Climbing higher
Deal fever died down in 2022 compared to the record heights achieved in 2021 but the leading adviser on transactions by value increased its share of the M&A market and worked on all of the 10 largest deals of the year. For its continuing dominance of the market, Goldman Sachs is IFR’s M&A Adviser of the Year.
If you bought or sold a company in 2022, there was a good chance you interacted with Goldman Sachs, either on your side of the table or the other.
In a down market for dealmaking Goldman still notched one of its best years for advisory in 2022, with revenues of US$4.7bn, 17% lower than the record year of 2021. That drop was less steep than peers, with the five major US banks posting an overall 21% drop, as Goldman gained market share.
In the last quarter of the year its revenues only fell 14% to US$1.4bn, which was double that of its nearest rival and its third-best quarter for advisory ever, as several significant deals closed.
Whether criss-crossing the globe or just trekking to Idaho, Goldman prides itself on putting in the work with clients over the long term. And when those clients are ready to make a transaction, large or small, Goldman tends to get the first call.
“Transactions in 2022 represented some longstanding client relations that ended up [with them] doing transactions,” said Stephan Feldgoise, co-head of global M&A. Although not closed, one of Feldgoise’s top transactions illustrates the point.
When he was a relatively green vice-president at the firm in 2006 he worked on selling grocery chain Albertsons to Cerberus Capital Management. In 2022 he helped advise on the proposed US$24.6bn merger between Albertsons and Kroger, which is awaiting regulatory clearance.
“We have done a series of work for them over the years, fee and non-fee,” Feldgoise said. That work culminated in the Kroger deal and reflects classic Goldman philosophy: if the bank is not there for the day-to-day work it maintains it will not get the call for the important deals.
“We have long-term investments with clients, many for decades,” said Feldgoise.
The leadership in the group often takes the time to do deep-dives on themes they expect to become important and where bankers should invest their time. It was time well spent over the past couple of years.
During this period Feldgoise and his fellow global co-head of M&A Mark Sorrell, who is based in London, have taken over leadership smoothly from their predecessors Dusty Philip and Gilberto Pozzi, who are now chairmen of the business alongside Tim Ingrassia and Gene Sykes.
“We are humble and happy to have the position we have but the focus is to continue to invest in the franchise and enhance the global footprint,” said Feldgoise.
Twitter tension
One of the more notable transactions in 2022 was Elon Musk’s US$44bn acquisition of Twitter. Goldman had advised the social media platform since before its IPO.
Musk made a formal offer, waiving detailed due diligence, to buy Twitter for US$54.20 a share with committed financing. The proposed deal quickly turned into a contested battle with the company forcing Musk to honour his contract. That lasted more than six months.
In the time between Musk’s initial offer and the time it took to close the deal, financial markets soured leaving banks underwriting his offer holding unwanted commitments. They were unable to syndicate those loans, leaving them stuck for now as creditors of Musk and his Twitter adventure.
Goldman and JP Morgan, as advisers to Twitter, had the best seats in the house, taking success fees and avoiding one of the ugliest financings of the year. Goldman took the lion’s share of the US$133m fee.
“We relentlessly focused on helping our client achieve what the board and management wanted to accomplish, which was closing the deal,” said Feldgoise. “Twitter has been a client for a very long time. When they decided to do something we helped them, much like we would for all of our clients.”
Elsewhere, Goldman was the only adviser involved in Berkshire Hathaway’s nearly US$12bn acquisition of reinsurer Alleghany. Warren Buffett’s investment company is notorious in avoiding most bankers while Alleghany’s relationship with Goldman stretched back decades.
Goldman advised longstanding client Emerson Electric on an US$11bn transaction merging its industrial software businesses with AspenTech to create a new global industrial software provider. The deal involved marshalling Goldman’s market knowledge and financing prowess.
“Having financing capabilities was particularly helpful to us in a year where there was real need to have that capital markets and financing business, to give holistic advice to boards,” said Feldgoise. Internally this is dubbed the "One Goldman Sachs" approach with the whole bank pulling in the same direction.
In media, Goldman, with Liontree, advised AT&T as it merged its WarnerMedia group with rival Discovery in a US$43bn tie-up. Goldman also advised biopharmaceutical company ChemoCentryx as it sold itself to Amgen in a US$3.7bn transaction. The breadth of sectors was impressive.
“If you don’t have people who are chasing clients, not deals, you can’t transition from one sector to the next,” Feldgoise said. The year saw major deals in technology, real estate, food, infrastructure and retail – showing the firm’s well-balanced franchise.
Striking deal
Outside the US, one of the most striking deals was Philip Morris International’s US$14.8bn purchase of snus maker Swedish Match, which was targeted so the US tobacco company could diversify into the smokeless space. Goldman was advising the Swedish company, alongside domestic lender SEB.
Its advice was valuable as the initial deal threatened to be blown off course by the intervention of activist Elliott Investment, which built up a sufficient stake to block the cash offer being approved by Swedish Match shareholders.
Goldman’s skills lay in being able to advise on the cross-border nature of the transaction and knowing how to manage the arbitrage delicately to everyone’s satisfaction. The bid was raised and the shareholder approval requirement lowered to get the deal through smoothly.
“Cross-border transactions were decent and in line with historic trends,” said Sorrell. “Publics to private was another theme. We were front and centre in Atlantia for example. That was the largest of the year and very complicated.”
Atlantia was the Italian toll road operator which required a buyer after the Genoa bridge disaster. Goldman was one of several banks advising the acquiring consortium, led by Blackstone and the Benetton family, on its US$52bn winning bid, which completed towards the end of the year.
Another major deal in Europe was the US$18.6bn spinoff of Haleon, the consumer health arm of pharmaceutical maker GlaxoSmithKline. Goldman was one of four banks managing that process. It ended a saga which started with a possible play for the business by UK rival Unilever.
“In activism, structured spinoffs and blue-chip separations we have had a high market share,” said Sorrell. “These were all very strategic deals and could have got done in different ways. In a difficult market, execution is harder and takes a lot of teamwork and effort.”
In conclusion Feldgoise said 2022 was “fascinating” as valuations shifted after the “greatest merger year of all time” in 2021.
He said: “It was by far our largest year of outperformance that we have ever had. We feel very good about that. But we are hyper-critical and hope to show in 2023 our investment in middle-market and sponsor M&A.” Staying number one is obviously not as easy as it seems.
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