FIG flywheel
Financial firms were a driving force behind booming capital markets in 2021, as fintech unicorns raised billions of dollars, M&A swept through asset management, and old-school banks and insurers struck deals to stay relevant. For its work in all the hot areas, Goldman Sachs is IFR’s Bank for Financial Institutions.
Goldman Sachs’ financial institutions group was the first industry team set up on Wall Street more than 40 years ago, and it is still at the heart of global finance.
For financial institutions group – or FIG – bankers, 2021 was marked by dozens of fast-growing fintech companies, including prized unicorns, raising money in public and private markets, and many listing or being sold. A wave of M&A deals also swept through asset management, and big traditional banks and insurers made moves to stay relevant as finance moved more digital by selling non-core assets and scaling up in key markets.
“That is creating an incredible flywheel of economic activity,” said Pete Lyon, who heads FIG globally for the bank. M&A is at the centre of the flywheel, creating financing, trading and derivatives business for other areas of the bank.
Goldman’s FIG team had its best year ever – backing up its claim to have an edge across the financial ecosystem where its tentacles reach far and wide and it has alumni sitting in top positions at dozens of companies across the industry.
Its roster of deals in 2021 included advising "buy now, pay later" platform Afterpay on its sale to Square for A$39bn (US$29bn) in August, the biggest ever Australian M&A deal; it was global coordinator on the US$2.6bn IPO of Brazilian bank Nu Holdings, the largest fintech outfit to list in the last decade; it was exclusive adviser to US Bancorp on its US$8bn deal to buy MUFG’s US bank; and it advised and helped finance the US$12.5bn deal to create Blue Owl Capital, a landmark asset management deal.
Growth mode
FIG is a fiercely competitive area that contributes by far the biggest chunk of fees across Wall Street, and 2021 was a banner year for most banks.
Investment banks pulled in US$50.9bn in fees from FIG clients during the year, one-third more than in 2020 and representing 32% of total fees and more than technology, industrials and healthcare sectors combined, according to Refinitiv data.
FIG represents an even greater share of revenues for Goldman, although the bank does not disclose how much. But when CEO David Solomon promoted his One Goldman Sachs vision in January 2020 to improve connectivity across the bank, it put particular focus on its top 100 global clients – and about 60 are financial clients.
Although Goldman’s FIG team has a storied history and reputation, the bank says it continues to evolve the business to stay ahead.
“We are definitely in growth mode here,” Lyon said.
In 2021 it hired in some key areas to bolster its near 300-strong FIG team globally, including “tactical hires” of senior bankers. It expanded capabilities in fintech and alternative asset management, and in its product platform. It deepened reach to more mid-sized and smaller clients. And it increased its balance-sheet commitment.
Tapping into rising fintech stars is crucial for FIG teams, and Goldman made good use of the cross-pollination of its technology bankers and fintech bankers.
“These are not tech bankers that need a bit of help on the FIG side. These are FIG bankers with a tech mindset,” said Dirk Lievens, head of FIG for EMEA.
Goldman and its rivals are trying to build relationships with fintech firms earlier in their lifecycle, and that has seen it bank smaller companies than in the past, and expand in areas such as private placements.
Goldman was sole private placement agent to German digital bank N26 on a US$900m Series E fundraising in October, which valued the company at more than US$9bn. It was also private placement agent to insurance technology firm Wefox when it raised US$650m in a Series C funding round in June, valuing the firm at US$3bn, and was on a US$1.4bn private placement by Asian insurer FWD Group in December.
“We're trying to be meaningful to these clients earlier in their lifecycles,” said Pat Fels, a Goldman veteran who runs FIG for the Americas. That could involve helping them with a private placement or early round of capital raising, or sometimes investing in the company via Goldman’s merchant bank.
“So that is part of our strategy. Where we see high-growth early-cycle companies, we want to make sure that we're cementing that relationship earlier and are relevant to these companies earlier,” Fels said.
Its role in selling Afterpay in August was one of many deals in recent years for the company, including acting as joint bookrunner on its A$1.5bn zero-coupon convertible bond earlier in the year.
The IPO of Nubank in December valued the Brazilian digital bank at US$44bn. Other big deals for fintech firms included acting as financial adviser to investment platform eToro on its US$10bn combination with a SPAC and sole financial adviser to Japanese "buy now, pay later" platform Paidy on its US$2.7bn sale to PayPal.
Older names
And while fast-growing young financial firms drove much of last year’s deal flow, older names were also active, with notable moves including US Bancorp’s push to scale up with its MUFG purchase.
Goldman also did a lot of work in the busy life and annuity space for US insurance firms, including as exclusive financial adviser to Blackstone on a complex deal to buy a 9.9% stake in AIG Life and Retirement for US$2.2bn.
“That was a really interesting transaction, very important strategically and financially for Blackstone and to get to work and partner with a firm of their sort of calibre ... we're really proud to have done that,” said Fels.
Goldman worked on several deals in alternative asset management, including advising on the deal to create Blue Owl Capital, and acting as lead private placement agent on a US$1.5bn PIPE financing. That deal also showed the reach of Goldman in the finance industry – at least four of the co-founders and bosses of the firms in the deal previously worked at Goldman.
Goldman has also been at the heart of a series of deals for UK insurer Prudential. They included a US$2.4bn international placing and Hong Kong public offering and the US$2.6bn spin-off of its US unit Jackson Financial. The complex, cross-border deals were the culmination of years of work for Prudential, which have involved spin-offs, equity raises, private placements, M&A, activism defence and other mandates.
A feature of the landmark deals for Afterpay, Prudential and many others was that they represented repeat work for long-standing clients.
“These are global relationships that go back five, seven, 10, 15 years and we've done transactions for these companies over and over again. Something that we're proud of is we tend to have more repeat customers than anyone. And the stickiness of our clients is something we really measure ourselves by,” Lyon said.
Another demanding client that stepped up activity in 2021 was closer to home – the parent group.
The FIG team worked on several deals for Goldman itself, including the €1.6bn purchase of Dutch asset manager NN Investment Partners in August, the US$2.2bn all-stock purchase of payment platform GreenSky, and the £1bn IPO of Petershill Partners.
That brings its own pressures and scrutiny – it isn't wise to get those deals wrong – but also makes the FIG team the most capable of affecting the bank’s own bottom line.
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