S&P Looks at Goldman Sachs IPO-
TLC: Just ran into this piece over at S&P Personal Wealth.Will be interesting to see what happens when the stock hits the market next week.
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According to S&P : "This may be the most hotly anticipated IPO 1n 1999 or in the U.S Stock Market history for that matter".
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Thursday April 29, 1999 (4:15 pm ET)
At Last, Goldman Goes Public
By Mark Basham, S&P New Issues Analyst
NEW YORK, Apr. 29 (Standard & Poor's) - In what may the be the most hotly anticipated IPO in 1999, or in U.S. stock market history for that matter, Goldman Sachs Group (GS) is expected to come to market with an initial public offering next week. As a matter of policy, Standard & Poor's does not carry recommendations on securities firms.
The Goldman Sachs Group is one of the leading investment banking and securities firms, with operations around the globe. It divides its business into three principal lines: investment banking, trading and principal investments, and asset management and securities services. The percentage of net revenues in 1998 from these three lines: investment banking 39.5%, trading and principal investments 27.9%, and asset management and securities services 32.5%.
Investment banking activities fall primarily into three categories: financial advisory (M&A), equity underwriting, and debt underwriting. For the five year period from 1994 through 1998, the company was the number one ranked M&A firm. During 1998, Goldman provided advice on 340 mergers and acquisitions transactions with a combined value of $957 billion. Over the five years through 1998, it raised over $900 billion through public and private capital markets transactions worldwide, including $101 billion in worldwide public common stock offerings and $695 billion in debt and non-convertible preferred stock.
Goldman makes markets in fixed income securities, currency, commodities, equities and equities related securities around the world. Also, in connection with its merchant banking activities, the company invests with its clients in funds that it raises. As of November 1998, it had committed $2.8 billion, of which $1.7 billion had been funded, to its merchant banking funds. The company's prospectus includes a discussion of steps which the company has taken to reduce its risk exposure in trading and principal investments due to its experience during the Russian, Asian, and Latin American financial crises in 1998. It also points out that notwithstanding these actions, it continues to hold trading positions that are substantial in number and size, and are subject to significant market risk.
Perhaps the area in which the company has focused on growing the most is its asset management business. In the past five years, assets under management have grown from $44 billion to $195 billion, and assets under supervision, which includes managed assets and other clients assets, has jumped from $93 billion to $337 billion.
The company sees several favorable macroeconomic and market environment trends which, subject to periodic reversal, offer significant growth and profit potential. These trends include deregulation of financial markets, globalization, a global increase in the focus on shareholder value, consolidation, demographics, and financial product innovation. It sees these trends continuing over the long term, notwithstanding that the economic and interest rate environment may not be as favorable in the next 15 years or so as in the past 15 years. From 1983 to 1997, worldwide equity market capitalization has increased from 34% to 81% of worldwide GDP.
Proceeds to the company will be used to expand operations. Two stockholders are selling nine million shares each, Sumitomo Bank Capital Markets and Kamehameha Activities Association. A majority of the shares being issued to the company's partners and employees are not transferable until the third anniversary of the IPO. The company has undertaken significant testing of its systems for Y2K.
S&P does not issue opinions on securities firms, but we think investors should keep in mind that as noted above, worldwide equity valuations have risen dramatically during the current bull market going back to 1983. U.S. equity valuations are at record highs. That being said, we will not be surprised if heavy demand for the shares pushes the stock price higher. Already the offering price has been increased from $40-$50 to $45-$55.
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