but the offer was estimated at US$34bn, which made it the largest LBO since the financial crisis. Goldman was lead arranger of the unsecured bonds issued by the company to effect the transaction.
On the buyside the firm worked for numerous sponsors, particularly in the technology sector, where it acted for Thoma Bravo on its purchases of real estate technology platform RealPage and cybersecurity firm Proofpoint for US$9.5bn and US$11.1bn, respectively. Both targets were Nasdaq-listed.
Public to private
In Europe the bank was also active in public-to-private deals. It was part of the team advising Clayton Dubilier & Rice that won the contested bid for UK supermarket operator Morrisons. CD&R’s accepted offer valued the chain’s equity at £6.9bn. Including net debt the deal came in at US$13.6bn.
Goldman also advised RSA Insurance and G4S on their take-private processes from the LSE and was also part of the team advising Towerbrook and Warburg Pincus on the US$3.8bn bid for UK roadside assistance provider AA.
“We have worked on becoming the leading public-to-private franchise in Europe. We have worked on 30 over the last 18 months,” said Sorrell.
“It is very balanced between the buy and the sellside. We know we have a good sellside and defence practice, but on the buyside we can deliver on the financing side. If you are a sponsor you don’t want to call a lot of banks. You would prefer to call one.”
He said Goldman's track record appealed to clients. “We offer great M&A advice and reliability. If we say we can get it done, we do get it done.”
Feldgoise agreed. “We have had a big financing business for a number of years. Ten years ago it didn’t exist but we haven’t had an issue of not being able to do big double-digit financings for some years now.
“What’s more, we are integrated across the firm. Colleagues don’t think about 'their' business line. This allows us to give an independent strategic perspective on transactions. It also enables us to work on the buyside more frequently.”
That integration helped the bank on some of the major equity-focused transactions, such as Naspers’ sale of 45% of its shares for US$44bn to its Amsterdam-listed division Prosus, to correct the discount at which Naspers shares frequently traded.
Of course being able to provide financing as well as advice means the bank stands to receive a greater proportion of fees for deals too.
“We don’t think of it from that perspective, of charging more. It shows our depth with clients. For many we have been their thought partner for years,” said Feldgoise.
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