Goldman M&A coheads Stephan Feldgoise and Mark Sorrell share 2H outlook

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8/4/2021 1:00:00 PM

The co-heads of Goldman Sachs' powerhouse M&A business just gave 4 big reasons why they think a huge surge in dealmaking isn't ending anytime soon

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The dealmaking market will stay hot through the rest of the year, per Goldman's M&A co-heads.Expect more big buyouts and plenty of activity across sectors and geographies, they said. Here's what else they're watching for the second half of the year. 

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The surge in M&A seen in the first half of the year likely won't die down any time soon, according to top Goldman dealmakers. Goldman's M&A advisory revenue has alreadyhit record highs this year.While Goldman said in second-quarter earnings that its investment-banking backlog also ended the quarter at record level, some industry watchers have been looking for clues on when dealmaking will eventually cool.

But Goldman Sachs sees clients gearing up for more big moves, global M&A co-heads Stephan Feldgoise and Mark Sorrell said on the Exchanges at Goldman Sachs podcast on Tuesday."I think we have seen a continued improvement in confidence and a continued desire to pursue

...larger and bolder moves across pretty much every sector, every size, every region, and we've seen it continue to build throughout the year," Sorrell said. Feldgoise said recent activity wasn't just built-up demand from clients following the worst of the coronavirus pandemic.

"Organic growth is hard. And so, M&A remains a very attractive method to grow the businesses," Feldgoise said, pointing to activity in both horizontal mergers and vertical integrations, as well as drivers likeSPACdeals and leveraged buyouts. 

"We saw one of the largest LBOs of all time. And that's not just pent-up demand. That's the desire to look forward," he said. Here are four things Feldgoise and Sorrell say will continue to drive the dealmaking party.Private equity is being 'incredibly aggressive' 

Private-equity has been a big driver of dealmaking activity already this year, and that's set to continue. And big buyouts could be here to stay. "Appetite for clients to consider larger transactions, so both on the corporate side and private-equity side, I think has built," Sorrell said.

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And the performance of private-equity as an asset class is pulling more and more money into the space that will need to be put to work. "What's really been interesting is the consistency and significance of the private-equity returns," Feldgoise said."As the returns have been very good, they've garnered greater capital. And so, that driver, the introduction of new private-equity capital into the traditional private-equity universe, makes them incredibly aggressive."

Last month,Medline Industries' buyout by a trio of private investorsbecame the largest private-equity buyout in healthcare and the largest overall since the 2008 financial crisis, according to Refinitiv data. Sorrell added that investment timelines for PE firms between entering and exiting investments have also been shortening, but it's yet to be seen if that's a temporary trend or will become more permanent. Right now, that accelerated timeline is feeding transaction flow, he said.

European SPAC deals are a big opportunity It's already been a big year for SPACs, andin blank-check IPOs so far this year. And after SPACs go public, their goal is to take another company public via a merger. SPACs will continue to drive dealmaking activity at the firm, Feldgoise and Sorrell said.

"There has never been more capital sitting in private equity, in sovereign funds, in SPACs looking to do transactions," Feldgoise said, adding that while the SPAC market has cooled recently, there is still plenty of work to go around in the near future.

"We expect that SPAC M&A component to continue, certainly through the year and into the next year at, probably, more current velocities than the velocities we saw at peak, which were obviously extraordinary back in the beginning of the first half of the year," he said."But it's going to remain a part of the market. I think it's important. And it fills a component of the IPO process that there was a market demand."

Sorrell added that European deals will be a boon for the future of the SPAC market."I think we will continue to see the build-up of the European SPAC space," he said."I think what we see is for good-quality assets where public marketer investors would like access to those assets, those SPACs have done well, and those transactions have done well."

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Companies thinking about supply chains, scale differently post-pandemic More clients have a growth mindset or focus, Sorrell said."I think that clients believe we are entering, and we are in a period of sustained ... above trend, global growth and want to take advantage of that and be positioned for it," he said, adding that clients are now considering larger transactions than they would have previously. 

Feldgoise added that the dialogue in boardrooms has been at an all-time high throughout the year, and plenty of people are looking to get deals done. This is in part because growing in size and scale can help clients stay competitive in their industry or region. 

"If anything has been proven coming through both the financial crisis and then we saw in the pandemic, scale matters," he said."Having the balance sheet, having the financial capability, having the geographic diversification and product diversification matters, because you just don't know what could be impacted."

And companies that may have spent recent years streamlining their own supply chains may be looking for ways to build back some capabilities given disruptions caused by the pandemic. "Supply chain is now strategic," Feldgoise said. He added that the pandemic also underlined the benefits to a company having a global footprint and a wider range of businesses to help ride out uncertainty. 

The return of global travel will create even more opportunitiesCross-border M&A has been quiet at Goldman during the last few months, but Sorrell and Feldgoise are anticipating that the end of remote work and the return to business travel will get international dealmaking flowing once again.

"As we see travel being easier, particularly in all of those cross-continent flows, I think we feel that big cross-border M&A will come back quite quickly,"  Sorrell said, adding that the firm is starting to see the first signs of it picking up.

"I think that's definitely something to watch as we exit the pandemic and it's easier to do these transactions. I think it's the one part of what we do that has been really hard to execute during the pandemic for most clients."Sign up for notifications from Insider! Stay up to date with what you want to know.

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