How Goldman Sachs cornered the technology M&A Market
Goldman Sachs (NYSE:GS), the global investment banking, securities and investment management firm has managed to score over $201bn of the global technology Mergers & Acquisitions market, according to dealogic, putting Goldman well ahead of its rivals, JP Morgan Chase with $141bn (NYSE:JPM) and Morgan Stanley $138bn (NYSE:MS).
This remarkable feat largely owes to Goldman's handling of the three largest tech deals of 2019. The largest of which occurred earlier in June, when Tableau Software was acquired for $15.7 Billion, followed by two slightly smaller deals - Ultimate Software acquired by a consortium of Private Equity firms for $11 Billion and the sale of Symantec's enterprise business to Chip-Maker Broadcom for $10.7 Billion earlier this month. The combined deals put Goldman, usually on par with its rivals, ahead of the pack.
Goldman - The Winning Formula
In the eye of the storm is one Sam Britton. The head of Goldman's Technology, Media and Telecom M&A Group, the man presumably responsible for the stellar performance of his employer. However the man himself denies the crown, "When Goldman is hired to sell a company, we’re not delivering a banker — we’re delivering a composite of experts" he is quoted as saying in an interview with CNBC. Giovanni, co-head of global tech banking said of the team at Goldman "sector experts who develop deep client relationships that last much longer than any single transaction" are the norm. Britton anticipated the drastic change in the technology landscape and about five years ago began aggressively bolstering the software banking team to focus on subscription software. This appears to have paid out massive dividends as the semiconductor, data and internet space has seen relatively little activity in recent years whereas subscription software is quickly becoming the hotbed of both horizontal and vertical growth in the end consumer and b2b sector.
All the three deals previously mentioned were software acquisitions and so far in 2019, private equity has been at the forefront of M&A activity, competing with silicon valley goliaths like Microsoft(NASDAQ:MSFT) and Apple(NASDAQ:AAPL) in the space. Particularly cloud software giants have been the preferred targets of private equity shops with deep pockets looking for growth (indicated in ultimate software's press release) - and this trend was accurately forecasted by Britton and the team at Goldman more broadly. Further by the time of the deal, he was able to secure a call to Goldman. This follows the pattern of developing a deep and lasting comprehensive relationship with the client outside of mere one-time transactions.
In particular Britton was able to score repeat transactions of the same asset as it changed hands over the course of years and so impressed the acquirers with the price they had to pony up, they sought him after to repeat the performance with their own sell-offs. in 2011, Blue-coat technologies, a cybersecurity firm engaged Britton for a $1.3 Billion buyout to Thoma Bravo ( a private equity - software deal). In 2015, Sam was tapped by the counter-party Thoma Bravo to transfer Blue coat to Bain Capital for $2.4 Billion. The next year Blue coat switched hands again from Bain capital to Symantec for $4.65 Billion - showing great experience with enhancing valuation and investor confidence after offers of acquisition - and with the continued involvement of Britton and the Goldman team. Ultimately earlier this month, Symantec hired Sam to hive off its enterprise business.
The final piece of the puzzle is the build-up of the relationship with the client right up to handling the M&A, which offers a much greater payout to the firm than IPO's given the much larger volume of the deal itself - which more than compensates for the relatively smaller share of the deal offered as compensation. Goldman managed to beat its competition through a synthesis of life-cycle management and comprehensive, complete and repeat services to its clients through long-term engagement in previously foretasted fertile practice areas.
The Divergence Explained - One Man or One Team?
From an organizational system's perspective Britton's performance would certainly make sense in the broader context of his team and long-run forecasting and client development strategy and would signify more than mere humility on his part - but strategic brilliance. The corporation itself seems similarly to be consciously building and nurturing a top-tier team in the sector, unlike the industry standard practice of specific commission to the individual advisor working on the transaction,Goldman remunerates the whole team as a collective for the effort.
This is not to say his deflection of credit and self-effacing attitude is not hiding talent. According to interviewed professionals at Wall Street rivals, John Hodge (formerly a technology M&A banker at Morgan Stanley and Credit Suisse), Sam is a "very rare" banker who is a "true advisor to boards of directors". "He's got everything you need and then combines a layer of critical thinking on top of his skills", Hodge is further quoted as saying. In the past Sam has advised Ebay on the sale of Skype and the hiving off of Paypal.
The Road Ahead
In general terms, Goldman along with JP Morgan and Morgan Stanley, have been Performing exceedingly well in recent years. Last year, each enhanced their IB revenues by roughly $300 million, and gained market share even though the collective revenue across the top ten investment banks fell by $1.5 Billion. It will be interesting to see how Wall Street rivals respond to Goldman's performance and whether they perceive the latter to have cultivated a sustained strategic competitive advantage in the tech M&A sector. Elsewhere in the world, Chinese outbound M&A in the North American Markets - once an exciting and trend-setting metric to watch - fell by over 94.6% to $3 Billion over the year ended 2018, according to Merger-market.
The volume of deals fell for the first time since 2010, after peaking at $55.3 in 2016 as the trade war and geo-political friction took their toll. Chinese firms turned their attention to the European market where inbound M&A activity surged by 81.7% to $60.4 Billion. For the time being Chinese attention is focused out of North America and the odds of a reversal in the trend seem low given the tit-for-tat escalation in the trade war and the possible construction of a full-fledged North American trade-bloc under the auspices of the USMCA. These factors will combine to make Chinese competition to American Multinational M&A advisory firms less viable.
It's worth keeping in mind that as the global economy faces seemingly greater headwinds dealmaking teams may struggle to capture the volume of activity as they are at the moment but for the time being Goldman seems on top of the world.
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