Goldman Sachs signals new trends in private equity and in M&A
Posted by: in Private Industry NewsFiled under: GS Capital Partners, Private equity industry
While Goldman Sachs Group, Inc. (NYSE: GS) managed to beat earnings handily, there is a key metric for private equity investors. That metric isn’t that Goldman Sachs beat greatly lowered earnings targets nor that shares are up 8% after earnings.
Goldman Sachs noted that it ranked first in global mergers and acquisitions for its fiscal year to date. But there was a key drop in investment banking revenues. Its $1.17 billion in revenues in the investment banking segment were 32% lower than the first quarter of 2007 (year over year) and were down 41% from the fourth quarter of 2007 (sequentially). That signals a slower annual trend but an even slower trend in the near-term has occurred.
More specifically, its net revenues in Financial Advisory Services were $663 million, down some 23% from the first quarter of 2007, reflecting a decrease in industry-wide completed mergers and acquisitions. Its net revenues in its Underwriting segment were $509 million, 40% lower than the first quarter of 2007. On that it notes significantly lower net revenues in debt underwriting, due to a decrease in leveraged finance and mortgage-related activity in difficult market conditions.
The bad news is that is not showing any immediate reprieve in the arena of private equity lending, nor in the number of mergers. The good news is that we should have already known this. There’s a giant de-leveraging transition happening on Wall Street (and Main Street for that matter). This might be the new norm for the time being.
2006 and 2007 were more fun to cover the M&A frenzy, but the deals started getting stupid. This is not at a all the death of of private equity nor will it be the death of M&A. The billionaires might have to make more normalized acquisitions from here on out, and they might even even have to use mostly their own money.
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