Perfect balance
No one ever got sacked for hiring Goldman Sachs, they say. You know why? Because they’re bloody good at what they do. The bank is IFR’s Equity House, North America Equity House and Asia-Pacific Equity House of the Year.
It’s easy to dismiss Goldman Sachs’ success globally in ECM through the coronavirus pandemic as the bank simply riding high thanks to excess liquidity and the extraordinary (and exhausting) pace of deal activity.
It was comfortably ahead of rivals in 2020 – collecting our global, North America and EMEA Equity House awards – and for 2021 takes away another three out of four equity titles.
“You’re joking – not another one!” was the shocked reaction that made Brenda from Bristol famous in 2017 – she was horrified at yet another UK general election – but one could see how others might say the same in this situation.
Yet issuance in 2021 was dramatically different to 2020. Goldman did not crest the wave in 2020 and simply ride it through another year. Emergency financings for listed companies gave way to IPOs by companies that had been supercharged by the pandemic. Those clients had little in common, other than their bankers of choice.
“There’s been a lot of market beta over the last couple of years, but we have been very focused on creating a lot of alpha to outperform our competitors,” said David Ludwig, Goldman’s global head of ECM since September 2020. “It takes a lot of work to do that.”
Goldman earned league table credit for about one-tenth of the US$1.1trn raised globally from IPOs and follow-on offerings last year (excluding SPACs), more than any other bank.
The bank's share of global common stock proceeds rose to 10.1% from 9.5%, helped by snaring 17.3% of the US market (up 2.3 percentage points) as wallet share has consolidated among the top three banks.
“I am incredibly proud of how we have been able to work through this over the past couple of years and our separation from the rest of the market is actually accelerating if you look at our increases in league table and wallet share across products,” Ludwig said.
Remarkably given the sheer volume of dealmaking during the pandemic, Goldman isn’t outmuscling rivals by necessarily having more bankers on the ground.
Though the firm doesn’t share precise numbers, Goldman’s ECM team appears to be smaller than some of its rivals.
“That’s something we are proud of, as well as our ability to prosecute as much business as we have in the quality way we have,” Ludwig said, noting the bank had also grown in areas such as privates (led by Mike Voris) and SPACs (led by Olympia McNerney) that don’t show up in the standard league table runs. It also had a stellar year in structured equity and is IFR's Structured Equity House of the Year.
The team might lack numbers but it doesn't lack heavy hitters.
In 2020, the bank revived a position that had been mothballed three years earlier when it made Ludwig global head of ECM. In 2021, Ludwig created the role of global head of equity syndicate and promoted Lizzie Reed from running Americas syndicate into that slot. Two fairly new global roles underline the importance of a joined-up approach across regions and came in a year when sentiment changed rapidly, and often due to factors in another region.
In April, Gabe Gelman became sole head of Americas ECM as his co-head Simon Watson moved into Goldman’s asset management arm. The duo had been promoted to run Americas ECM when Ludwig became global head in 2020.
At times during the year some ECM teams – in particular their syndicate desks – struggled to keep their heads above water. Goldman used its global breadth as a coping mechanism.
“Equity advice is at the heart of what we do and we needed to build on all of our global experience,” said Richard Cormack, co-head of EMEA ECM alongside Antoine de Guillenchmidt. “A lot of these transactions have had a cross-border element or been transporting technology from one market to the next.”
Cormack pointed to the experience of running the first marketed follow-on (as opposed to overnight) in Hong Kong, Prudential’s US$2.4bn primary raise, informing decisions on the first follow-on in Saudi Arabia, Public Investment Fund's US$3.2bn sale in Saudi Telecom Company.
Another example is the first US-style direct listing on the London Stock Exchange with payments firm Wise, which saw an £8bn company list without incident – a process certainly made easier by Goldman's role as lead adviser a few months earlier when crypto exchange Coinbase completed the first direct listing on Nasdaq – with a market cap of US$98bn. In Coinbase’s case, a direct listing avoided the market exposure that the IPO process would have entailed, all the more important given the inherent volatility of bitcoin.
And cross-border trades don’t get much bigger than the US$14.7bn block sale by Prosus in Tencent Holdings, the largest ever in Asia.
Tech top
Of course, part of Goldman’s latest success is that the technology sector was the largest source of issuance, where Goldman and Morgan Stanley have long dominated in terms of lead bookrunner mandates.
That means leading the mammoth US$10bn equity combo (US$7bn primary follow-on, US$3bn convertible bond) from Chinese online delivery outfit Meituan; lead-left bookrunner on South Korean e-tailer Coupang’s US$4.6bn NYSE IPO and the US$1.3bn Korea Exchange IPO of Ant-backed online payment provider Kakao Pay (both companies doubled on their debuts); a US$2.2bn “hybrid auction” IPO and US$1.1bn follow-on for female-led dating platform Bumble; bringing Brazilian digital bank Nu to market with a valuation in excess of all incumbent domestic banks; three sole book blocks in a month in Kazakh payments group Kaspi; the list goes on.
The signature deal that demonstrated Goldman’s unmatched strength in tech and ability to seize market windows was undoubtedly the US$6.9bn equity and convertible combo of Singapore-headquartered and NYSE-listed e-commerce giant Sea.
Listed in 2017, Sea is a regular in ECM. Before the combo, the company had already done six capital market transactions of US$1bn–$3bn. Goldman, which was lead-left bookrunner on all the previous deals, retained its position on the seventh – the biggest of all.
The deal hit the market in September when investors had turned their back on Chinese tech deals because of potential regulatory risks and were keen to seek high-growth alternatives in the region. The Sea offering immediately drew huge attention from investors, allowing it to raise US$4bn from a primary follow-on and US$2.9bn from a convertible bond.
Apart from leading the tech space, Goldman dominated the healthcare sector. The bank was in the driving seat for most Hong Kong healthcare IPOs in 2021, helping 12 issuers raise a combined US$4.2bn.
It led the A$6.3bn (US$4.5bn) fundraising for biotechnology company CSL, the largest primary follow-on ever in Australia. Goldman demonstrated its risk appetite for the right clients, hard underwriting the trade with another bank even though it came in December – traditionally not a usual window for mega transactions as investors tend not to take additional risk at year-end.
“2021 is a showcase to demonstrate our leadership in market themes. We led all the market themes that define the future of the markets in the next few years including TMT, healthcare and homecoming listings,” said James Wang, co-head of ECM for Asia, ex-Japan. William Smiley was co-head with Wang through 2021, moving internally at the start of 2022 and replaced by Edward Byun.
While China-to-US listings became off-limits amid escalating political tension between the two superpowers, Goldman focused its resources to bring US-listed Chinese companies back to Hong Kong. It sponsored seven homecoming listings, the most among all banks, including the HK$24bn (US$3.1bn) float of search engine giant Baidu, the US$3bn deal for video-streaming site Bilibili and the US$1.7bn offering of electric vehicle maker Li Auto.
Adapt and thrive
The pandemic enforced changes in how ECM transactions are run, and Goldman embraced those in 2020 and took them further in 2021.
For IPOs in the US that meant providing greater access for retail investors, increased use of auction-like bookbuild methods and alternatives such as direct listings, plus more flexible lock-up arrangements.
Though many perceive Wall Street as reluctant to tinker with cherished IPO conventions, the bank’s willingness to embrace changes to the way IPOs have long been done helped it secure leading roles on many of the year’s landmark transactions.
Goldman partnered with stock and crypto trading app Robinhood Markets to create a retail IPO order platform enabling Robinhood’s millennial-skewed user base to participate in 23 IPOs during the year. More than 300,000 Robinhood users were allocated stock in the fintech’s own US$2.3bn Nasdaq IPO that priced in July, a much bigger retail allocation than is normally the case.
“I have been very pleased with how it has worked out so far in terms of giving us that [retail] signal and how the retail shareholders that have got stock have acted in terms of holding and buying versus the risk they would be more momentum-driven and just sell,” Ludwig said.
As tech valuations soared, Goldman catered to Silicon Valley’s desire for greater transparency in IPO bookbuilds, pricing numerous tech IPOs using its “hybrid auction”/direct order entry platform.
The platform does not enable an auction, but requires accounts to submit orders with size and share price rather than orders without price limits that previously dominated tech IPOs and left banks guessing at the demand curve – and led to accusations of underpricing. It is then for the seller to choose how they balance maximising price with selecting their new shareholders.
The result was that Goldman led several IPOs that secured the highest software multiple ever (Toast in September and GitLab in October, both of which priced at enterprise-value-to-forward-sales multiples of more than 35). Software stocks correcting in 2022 means the platform may be less in demand – or used differently – in tougher market conditions.
Here, there and everywhere
Part of Goldman’s strength was the geographic diversity of its issuance in EMEA and Asia-Pacific.
“Regardless of the prevailing investor sentiment and any sort of cross-border tension, there will continue to be activity and we position ourselves to anticipate where that activity is going to be, and to be part of it,” said Iain Drayton, co-head of investment banking in Asia, ex-Japan.
Expecting that local exchanges will get even busier, Goldman is on a hiring spree and plans to increase headcount outside China in particular.
In EMEA the bank was in the top two across the major markets of the UK, Germany, emerging markets and southern Europe, the latter including roles on all three big Greek deals. Deals were printed for companies from 24 countries in EMEA, with the bank working on the largest transaction in 17 of those jurisdictions.
There were also plenty of far smaller deals, with the £103.5m raised for UK software company Ideagen and €145m green CB plus ABB for Swiss solar company Meyer Burger being examples of deals borne from the bank’s cross-markets group that covers smaller companies.
Willingness to do things differently meant Polish delivery company InPost launched pre-marketing of its €3.2bn IPO with €1bn of cornerstone backing from BlackRock, Capital World Investors and GIC. It was the largest IPO in the region all year and priced in January when the IPO market is typically still shut in Europe.
The IPO of Volvo Cars was another case where things were far from the norm, though not deliberately. Floating a carmaker transitioning from internal combustion engines to battery electric power was a challenge, especially as it had a Chinese owner and a joint venture that was in the process of listing at a lofty valuation via a SPAC merger.
When things were not going well global coordinators Goldman and SEB did not hesitate to overhaul the transaction. The shareholder structure was changed, the deal downsized, pricing fixed and – in a significant break from the norm – additional disclosure about the make-up of the book accompanied the covered message.
The biggest break from the norm was in the stock’s performance. Restructured deals usually trade poorly – at least at first – with the noise around the IPO acting as a weight on the stock until the company can prove its worth by delivering on promises each quarter. Volvo Cars shares rose 23% on debut and the greenshoe was quickly exercised to take proceeds to SKr23bn (US$2.7bn).
At the end of the year shares were trading at the meaningful premium to BMW that had been sought at the IPO and it was one of few big EMEA IPOs to show a profit for investors in the float.
Taking control
Another significant event came late in the year when Goldman secured approval in October to take full ownership of its China securities joint venture, Goldman Sachs Gao Hua Securities. The news was timely as offshore China deals almost came to a halt in the second half, so the bank used its domestic platform to continue to print sizeable deals for clients.
Just as in the overseas market, Goldman was not shy to commit its own capital for key clients. Hong Kong and US-listed cancer-focused biotech company BeiGene raised Rmb22.2bn (US$3.5bn) when adding a Shanghai Star listing. As sponsor, Goldman invested Rmb433m as required by China’s regulations, becoming the first US bank to co-invest in a Star IPO, the largest in the year on the Nasdaq-style board.
A few wobbles
For all the highlights of 2021, there was the odd lowlight as many IPOs delivered shocking losses for investors. Indeed, by the end of January 2022 the class of 2021 US IPOs on average had lost investors a stunning 30%.
The disastrous US$4.4bn NYSE IPO of DiDi Global saw the Chinese ride-sharing company’s stock collapse shortly after it debuted as Chinese authorities intervened to sanction the company and it is now in the process of being delisted.
“The capital markets team and the bankers were asking the question they were supposed to ask of the company,” Ludwig said. “But as we learned, there were multiple parties that had a view and something got lost in translation or something changed.”
It would be amiss not to touch on the £1.5bn IPO of UK food delivery service Deliveroo in March, a stock that sizzled during bookbuilding but had all the appeal of a tepid pizza delivered by bike when shares sank 26% on debut.
The deal was one of several where the dichotomy between investor valuations was tough to bridge, especially as the retail offer made it harder to revise terms as the deal progressed, with harsh consequences when shares began trading.
Within a month losses had mounted to more than 40% with the deal unfortunately timed with the first rotation out of growth and into value stocks. And yet shares completed a remarkable turnaround to trade above issue price in August showing that the deal was not completely broken.
Of course, it couldn’t last as another wave of rotation kicked in with a vengeance and shares reached new lows in December.
Clearly the company doesn't hold any grudge as Goldman was chosen to lead a £48.9m tax-related sale by the CEO and CFO in December and is expected to be named corporate broker.
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