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Goldman Sachs, mega-M&A purveyor, looks for smaller deals

Reuters  |  NEW YORK 

By Joshua Franklin

NEW YORK (Reuters) - The top echelons of Group Inc's investment hosted a dinner over the summer with the representatives of almost 20 firms at

The executives invited, however, were not among the buyout industry's power players Goldman is known for banking, such as or co-CEOs and

Instead, the guests included the bosses of firms such as H.I.G. Capital, and These fims focus on "middle-market" transactions, which Goldman classifies as acquisitions between $500 million and $3 billion in size, a far cry from the mega-deals it has built its brand on.

Over a meal of Atlantic halibut and dry-aged ribeye steaks, Gregg Lemkau, of Goldman's investment bank, and Alison Mass, in charge of the group, pressed one message: Goldman is serious about advising on relatively small leveraged buyouts.

The has sought to back up this claim with a major hiring spree. It created a dedicated team for M&A execution within its "financial sponsors" group covering clients, and has grown this group from zero to 27 bankers in the last three years. Previously, M&A execution was handled by the bank's sector teams.

The initiative illustrates how Goldman, already the No. 1 for private equity firms by fees earned, is looking between the sofa cushions for any new source of income to hit its goal, unveiled last year, of growing revenues by $5 billion by 2020.

Goldman's new chief executive, David Solomon, is seeking to remove the bank's reliance on volatile trading revenue, making expanding the already dominant a key part of this strategy.

Goldman has already been scoring its fair share of smaller deals. League table data from industry tracker show Goldman has held a top three position in fees earned from U.S. private equity-related deals between $500 million and $3 billion since at least 2013. However, in 2018, the bank is on track to have its highest fee share in that segment since 2014, data showed.

"We had a look within the where we could grow our share of the pie and they saw an opportunity in the middle market," Goldman's Mass said in an interview.


One hurdle Goldman faces in implementing this strategy is attracting enough senior talent. Traditionally, the financial sponsors team was seen internally as training ground for many investment bankers, who learned to work on deals before they cultivated relationships with the corporate world's movers and shakers, said.

Many investment banks that are focused on the middle market, on the other hand, often boast careerists who have spent decades cultivating relationships with private equity firms that do smaller deals.

To counter this, has poached senior bankers covering private equity firms from the likes of and

There are plans to grow the M&A team further, especially in Europe, Mass and David Friedland, of the sponsor M&A team, said, without elaborating on the potential new hires.

"One thing we've tried to address is the misperception, often put forth by our competitors, that our most experienced M&A people were not also working on these (middle-market) deals," said Friedland.

T. J. Maloney, of Lincolnshire Management, a private equity firm specializing in the middle market, said he had seen more deal flow from Goldman in the last couple of years.

"They made a push by hiring some pretty good people in the middle market, people who are really focused on covering sponsors like us," said Rich Lawson, co-founder and of HGGC, another private equity firm which invests in middle-market businesses.

The new M&A group for private equity firms at Goldman was the brainchild of Stephanie Cohen, who last year was tapped by the bank to be its The group has helped diversify the bank's fee revenue from private equity firms beyond the sector's biggest players, such as Blackstone, and KKR.

"Over the course of the last two or three years, they've done a very good job reestablishing the connection with folks like us," said Scott Sperling, at Thomas H. Lee Partners, another U.S. private equity firm.

(Reporting by Joshua in New York; Additional reporting by in New York; Editing by and Leslie Adler)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, November 05 2018. 17:37 IST