Interview, Fireside Chat
A “Superbloom” in M&A and Separation Activity
- Goldman Sachs is observing a "super bloom" in global M&A and separation activity driven by corporate boards and management teams reassessing and reimaging their businesses post-pandemic.
- Clients are actively evaluating strategic priorities, growth opportunities, and capital allocation policies against existing portfolios to optimize business mixes.
- Key disruptive factors influencing these strategic evaluations include shifts in consumer demand, digitization, energy transition, and ESG principles.
- Current separation activity is more pronounced than in 2002 or post-2009 due to three structural differences:
- The sheer enterprise value of companies on the S&P and FTSE is multiple times higher than in previous eras.
- Clients exhibit greater diversification, with many large corporations managing two to five reportable segments.
- Businesses are significantly more geographically diversified, necessitating scale in supply chains and operations.
- This diversification is driving a trend toward simplification and "pure playification" of portfolio mixes.
- Divestiture structures have become more creative, moving beyond taxable cash sales to prioritize tax efficiency and retained upside.
- U.K. corporates and non-U.S. strategics are increasingly exploring corporate spinoffs, demergers, and reverse Morris Trust transactions (a spinoff combined with a merger) to achieve tax-free status in the U.S.
- Private Equity (PE) firms and SPACs are driving novel transaction types:
- PE clients are engaging in partial carve-out transactions to monetize minority or majority stakes, potentially deconsolidating businesses to improve top-line metrics, credit ratings, and rating agency perspectives.
- SPACs are facilitating the public listing of carved-out businesses via mergers with "blind pool" capital, providing liquidity and sponsor oversight.
- The macroeconomic environment currently supports M&A and separation activity through several tailwinds:
- Monetary policy has kept interest rates and the cost of capital at attractive levels.
- Fiscal policies, including the 2017 U.S. tax cuts and global tax holidays, remain conducive.
- Significant "dry powder" liquidity exists across corporate balance sheets, PE firms, and SPACs.
- The reopening of travel post-pandemic has facilitated cross-border deal execution for executives and advisors.
- The regulatory environment has generally been supportive of current activity levels.
- Tax policy serves as a strategic catalyst; expectations of rising U.S. tax rates are prompting corporates to accelerate transactions and portfolio adjustments in the current lower-rate environment.
- Geopolitical tension presents a primary headwind, potentially impacting regulatory approval processes such as antitrust reviews by the FTC, DOJ, and international counterparts.
- Geopolitics may extend the duration of regulatory reviews and alter their outcomes in cross-border M&A.
- G7 cooperation on global tax policy offers potential "green shoots" for future regulatory stability.
- Goldman Sachs expects current M&A and separation activity levels to persist in the near term, anticipating continued large-scale corporate separations, domestic and cross-border M&A, and LBOs.
- Recent deal flow includes major corporate separations and a significant LBO announced within the last weekend.