Equity House, Asia-Pacific Equity House, North America Equity House and Latin America Equity House: Goldman Sachs

Equity capital markets is a higher profile business at Goldman Sachs than at probably any other firm. It was therefore a potential risk to not replace retiring global head of ECM Stephen Pierce in mid-2017, especially as the bank was not enjoying a vintage year.

A weak year for Goldman is rather different than a weak year at other banks. The bank ranked a distant second in Asia-Pacific in 2017 and third – third! – in EMEA (and that only after a late fightback from being fifth in mid-October). That meant there was work to be done.

Even without a new quarterback to call the play, the bank was on attack in every region, pushing hard from the off to make 2018 a year to remember.

The resulting diverse deal roster that takes in the biggest transactions, most active sectors and a wide geographical spread results in Goldman being IFR’s Equity House in Asia-Pacific, North America and Latin America, in addition to the global title.

The three regional awards are inextricably linked: Goldman is particularly strong in taking companies from overseas – most notably in 2018 those from Brazil and China – to a global audience through US listings.

OUT OF NOWHERE

Goldman rode high in Latin America despite heightened political risks, as locals from Mexico to Brazil voted in new presidents in 2018.

Spying opportunities in a region where some competitors were curtailing their presence, Goldman expanded its footprint in LatAm by hiring senior bankers and putting its balance sheet to work.

“It seemed to us that where the region was on a macroeconomic and political basis, and given what our competitors were doing, it made a lot of sense to step forward,” said Richard McNeil, co-head of Latin America investment banking.

That paid off. Goldman took second spot in the LatAm league tables during the awards period, capturing a 12.9% market share that put it just behind Bank of America Merrill Lynch, which had 13% of the market.

Not only is that an impressive showing for a bank that has historically rarely appeared in the top 10 in the region – let alone the top three – but its targeting of top economics on trades really propelled it into a league of its own when it came to fees.

In the review period, Goldman garnered US$83.7m in underwriting fees from LatAm equity issues, making it the top earner among banks competing in this space, according to Refinitiv data. That put it comfortably ahead of the US$56.3m taken by Morgan Stanley, which came in the number two spot in terms of wallet share.

“We had out-sized economics in most of these transactions,” said Facundo Vazquez, co-head of Latin America ECM. “We are not playing the market share game. We are pitching to lead.”

It was lead roles on some of the biggest trades of the year – such as the sole global coordinator spot on the US$2.6bn IPO from Brazilian payments provider PagSeguro – that made the difference.

Goldman leveraged its strength in the US tech space to introduce global investors to a growing list of such companies from Latin America.

Aside from PagSeguro’s IPO and US$1.1bn follow-on, the bank was also global coordinator on IPOs from tech names including Brazilian payments provider StoneCo and education platform Arco.

“We defined a new asset class of high-growth Latin American tech businesses and ultimately placed them with US tech and fintech investors,” said Lyle Schwartz, who runs Goldman’s LatAm ECM business alongside Vazquez.

Those deals lured in new investors that had never dabbled in Brazilian stocks before, something that was important for LatAm CFOs keen to expand their reach beyond the usual local investors.

“It is the first time in my experience in which it was proven that by listing in the US we could do two things: benchmark international comps to Brazil and bring US global demand into Brazil,” said Vazquez.

HOME AND AWAY

Goldman’s impressive showing in the technology sector extended to the Asia-Pacific region, where it has worked hard to rebuild its franchise after missing out on high-profile listings the previous year.

The US investment bank led six of the 11 US$1bn-plus Asia-Pacific IPOs in the year and increased its deal count across cash equity and equity-linked by more than 50%.

“This year, we led all the important transactions in all the relevant markets,” said Aaron Arth, head of the financing group for Asia ex-Japan.

Head of distribution and risk David Binnion and head of China James Wang were promoted to run ECM in Asia ex-Japan in late 2018.

China was again the busiest market for Asian equity offerings during the year, with tech issuers in focus.

The bank was one of the sponsors for the landmark HK$42.6bn (US$5.4bn) Hong Kong IPO of Chinese smartphone maker Xiaomi, the first listing in the city for a company with weighted voting rights under new rules introduced in April to attract tech listings. The bank was also in the driving seat of the HK$33.1bn Hong Kong IPO of Chinese online services provider Meituan Dianping, the second dual-class share listing.

The bank secured sponsor roles on all four pre-revenue biotech listings in Hong Kong, leading the development of what is expected to become an important funding platform for the sector in the future.

Playing to its strengths, Goldman brought a series of Chinese technology companies to the US market. It led the US$2.4bn Nasdaq IPO of video streaming company iQiyi, the US$1.7bn Nasdaq listing of online group discounter Pinduoduo and the US$1.2bn NYSE float of Chinese electric vehicle start-up Nio.

As well as raising capital for new economy clients, Goldman extended its reputation as the go-to house for the biggest deals in the state-owned sector. It was one of two sponsors on the HK$58.8bn Hong Kong IPO of mobile phone infrastructure company China Tower, the biggest listing globally in two years.

Goldman had a decent showing in the equity-linked market too, shocking rivals with a US$3bn fundraising for Chinese property developer Country Garden in January.

Leveraging its long-term relationship with the issuer, Goldman was the sole arranger of a HK$15.6bn 363-day convertible bond – sufficiently short-dated to avoid regulatory hurdles (but also league table eligibility) – and a simultaneous HK$7.88bn primary share placement.

GOING SOLO

Big, bold – and sometimes sole-led – transactions such as Country Garden are Goldman’s metier. It was therefore no surprise when the bank was one of two on an audacious overnight block trade in Yahoo Japan, allowing US-based Altaba to sell its entire US$4.3bn stake in one go. The size of the deal smashed a 13-year record in the conservative Japanese market, where overnight bookbuilds are rare and major secondary offerings are typically marketed over a period of weeks.

That audacity was combined with creativity on a US$5.4bn equity placement for Toshiba in late November 2017, repairing a hole in the electronics maker’s balance sheet and removing the threat of a delisting. It was a similar story in May when Goldman was the only international bank on a US$3.3bn overnight that saw Royal Dutch Shell sell its entire 8% stake in E&P company Canadian Natural Resources on the back of rising oil prices as the US pulled out of the Iran nuclear accord.

Then there was Goldman’s lead-left role on a US$4.8bn follow-on for Hilton Worldwide that extracted retreating Chinese investor HNA from one of its biggest positions even as the VIX popped above 20.

When Goldman won an auction for a €552m ABB that saw Eurazeo check out of hotelier Accor, pricing was tight – a 0.79% discount – but the bank was clearly better prepared than its rivals as the deal was launched with fixed pricing and was 50% covered by two orders in the first five minutes. Full coverage took all of 15 minutes.

A €400m ABB of Bureau Veritas shares at the end of October fell short but was actually positive for the market. The sale came at the end of October, not long after three banks were left stuck with Safran shares from a €1.2bn block. Interest in the BV auction was therefore muted, yet November is a typically busy month for ABBs.

As a result, not only was the BV trade an important test of whether and where investors would buy accelerated trades in the then difficult market, but also a demonstration that one of the most active banks in the product still had appetite. A rival banker said the trade was helpful and Goldman’s 5% discount was a sensible price.

TAILORING APPROACHES

After a tricky 2017 in Europe, Goldman came out of the blocks quickly and by mid-January the bank was already top of the regional bookrunner chart, having completed a handful of deals when its biggest rivals had done only one each.

Goldman wouldn’t relinquish the position until mid-September, when it could no longer hold off JP Morgan, but there was clear blue water between the top two and the rest through to the end of the review period.

“We had a clear mission to recover ground,” said Richard Cormack, co-head of European ECM alongside Christoph Stanger. “We pulled back in accelerated trades after a blip and have clear leadership by deal count. [Across products] we priced deals in 18 countries [in EMEA] – no one else can make that claim.”

Certainly, the bank has a glittering collection of silverware in Europe, including top slots on the €4.2bn IPO of Siemens Healthineers, the SFr1.7bn (US$1.7bn) float of packaging business SIG Combibloc, and the UK pairing of peer-to-peer lender Funding Circle and luxury carmaker Aston Martin Lagonda.

The latter two UK floats in late September/early October seemed to fly through bookbuilding but crashed once trading began. Both companies need time to prove themselves in the public arena and may yet deliver positive performances, but the one thing bankers involved reiterate time and again is that neither deal could have been priced just a couple of weeks later.

The breadth of the bank’s activity in EMEA is a particularly strong boast considering that full-service banks have a far greater geographical footprint.

The UAE was active with IPOs for the first time in several years and Goldman was involved in both landmark IPOs – for Emaar Development and ADNOC (the latter admittedly on the second rung). It is no coincidence that Cormack visits the country more than 10 times a year.

It is the listings of Piovan and Carel – two relatively small Italian IPOs – that Cormack and Stanger pick out as favourites. In a difficult year it is the smaller deals that can be hardest to complete, especially if they run up against a turbulent political backdrop.

Carel’s IPO in early June ended 4.5 times done from a heavily long-only order book, a rarity for any deal in 2018, but particularly impressive for a refrigeration and air-con business.

Piovan, a supplier to the plastics industry, tried to float in mid-October when IPOs were particularly tricky. The response was good from some investors but coverage was nowhere near Carel’s level. A bold response was to close books a day early and allocate two-thirds of the deal to just five accounts.

“We try to tailor the approach,” said Stanger. “It can’t be a cookie cutter. Instead we look outside the ordinary.”

The team is also using its data to learn more about investor behaviour and to maximise the value of roadshows. For example, the bank is using the quality of analytics that comes from being one of the most active ECM shops in Europe to examine the pattern of orders resulting from early-look meetings and when accounts put in orders.

FEWER CONFLICTS

One complication for Goldman is the strength of its M&A practice. In some cases it is a boon, in others it has excluded the firm from business.

“We did have a better year than last year and part of it is the change we have been driving over the past couple of years,” head of Americas ECM David Ludwig said. “It’s a combination of hustle, good people, good clients and a lack of conflicts.”

Goldman held down a bookrunner role on 15 of the top 25 US transactions (IPOs and follow-ons) during the year, whereas in 2017 the number was 11.

The bank also had a role on April’s direct listing of Spotify on the NYSE. Goldman was one of three banks that earned US$35m and provided investor contacts for a non-deal roadshow.

Goldman’s surge is clearest in the cleanest metric of all – equity underwriting in its financial results. In the first nine months of 2018 the bank joined Morgan Stanley and JP Morgan in the US$1bn club. Goldman’s revenue of US$1.3bn is just US$5m behind JP Morgan, while Morgan Stanley was ahead at US$1.4bn. The momentum belongs to just one bank, with Goldman’s revenues up 70% in that period.