Portrait of David Friedland

The bank has overcome initial scepticism about its commitment to the mid-market says CMG head, David Friedland, emphasising that it remains a key focus area for the firm.

Goldman Sachs has a well-burnished reputation for handling the biggest deals for the world’s top companies. So, when in mid-2019 it announced the formation of its new cross-markets group (CMG), aimed at expanding its coverage of mid-market corporate and financial sponsor clients, it certainly raised a few eyebrows.

But after three full years, the group, which targets corporates with a valuation of up to $2bn, is still going strong and remains a key focus for the firm, says David Friedland who heads up CMG. He estimates that before the establishment of the group, Goldman covered around 2800 mid-market companies — that figure is now closer to 4500. The team has also grown significantly across the Americas and Europe through a combination of internal transfers and external senior hires.

The group’s performance since inception has also been impressive, with Goldman Sachs almost doubling its share of middle-market investment banking revenues, although Mr Friedland says it is difficult to measure precisely in the current unusual economic climate. The group has also had to temper its ambitions in line with market conditions. It has identified several additional industry areas it would like to target, including potentially recruiting new talent to support those efforts. “We have made some of those moves,” says Mr Friedland, and others are “still on the table depending on market conditions”.

A 25-year veteran of the bank, Mr Friedland has worked on mergers and acquisitions (M&A) throughout his time at Goldman, including heading M&A for the bank’s consumer retail and real estate gaming and lodging groups, as well as a couple of years heading up its sponsor M&A group, which he describes as something of a “predecessor” to the CMG.

Strategic move

The formation of the group was a considered strategic play for Goldman, which had identified the mid-market as an area where it had significant potential to increase the scale of its activity. In Mr Friedland’s words: “Goldman Sachs already had high market share in the areas it plays in. So, for us, it was an opportunity to target an area with substantially lower market share and thus more upside.” He also makes the case that a higher number of smaller transactions can also be a substantial revenue generator. “The league tables may be driven by the size of the deals done, but revenue, especially incremental revenue, is generated by doing more deals.”

league tables may be driven by the size of the deals done, but revenue is generated by doing more deals

The mid-market was not entirely new for the bank, says Mr Friedland. “It has always been a part of what we do, but now we are doing it with much more intense focus and in a direct and consistent manner, rather than opportunistically.

“We took some existing senior bankers and strategically realigned their focus … Where they previously focused on a mix of large and small cap companies, we said they would shift their focus to the smaller companies in their industry area — and more importantly go find the companies we don’t have relationships with.”

Structuring the group

Crucial too, he says, was offering the right rewards to incentivise bankers to buy into the new approach. “We said to people: ‘pay, promotions, career path’. It’s all the same in this group as if you were in one of the classic industry groups, we just have a different mission.” As the group has been able to establish a track record, enthusiasm to be part of it has also developed, says Mr Friedland. “In the first six months, getting people interested to come for an interview, or transfer internally, was very different to where we are now.”

The recruitment drive to the group has also included multiple external hires from other large banks as well as mid-market specialists. This was notable for Goldman, which has often made a point of relying on internal talent, but Mr Friedland says they were clear when building CMG there would be things Goldman could learn from elsewhere, particularly mid-market specialists at other banks.

However, Mr Friedland does still make a clear differentiation between Goldman and what is offered at other banks.  He suggests that many of the boutiques focus solely on M&A, whereas Goldman is also able to provide a full capital markets offering and leverages the strength of the full Goldman franchise. The bank has structured the group so that it has capabilities across industries and products. He says: “If you were to take a slice of the CMG offering, you would see it has all the same parts as you would expect to see in a full-scale investment banking division, but directed towards our target market.” 

Entrepreneurial approach

Culturally, it has also been an interesting development at a bank where serving large clients has long been the bread and butter. “Our group is very entrepreneurial,” says Mr Friedland, “and the teams are leaner, because what a $2bn company needs is often different to what a $100bn or even $10bn company needs.”

For staff, particularly junior and mid-level team members, he says that this has meant being closer to the action. It has also created a home for bankers within Goldman Sachs who “really love dealing with founders or family-owned businesses, where the transactions may not generate column inches in the press, but you can really make a life-changing difference for those clients”.

He also argues it has been beneficial for the coverage bankers who continue to focus on larger clients. “For a coverage banker in the bank’s classic coverage groups, they were spreading themselves across the large and the small companies, so by taking a substantial portion of the middle-market firms out of the equation, that allows them to focus more on the larger companies,” he says, “and the person focused on the smaller companies will also do a better job for those firms, as it’s their priority.”

Client appeal

There was also some initial scepticism to overcome from clients too, with questions raised about long-term commitment and references made to previous forays into the mid-market by Goldman, such as in the late 1990s and again in the 2000s, which had wound down when market conditions became more challenging. Asked if that was likely to happen again, Mr Friedland is clear that “we’re still focused and committed to this”.

“When you’re able to describe the scale and success of this effort to clients, it is pretty convincing,” he says. Pitching what CMG can offer varies depending on clients. “You have to be careful not to put clients into a box that they don’t want to be put into,” he adds. “It’s less about discussing what we can do for mid-market clients or what the CMG can offer, it’s ‘this is what Goldman Sachs can do for your business’.”

Shifting markets

Although deal volumes may be down across the investment banking landscape, there continues to be robust dialogue with clients, Mr Friedland says. For instance, he points to a robust pipeline of initial public offerings in the preparation stages, which will emerge once that market recovers.

There is also a lot of adaptation going on, with people “figuring out what can be done in this market”. For instance, a lot of activity switching into private placements or where companies were looking to sell the whole company, instead proceeding with a minority stake sale instead. For well-capitalised corporate “strategic” buyers, they are also in a position of relative strength in the current market in that the investment-grade markets remain open to them. “We have seen a lot of strategic deals,” he says.

There is also a relatively healthy market of private equity-backed firms pursuing add-on transactions. “With the smaller deals it’s easier to get them done, and they can happen even against a more challenging backdrop,” adds Mr Friedland.  


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