From cross-border M&A to more mega buyouts, top Goldman Sachs bankers map out why the dealmaking boom is just getting started

• 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.

This year’s surge in M&A likely won’t die down any time soon, according to top Goldman dealmakers.

Goldman’s M&A advisory revenues have already hit 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 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.

“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,” 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 like SPAC deals 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 buyers have been a key driver of dealmaking activity already this year. 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.

And the performance of private-equity as an asset class is pulling more and more money in that will need to be put to work.

“The introduction of new private-equity capital into the traditional private-equity universe makes them incredibly aggressive,” Feldgoise said.

Last month, Medline Industries’ buyout by a trio of private investors became the largest private-equity buyout in healthcare and the largest overall since the 2008 financial crisis.

Sorrell added that investment timelines for PE entering and exiting investments have been shortening, which is feeding transaction flow, but it’s yet to be seen if that’s a temporary trend.

European SPAC deals are a big opportunity

It’s already been a big year for SPACs, and Goldman has been a top bookrunner in blank-check IPOs. And after SPACs go public, their goal is to take another company public via a merger.

“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,” he said.

Sorrell added that European SPAC deals are the next opportunity.

“We will continue to see the build-up of the European SPAC space,” he said. “What we see is for good-quality assets where public-market investors would like access to those assets, those SPACs have done well, and those transactions have done well.”

Companies thinking about supply chains, scale differently post-pandemic

More clients have a growth mindset or focus, Sorrell said.

“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.

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.

“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 spent recent years streamlining their 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.

The return of global travel will create even more opportunities

Cross-border M&A has been quiet at Goldman, but the return to business travel could get international dealmaking flowing.

“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.”