Goldman Sachs Sees European Economic Cycle `Near the Trough'
Goldman Sachs Group Inc. is stalking unicorns.
The Wall Street bank, which built its reputation by pursuing opportunities that rivals were slow to respond to, wants to find the next generation of technology companies in Europe with the potential to achieve US$1 billion-plus valuations.
Doing so can unlock a US$200 billion base of fast-growing clients, said Anthony Gutman and Gonzalo Garcia, co-heads of investment banking in Europe, the Middle East and Africa, in their first joint interview since taking the roles last year.
“Every one of our industry teams is witnessing growth in technology-enabled clients,” Gutman said. “We see tremendous opportunities to deploy more resource and capital against the opportunity.”
The number of tech unicorns in Europe has surged over the last three years to around 200, according to Gutman, highlighting the importance of spotting these companies early in the battle for private fundraising mandates and more lucrative work on initial public offerings.
Goldman Sachs counts online food ordering services Just Eat Takeaway.com NV and Ocado Group Plc, as well as music streaming service Spotify Technology SA, among the now multibillion-dollar technology groups it has worked with since their early startup days.
The sector has boomed during the coronavirus pandemic, with Checkout.com becoming Europe’s largest startup this month after raising funds at a US$15 billion valuation. Goldman Sachs is working on the upcoming listings of online car dealer Auto1 Group SE and internet fashion retailer About You GmbH. It also co-led the 2.8 billion-euro (US$3.4 billion) IPO of Polish postal locker provider InPost SA, which soared on its Wednesday trading debut.
“We expect a pretty strong year for IPOs across Europe, driven predominantly by technology and technology-related issuances,” Gutman said.
Keen on Green
Another trend that Goldman Sachs is looking to capitalize on is the shift toward sustainable energy. The corporate world is under ever-increasing pressure from environmental, social and governance-focused investors to play its part in bringing down global temperatures.
“There is a big push for green and renewable energy assets,” Garcia said. “Europe is at the forefront of that.”
Already this year, French oil giant Total SE agreed to invest US$2.5 billion in Adani Green Energy Ltd., following its acquisitions of a French biogas producer and a stake in a large U.S. solar portfolio. Energy majors including BP Plc and Royal Dutch Shell Plc are also selling some carbon-intensive assets to free up funds for greener initiatives.
“There will be more activity as some of the large companies in Europe seek to become more global renewable energy players,” Garcia said.
Goldman Sachs sees a range of sectors, not just technology and energy but also financial services and health care, keeping European dealmaking resilient in 2021. Still, cross-border transactions could become harder to pull off: Alimentation Couche-Tard Inc. this month abandoned talks on a mooted US$20 billion acquisition of Carrefour SA following French government opposition.
“A combination of the current political environment coupled with a degree of protectionism as we come out of Covid is likely to result in a period where there is a greater degree of government intervention in transactions,” Gutman said.
The bank continues to view the U.K. as the region’s largest market for activity, Brexit notwithstanding. The country traditionally accounts for 25 per cent to 30 per cent of European deal volumes, and that’s unlikely to see a material change, Gutman said.
Goldman Sachs was the top M&A adviser globally and in EMEA last year, data compiled by Bloomberg show.
One of the recent drivers of global M&A has been a proliferation of blank-check companies, which raise investor money in the public markets and then hunt takeover targets. Business moguls across industries have raised billions of dollars via such vehicles, also known as special purpose acquisition companies. Goldman Sachs ranked third as an adviser on global SPAC listings last year, Bloomberg data show.
Though there have been signs the market is starting to grow in Europe, SPAC founders continue to overwhelmingly target the deeper pools of capital in the U.S.
“Europe is in an incredibly nascent stage for SPACs. We’ve seen next to nothing here,” said Garcia. “Success here could be determined by the success or failure of the product in the U.S.”