The Targets of Big Balance Sheets

The Targets of Big Balance Sheets

Goldman Sachs has a podcast called Exchanges at Goldman Sachs. They kicked off their 2023 series with a summary on the M&A outlook for 2023, titled “Complex but Optimistic Outlook for Deal Making”

There were 5 topics in here that jumped out to me for their relevance in the current environment. I also thought these were helpful in simplifying what megatrends the biggest balance sheets in the world are focusing on right now.

Corporate Simplification: investors are looking to invest in companies that have exposure to specific sectors. The economy is being affected and rebounding quite differently depending on the sector and investors are heavily using a lowest common denominator approach to multiples if a company has a sector with material headwind exposure. This is causing spin-outs at larger corporations and firms with more clear growth opportunities to receive more attention.

The Trend of Technology Shift is Still Accelerating: technology companies that help corporates meet strategic goals are still high on the priority list- COVID made clear where certain companies were unprepared in their technology stacks, supple chains, customer engagements. Corproates are still trying to reposition their companies for the increasingly digital economy and finding ways to drive customer value through technology acquisitions.

Focus on ESG is Still Accelerating: most large corporates have long-term strategic goals to better incorporate ESG targets into their businesses. Activists are beginning to launch ESG-specific campaigns.

Private Market Liquidity is High: Private market investors have record cash levels. But these investors are very comfortable, and already imposing, heavy structure on investments. Europe is also more favorably priced (both due to valuation multiples and currency fluctuations) and this is creating US private equity firms increasing deal interest in those markets.

Financing and M&A: Record high cash balances at the Fortune 2000 and investment grade debt is still reasonably priced and available. The ability for large corprorates to get creative with their balance sheets will create a wave of M&A opportunity IF sellers are willing to come down to market on pricing. Rate volatility is currently hurting deal volume, but higher rates wont crush volume – so long as the rates settle at those higher levels.

A summary topic is “Confidence” at the C-suite level. Executives are thinking longer-term and trying to prepare companies to be more resilient so that there is near-term quarterly hits but as well as long-term risk preparation for resilience.

Drivers to “Confidence” at the Fortune 500 level and Series A-D level can be quite different. The startups that successfully emerge from the last few chaotic years will be strong and resilient. Many of our investments that have exposure to “technology”, “ESG” and have “simple” industry and customer value propositions are happy with their current market position.

Comments are closed.