This is exchanges of Goldman Sachs and announced Nathan, Senor strategist investments, research today we're to talk about the record wave of MA activity that showing no signs of stopping, even in the face of surging inflation and rising economic uncertainty. To do that joint here heading into the end of year. Twenty twenty one by marks rail and stuff. I felt boys, the co heads of the global mergers and acquisitions business in Goldman Sachs Investment, banking division mark. Stefan welcome back the programme, listen obvious by almost any measure, emanate activity actually shattered records and twenty twenty one mark? Can you start with a year and review How did deal activity play out? So thanks for the question,

and, as you said, it has been a remarkable year and I think that the theme I would emphasise is really how broad and consistent activity has been. So when you look at every region, every industry, every size of transaction, every type of transaction. really being consistent surgeon activity through the year? I think the other thing that's been unused about this year. how consistent has been throughout the year, often we have an environment where they'll be one quarter of a pause when there's a macro blip or something a geopolitical black or something else happens. We really have had a year old real consistency and real momentum, and we see that continue so for me that take away here is real breadth and consistency of activity through the year, but we have had some blood sleeve had now we're living through amicably

and the related growth concerns, but that inflation is now a key concerned is an environmental feel a bit different than the last time we spoke to you all in July about the emanate outlook. What are you hearing and board rooms about the impact of all of us on emanate, going forward step, and maybe you can start you it's interesting, so that a board meeting yesterday with this exact topic came up. Then boards are concerned, Words are asking the questions as they should around what is going to happen with a potential resurgence in covert what is going to happen with these inflation rates. I guess I would highlight a few things there. Certainly Therefore, I believe that some of these risks in issues are not just sickle and short term. do you think about labour rights, labour rights and inflation are here to stay for a period of time. The demand is driving it, but boards are really looking for.

These issues, as we have both through covered in its prior waves ass. We have looked through global instability to say what is my long term strategic vision and other things that I want to do or have wanted to do that. I should do now because the window exists and I can get them done- an physician need in a consolidated world to be the winner and that's what was really saying what we need to do to be the winner, in fact, and twenty fifty years and is not about earnings accretion day one. It's not about my leverage day. One do I need to issue equity. Should I not do it because inflation is rampant at my factories are running at a hundred percent? It's what we need to do to win an that's really how boards are thinking which. rise to a lot of these issues which are not small but really the macro concept. People are thinking fifty years out, maybe to add one point to what staff and said I think, that notwithstanding the issues you highlighted its remarks

well how clients have remained focused on moving forward and initiating Could you check activity? I think one really good reasons. Example. As you know, we have had a period of heightened equity market volatility, but a few weeks ago right, I'm I want to move forward action things most true course. Volatility is something but plans. Costs on Amazon. tricky issue for execution. But there is a he'll desire to move forward, and I think that's one of the take away plants all focused on the risks do you want to move forward so with all that let's dig into the composition of electricity mergers both large and small fuelled by between twenty one. What were the catalyst driving deal? Volume is today differ by company size and do expect those same factors to contain each dry balance in twenty twenty two. There are clearly some common fate,

so that we can identify that. I think cuts across began small bright. I think in the Corporate board room there are few but all in many many transactions. One is tat: ology, whether that is offensive. What defensive another is Gee positioning folio vs G things, whether that is investing in certain areas or reducing expect, it's a certain areas There is focused, I think, one of the interesting things we ve seen. This does renewed focus on capital allocation in the boardroom as a client you have to deal with lots of issues and how you allocate your capital has become. I think, even stronger boardroom topic. What's the implication of that? There is much more scrutiny of coal versus known call, and I think that's actually got more strongly. The theme, as it goes on and I personally think it will become even stronger, and so I think

we take knowledge and growth is the point that staff and talked about, and he s g and focus bees all things. I think that a driving corporate board to make decisions, as we ve been talking about forward, so that one comment I think in terms of size of activity, we have seen larger activity, both in the corporate site and the private capital side in the private equity industry. So more evident self and I think quite possible, we see, greater number larger transactions, and I would drill into that one level down cross border transactions as well, which, as we talked about in July, that's the one, an area where we had seen less activity, which is also started picking up, but I think those themes of actually very common across all clients. Seven mark just touched on the role that private equity is playing right now he talked to us a little bit about what strikes, that's it. It's been such a hallmark of activity. We ve been seeing recently pursed up. The definition of private equity is brought radically.

Sovereign funds, family offices all are directly doing private equity, not just in you help he type walls but indirect, controlling investment. Tat transaction said the definition. Private equity is run and, frankly, private equities been, if not be one of the best returning asset classes and last twenty years. So what happens? The car more capital? How do they make mine by me investments in search the path to greater activity in private equity in verse is clear. The quantum these clear, great returns, gonna work capital, but additionally, the velocity at which they are executing transactions. You mentioned previously long term thinking strategically private but he knows you need to make investments, make church and so regressive aggressiveness to enter the energy market for capital to work has been extraordinary. It's now nude somewhere, MID Thirty's in terms center of involvement in the energy market that private equity has again on a broader definition of private equity and Natalie

The continued the capital raised, the capital allocated toward private equity by the big institutions by them university. Now it's only continues to escalate again driven by the returns and the capital markets, extremely produces. We also saw the return of large leverage by our transactions. Mega elbows are back marked talk to us about some of it. Catalyst behind bad activity. You maybe to pick out a couple of things. I think one is fun size so, as we ve seen a whole bunch of funds raised by the larger private equity up these funds sizes growing very rapidly as fun sizes grow by definition of what can be done in terms of equity check in a single day. Action grows so I have won. Its funds are, and I think one size will continue to grow and therefore the ability to do larger transact. It will also be grace, I think the other thing that's driving. Granted activity is, I think you see

Increasingly it's hard to generalise, but increasingly Mauro minded must from clients by public companies and private companies We in Europe are important with private equity? So it's not just necessarily one hundred percent transactions. You know, for example, you see more roll over transactions by the seller is rolling into the structure or more partnership his actions, and so they set of partnership between private capital and companies is, I think, an increasing feature of larger deals and I've been fine come at. Why is this happening? I get why it's happening is a bit more. We talk about a minute ago what companies are trying to deal with at the moment. Technology. Yes, G focus capital allocation some of these things, can be your private equity can be a very effective partner in addressing Some of these issues in many situations, I think it is also a reflection of the reality.

of the world and the challenges the world and the topics that need to be addressed. We spoke a couple months ago about the recent market volatility pet. At the end of the day, we ve rising stock markets in general on twenty twenty one valuations are quite high. What are these high? the balls doing in terms of changing deal structuring. How are they having an impact? Will you do I value nations. The first thing that comes to mind is, should folks be using equity, more transactions user. Valued equity to accomplish what we want to accomplish. So that's number But you, though, is that interest rates on add, still remain near historic gloves, maybe not as low as it were, but near his fur gloves. So the efficiency and across the debt is still extremely attractive? It's well using ought to focus on is one might say if multiples are so high, wouldn't that fell active when buyers be concerned about things are time multiples, but when you're trading in multiple and you're, looking at a business with a high, multiple again it shifting towards using stock but again

will focused on the strategic positioning and, most importantly, investors are continuing to reward the strategic activity. It's not about. Did you pay one or two more turns eyes are eagerly again the long term winner and that's what is driving start prices? That's what intact Potential investors are applauding the strategic repositioning. It's not on the announcements the first either criticism. A comment from the market is not what's return invested capital that best with its was that a good strategic rules and was the valuation reasonable connection tax. Now, in the context of was it four percent assumption ten percent of talks which are not invested capital now market shift and at times the markets are more focused, and returns on cap old men, that obviously has an impact on our ports think about Emily, but in a high mould

a market, but were seen as people still motivated by doing transactions at their shareholders are supporting in right now, share always putting the strategic actively versus hyper focused on whether the multiple has wandered. She turns right, so we ve talked about strategic transformation being a key driver of deal activity in twenty twenty one, but activist investors were all so a driving force behind much of the activity. We ve seen what struck having mad and what are the implications for companies and shareholders site Alison you're right? I think we ve seen women in July. I think we talked about how activism generally had returned, see pre pandemic kind of levels back to twenty nineteen levels sitting here today that absolutely above pre pandemic levels. So we Seen momentum continue to build in the last few months. That's number one. The second thing we ve seen: activists attacking and focusing on large companies in the past few months.

What is interesting. Is you ve had more activity are more large cap activity? I didn't want striving it, which was the second part of your question, it very difficult to generalised every case specific. If there was one theme I would pick out is around portfolio and valuation in the market, and I think the one thing that we see is where activists are able to identify a gap in valuation when the Shap price and the intrinsic value of the company, and they see that why, if it's a very large when he where they can trade in and out easily that's a place we ve seen a lot of activists, focus and their approaches to identify that value, that, first of all and then to propose actions to address the binding, often which have an aspect of portfolio splitting the company selling a business, changing strategy, etc. So that would be, I think, the theme very much around portfolio

I think you like to make a comment around Europe. Is post summer, we have seen one make. A cat campaign launched every two weeks in Europe which is in, strawberry level of activity. When you said the last twelve months citing this is very, very much a theme, and it's very very much on the mind of the corporate boardroom around the world. And you mentioned a moment ago, the role that low interest rates are playing all the aspects, a low cost funding, merriment, maybe nearing an end if the fat raises rates, as is generally expected, as we certainly expect. Your comments asked what is mean for the piece of deal making it's one of many considerations when companies think about transactions they think about obviously earn secretion in the cost of that surround the impact that it certainly impact. Private equity is private but he thinks about returns and others that they operate more leverage environment than traditional progress nappies and were still it relative historic allows, even if we move

who debris where such historical aroused by inflation? Somebody wallbury focus now and again, there's what the FED does, but this was also the markets do and the markets really drives what investors will pay for a given risk characters, peace at that then. So when you think about proper earnings- and you sit about growth, even about the demand that were seeing, that remains the strong? Yes, it drives insulation by again that investors thing about the risk profile. The debt that thereby forgiving corporation yes said, has an impact on that, but really it comes up such a risk, and do investors demand a higher rate returns for the death of providing to various situations that drives the cost of debt began the said, provided they sprays that obviously impact things, but again the risk. Quantum is what, arrives. Amateur premium to them is free rate, so to speak, that investors will require some will have an impact, certainly, but I think we're still at such relative system.

Close even with some degree of a move that I don't see, expelling delectably, maybe the right effect. certain situations- but again it's one of many things that I think words and certainly private equity will occur. You mentioned. The piece of cross border emanate slowing a bet. Can you give us a little bit more detail around that we obviously seen travel imitations and shifting regulatory and legislative landscapes globally so how seen that pays change. And what do you expect to see them? Twenty two sided you're listen we really seen this was the one part of activity that I think was subdued for a long period of time for obvious reasons whose summer we really saw a surge in cross border activity- and you know that I was one of the most active appearance in history for cross border remedy. I think that when we talk about cross border

There is cross border within a region and members of his late, if you like the most interesting part of market that set of sensitive to the ability to travel, which is transatlantic, and I think that when the travel restrictions in the? U S what loosened in November, It has been another big impetus for european clients to look more actively and participate more actively on situations in the U S, and vice versa. It's a very practical action from my own experience, of advising Clyde's European looking at transactions in the U S, the travel restrictions were a very significant constraints on the let's see to execute and be competitive, say, wait a very competitive market, where every little knowledge, no difference can really count towards the outcome and the inability to get tee executives easily in and out of the U S was an issue in a number of situations. I worked on that made it back incrementally little bit more challenging.

With the loosening about. I see you know much more activity and we could well see the return of large cross border. So I think we're very optimistic about that. Of course, if there were You travel restrictions, particularly in the: U S, that would be a significant damp Stephanie. We barely can have a conversation these days without talking about the digital transformation of companies across sectors. Such an important theme know how has the prevalence of technology changed. You know not only the way deals are conducted, but the pay for the transaction. You ve, been seeing and expect to see a big data. Digital technology is pervasive and everything we're doing provision in the courtiers Parker.

Is pervasive in information technology operations, its effective in driving transactions and how you do transactions covers all accelerated that its force people to embrace technology in ways that we thought we'd take many more years, but it now happened with relative immediacy and as impacting how boards think it's impacting how boys about something they may have thought about facing. Let's talk about the electrification vehicles, it might have been a twenty. Thirty year timelines. Now, aside, your time or even faster, and so it incredibly precepts of many people, still amount to executing transactions is still largely done. Digitally in on June calls and digital reporting site, but doing today, presentations of businesses from Antwerp recent patients, many those things are here to stay, and so The timeline texting executing transactions has gotten shorter and not something that market I've spent time thinking about is the velocity at which you executed murder transaction.

You need to staff differently. You need to think differently need to advise differently, and so that's really big companies So how is it about matches? The deals are happening, but how do you do the deal's? What's driving the deal's power towards that operated in one paradigm of thinking about technology digitization into the new paradigm fell hearing thing you guys had said lots of momentum, reasons to be optimistic about the emanate outlook and twenty twenty two. But what are some of the risks that your both watching that could affect ceo confidence doing emanate, deals and just the pace and number of transactions we see next year. So for me- You know the number one would be to grow fat. Look our own economist, optimistic of world economic growth. But clearly there Sergeant said the pandemic is going to impact grace to some eggs. maybe I and see what we have to wait and see citing grows and the impact of the pandemic growth

I would say, is my number one. I think equity market volatility I mentioned before is a key risk. Emanate is harder to execute and volatile environment, obvious reasons, inciting volatility as a very important factor: Third thing I will just mention, because we talked about it last time, the regulatory environment, the regular environment around the world government screwed me around transactions around the world That is something that we need to continue to watch it. Clearly, impacts some sectors: more than others. I think that is another point I wouldn't on that particular point. So far, There is no evidence that is impacting overall levels of activity, I'd be impact in the type of transactions that they getting done, but in terms of the overall level of activity I would say it's not impacting it, but that's another once a watch, so those three things define anything to add. Looking the world is incredibly connected, still could make it feel

given the lack of travel that were disentangle too ready to people were not what Happens in Europe massively impacts you What happens in Asia? Ass will impact. European connectivity is still extraordinary in so I worry about global instability I worry about international relations. Worry about domestic unrest as well the cross. various countries around the world nation polarization obviously has an impact. Just confidence and confidence tries transactions. Is one thing you can look across interest rates. You can look at equity markets, see your car This is the number one driver of emanate markets, because it involves companies taking risks that they don't happen in normal operating business, and you have to have tough since in the boardroom, yet have confidence in the executive office to do that. Don't worry about that, but I will certainly the indicators now will mean very strong our boards,

and see, owes have become steel to global instability and recognised that something much like all the rest. The need to be managed. So I worry about those things anymore. Always practical emanate has been economically sickle over many years, and so we recognise trees, don't grow up at the sky, but it's the extraordinary and again the forward indicators we had in terms of new mandates and other things and at all levels, and so we feel optimistic, cautiously optimistic as we look forward to the imminent market fell. Let's just and on that point, what do you expect for emanate and twenty times but will it reach and continue our exceed two thousand twenty when levels below sea, but when you think about the foundational building blocks that we talk about c or competence, bore confidence, cost of financing equity market amount of capital is private equity into other sources. New mandate checks that we process to our system. It feels there

were operating price levels be seated twenty twenty one going to twenty two and you can look at the various accomplishments Goldman Sachs near today. As announced on order of four hundred transactions, waded in five hundred million dollars globally were operating at those levels, higher right now heading into twenty twenty two. Again remain very optimistic about twenty two way to recognising the risks and challenges around the world. But twenty twenty two looks like it's on fire or potentially at the highest rates. We see the twenty two January. I too, that I agree with our staff and characterized it the diversity of activity that we see the bread. The scope, I think, gives us the cautious optimism that next year will continue to be another very positive year for activity. So we,

a cautious LEO mystic. While we are certainly looking forward to seeing how the money market and faults in twenty twenty two march stuff- and thank you so much for joining US again- figures much precise Allison pressure- includes this episode of exchanges at Goldman Sachs things for listening and of you enjoyed this show. We hope you subscribe and Apple podcast, elaborating a comment. This podcast was accorded on Friday December seventeenth, twenty twenty one All price references and market forecasts correspond to the date of this recording. This podcast should not be copied distributed, published or reproduced in whole or in part. The information contained in this package does not constitute research or recommendation from any Goldman Sachs Entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty as to the.

accuracy or completeness of the statements or any information contained in this podcast in any liability, therefore, including in respect of direct indirect or consequential loss or damage, is expressly disclaimed. The views expressed in this podcast or not necessarily those of golden. Sacks and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs too. That listener, nor to constitute such person. A client of any Goldman Sachs Entity,