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89. The World of Investment Banking and Goldman Sachs

Updated: Oct 6, 2020

What is Investment Banking?

Investment banking is the division of a bank or financial institution that serves governments, corporations, and institutions by providing underwriting (capital raising) and mergers and acquisitions (M&A) advisory services.

Pic : Goldman Sachs Headquarters, New York City

Investment banks act as intermediaries between investors (who have money to invest) and corporations (who require capital to grow and run their businesses). This guide will cover what investment banking is and what investment bankers actually do.

Pic : How investment banking works

I. What Do Investment Banks Do?

There can sometimes be confusion between an investment bank and the investment banking division (IBD) of a bank. Full-service investment banks offer a wide range of services that include underwriting, M&A, sales and trading, equity research, asset management, commercial banking, and retail banking. The investment banking division of a bank provides only the underwriting and M&A advisory services.

Full-service banks offer the following services:

Underwriting – Capital raising and underwriting groups work between investors and companies that want to raise money or go public via the IPO process. This function serves the primary market or “new capital”.

Mergers & Acquisitions (M&A) – Advisory roles for both buyers and sellers of businesses, managing the M&A process start to finish.

Sales & Trading – Matching up buyers and sellers of securities in the secondary market.  Sales and trading groups in investment banking act as agents for clients and also can trade the firm’s own capital.

Equity Research – The equity research group research, or “coverage”, of securities helps investors make investment decisions and supports trading of stocks.

Asset Management – Managing investments for a wide range of investors including institutions and individuals, across a wide range of investment styles.

Underwriting Services in Investment Banking

Underwriting is the process of raising capital through selling stocks or bonds to investors (e.g., an initial public offering IPO) on behalf of corporations or other entities. Businesses need money to operate and grow their businesses, and the bankers help them get that money by marketing the company to investors.

There are generally three types of underwriting:

Firm Commitment – The underwriter agrees to buy the entire issue and assume full financial responsibility for any unsold shares.

Best Efforts – Underwriter commits to selling as much of the issue as possible at the agreed-upon offering price but can return any unsold shares to the issuer without financial responsibility.

All-or-None – If the entire issue cannot be sold at the offering price, the deal is called off and the issuing company receives nothing.

Once the bank has started marketing the offering, the following book-building steps are taken to price and complete the deal.

Pic : Book building process

II. M&A Advisory Services

Mergers and acquisitions (M&A) advisory is the process of helping corporations and institutions find, evaluate, and complete acquisitions of businesses. This is a key function in i-banking. Banks use their extensive networks and relationships to find opportunities and help negotiate on their client’s behalf. Bankers advise on both sides of M&A transactions, representing either the “buy-side” or the “sell-side” of the deal.

Below is an overview of the 10-step mergers and acquisitions process.

Pic : M&A Process

III. Banking Clients

Investment bankers advise a wide range of clients on their capital raising and M&A needs. These clients can be located around the world.

Investment banks’ clients include:

Governments – Investment banks work with governments to raise money, trade securities, and buy or sell crown corporations.

Corporations – Bankers work with both private and public companies to help them go public (IPO), raise additional capital, grow their businesses, make acquisitions, sell business units, and provide research for them and general corporate finance advice.

Institutions – Banks work with institutional investors who manage other people’s money to help them trade securities and provide research. They also work with private equity firms to help them acquire portfolio companies and exit those positions by either selling to a strategic buyer or via an IPO.

Investment Banking Skills

I-banking work requires a lot of financial modeling and valuation.  Whether for underwriting or M&A activities, Analysts and Associates at banks spend a lot of time in Excel, building financial models and using various valuation methods to advise their clients and complete deals.

IV. Investment banking requires the following skills:

Financial modeling – Performing a wide range of financial modeling activities such as building 3-statement models, discounted cash flow (DCF) models, LBO models, and other types of financial models.

Business valuation – Using a wide range of valuation methods such as comparable company analysis, precedent transactions, and DCF analysis.

Pitchbooks and presentations – Building pitchbooks and PPT presentations from scratch to pitch ideas to prospective clients and win new business (check out CFI’s Pitchbook Course).

Transaction documents – Preparing documents such as a confidential information memorandum (CIM), investment teaser, term sheet, confidentiality agreement, building a data room, and much more (check out CFI’s library of free transaction templates).

Relationship management – Working with existing clients to successfully close a deal and make sure clients are happy with the service being provided.

Sales and business development – Constantly meeting with prospective clients to pitch them ideas, offer them support in their work, and provide value-added advice that will ultimately win new business.

Negotiation – Being a major factor in the negotiation tactics between buyers and sellers in a transaction and helping clients maximize value creation.

Pic : The screenshot above is of a leveraged buyout (LBO) model

IV. What is Goldman Sachs ?

The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.

The Goldman Sachs Group, Inc., is an American multinational investment bank and financial services company headquartered in New York City. It offers services in investment management, securities, asset management, prime brokerage, and securities underwriting. It also provides investment banking to institutional investors.

The bank is one of the largest investment banking enterprises in the world, and is a primary dealer in the United States Treasury security market and more generally, a prominent market maker. The group also owns Goldman Sachs Bank USA, a direct bank. Goldman Sachs was founded in 1869 and is headquartered at 200 West Street in Lower Manhattan with additional offices in other international financial centers.

As a result of its involvement in securitization during the subprime mortgage crisis, Goldman Sachs suffered during the financial crisis of 2007–2008,and received a $10 billion investment from the United States Department of the Treasury as part of the Troubled Asset Relief Program, a financial bailout created by the Emergency Economic Stabilization Act of 2008. The investment was made in November 2008 and was repaid in June 2009.

Pic : Goldman Sachs Office , New Jersey.

Several former employees of Goldman Sachs have moved on to work in government positions. Notable examples include former U.S. Secretaries of the Treasury Robert Rubin and Henry Paulson; current United States Secretary of the Treasury Steven Mnuchin; former Under Secretary of State John C. Whitehead; former chief economic advisor Gary Cohn; Governor of New Jersey Phil Murphy and former Governor of New Jersey Jon Corzine; former Prime Minister of Italy Mario Monti; European Central Bank President Mario Draghi; former Bank of Canada and Bank of England Governor Mark Carney; British Chancellor of the Exchequer Rishi Sunak; and the former Prime Minister of Australia Malcolm Turnbull. In addition, former Goldman employees have headed the New York Stock Exchange, the World Bank, and competing banks such as Citigroup and Merrill Lynch.

As of May 2020, the company was ranked 62nd on the Fortune 500 list of the largest United States corporations by total revenue.

V. How Godman Sachs Coined Acronym " BRIC " and Rest is History ?

With GS Research Report, “BRICs” Are Born

In 2001, Goldman Sachs’ Global Investment Research Division publishes the report, “Build Better Global Economic BRICs,” coining the acronym for the four countries that would reshape the world economy– Brazil, Russia, India and China.

Between 2000 and 2009, the pace of growth of emerging economies outpaced that of developed countries for the first time. A 2001 Goldman Sachs Economic Research report focused in on four rapidly growing emerging market countries specifically as key drivers of future global economic growth: Brazil, Russia, India and China. With “Building Better Global Economic BRICs,” a new term entered the investing vernacular.

The paper, authored by Jim O’Neill, then head of Global Economic Research, projected that over the coming 10 years, the weight of the “BRICs”—especially China—in world GDP would grow significantly, and thus so would the global economic impact of fiscal and monetary policy in the four countries. In line with these prospects, the paper argued that the G7 should be adjusted to incorporate BRIC representatives.

Pic : Jim O’ Neill

Other BRICs-oriented research would follow from Goldman Sachs in the ensuing years, including 2003’s paper, “Dreaming with BRICs: The Path to 2050,” which posited that the BRICs countries could overtake the largest Western economies by the year 2039. The BRIC moniker was adopted broadly in financial and economic circles as the original paper’s projections were borne out: India’s economy grew at an average pace of 6.89 percent per year from 2000 to 2009, and China’s soared at a yearly average rate of 10.35 percent.

By the middle of the decade, numerous BRICs-themed mutual funds, ETFs and indexes were created to track this distinct group of emerging economies. The first annual BRIC Summit took place in 2009 in Yekaterinburg, Russia, bringing together leaders of the BRIC countries to discuss policy issues and common challenges. The following year, the group voted to invite South Africa to join, cementing the acronym BRICS.

In 2014, the BRICS Development Bank was established in an agreement signed during the sixth annual BRICS summit in Fortaleza, Brazil. Since renamed New Development Bank (NDB) and headquartered in Shanghai, the institution’s goal is to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging market and developing countries. 

By shining a research spotlight on a select group of emerging economies poised to become the next global growth powerhouses, Goldman Sachs helped both investors and companies frame their thinking and decisions based on a shifting global economic power dynamic. Beyond that, the “BRICs” concept triggered cooperation and collaboration among policymakers in these diverse countries on issues ranging from agriculture, trade, and environmental policies to national security and international finance.

VI. Goldman Sachs - Their Brief Overview of Company

1. What We Do

Goldman Sachs’ Consumer and Investment Management Division (CIMD) works with a diverse range of world-class institutions, high net worth individual investors and retail consumers globally to achieve investment goals and financial well-being and bring an innovative approach to traditional consumer banking. We are one of the world’s largest asset managers, with approximately $1.8 trillion in assets under supervision across asset classes and strategies. Our global professionals are dedicated to helping clients navigate markets and meet their investment goals. We are:

  • Thought Leaders, providing timely insights across macro, tactical and secular themes, to help inform our clients’ investment decisions

  • Investors, offering products and services spanning public and private markets that include fixed income, money markets, public and private equity, commodities, hedge funds, and real estate.

  • Advisors, poised to help provide objective investment advice and products that make sense for our clients.

  • Innovators, providing a suite of digital solutions to help our retail customers meet their financial goals.

*As of December 2019

2. How We’re Organized

Consumer and Investment Management Division ( CIMD )

The Consumer and Investment Management Division includes Goldman Sachs Asset Management (GSAM), Goldman Sachs Wealth Management and our Consumer Business. We serve a diverse range of clients – from individuals to institutions – who trust us to help them save, protect and grow their capital to meet their financial goals.

Goldman Sachs Wealth Management

Within GS Wealth Management, teams are focused on providing a differentiated service offering to clients across the wealth spectrum.

i. Private Wealth Management (PWM)

Our PWM advisors develop and manage relationships with ultra-high net worth individuals, their families, family offices and select foundations and endowments. They help our clients pursue their wealth management goals through tailored advice, astute investment management and access to the full capabilities and network of Goldman Sachs.

ii. Personal Financial Management (PFM)

Our PFM wealth advisors work closely with our high net worth clients to develop and implement a personal financial plan tailored to their personal goals, to help them live the life they want. Our FinLife platform, an end to end client experience, allows advisors to deliver world-class financial advice.

iii. Consumer Business, Marcus by Goldman Sachs

Consumer includes our lending, savings, credit card and financial tools teams, collectively working towards creating the leading platform for millions of customers to take control of their financial lives. Through the use of intuitive design, we provide customers with powerful tools and products that are grounded in value, transparency and simplicity. Within our Consumer business, we are primarily looking for candidates with the following skillsets:

Digital Product & Design professionals identify customer needs, design cutting-edge products and develop roadmaps for growth. They collaborate across lines of business to deliver the best possible experience for our customers.

Data & Analytics professionals help inform our business by analyzing and solving complex problems ranging from marketing strategies and pricing and offer optimization to credit underwriting and risk calculations.

Risk & Fraud Strategy professionals establish policies and procedures to protect our business across credit risk, business risk, fraud strategy and collections.

iv. Who We Look For

CIMD partners with various teams across the firm to help individuals and institutions navigate changing markets and take control of their financial lives. Professionals who have the ability to thrive in a fast-paced environment where attention to detail, strong communication skills, an entrepreneurial spirit, and client service are essential to maintaining and growing our business.

VII. Impact of Goldman Sachs on Global Mergers & Acquisitions ( M&As )

How Goldman Sachs nabbed the top three tech deals of 2019 and took a big lead in M&A

Published Sat, Aug 24, 2019

In the perpetual battle for tech investment banking supremacy, Goldman Sachs has taken a commanding lead this year over its Wall Street rivals, thanks to its top role in the three biggest deals of 2019.

The guy at the center of the action, Sam Britton, is a mountain biking New England transplant who you’ve probably never heard of. He is so publicity averse that he preferred not to have his individual photo at the top of this story (sorry, Sam). He’s a far cry from the swashbuckling Wall Street legends like Bruce Wasserstein, Jimmy Lee and Felix Rohatyn, who once controlled banking and were perfectly comfortable posing for magazine covers.

Pic : Sam Britton, head of tech, media and telecom M&A at Goldman Sachs

Britton, 50, is the head of Goldman’s technology, media and telecom M&A group, which is always a powerhouse in Silicon Valley but rarely has enjoyed this level of dominance.

Normally neck and neck with Morgan Stanley and J.P. Morgan Chase, Goldman has opened up a 12 percentage point market share advantage globally — 39% to 27% — over both banks when it comes to advising tech mergers and acquisitions, according to Dealogic. Last year, Goldman was third. In 2017, it finished first, beating out JPMorgan by less than four percentage points, based on Dealogic’s data.

Asked to explain the recent string of successes, Britton insisted on sharing credit with a team that’s been together for two decades and has advised on every kind of big deal imaginable, whether it’s an IPO, strategic acquisition, private equity buyout or massive asset sale.

“When Goldman is hired to sell a company, we’re not delivering a banker — we’re delivering a composite of experts,” Britton told CNBC in a recent interview. “These are people I’ve been in the trenches with for 20 years.”

From IPO to M&A

Britton’s biggest win of the year came in June, when Salesforce agreed to buy Tableau Software for $15.7 billion, which was by far the largest acquisition ever for the cloud software company in addition to being the most expensive tech transaction of 2019. The second-biggest deal was the sale of Ultimate Software for $11 billion to a consortium of private equity firms, and the third-largest was this month’s $10.7 billion sale of Symantec’s enterprise business to Broadcom.

That’s helped Goldman Sachs capture more than 48% of U.S. market share for tech deals this year, topping Morgan Stanley’s 38%, according to Dealogic. The gap is a bit narrower in the U.S. than it is globally.

The Tableau mandate speaks to how Goldman starts seeking out tech companies well before they become big businesses. Goldman won the lead left spot on Tableau’s IPO in 2013, which Britton attributes to a longstanding relationship between the company’s founders and Goldman’s George Lee, who joined the bank in 1994 and is co-chairman of the global tech group.

Being called on to work on a $15-billion-plus acquisition is the ultimate reward. The 1% or so a bank makes from that sort of deal produces many times the amount of revenue that it gets from the few percentage points worth of fees on a $300 million IPO — about what Tableau raised.


Issuing stocks and bonds is one of the primary ways for a company to raise capital. But executing these transactions requires special expertise, from pricing financial instruments in a way that will maximize revenues to navigating regulatory requirements. That’s where an investment bank usually comes into the picture.

In essence, investment banks are a bridge between large enterprises and the investor. Their primary roles are to advise businesses and governments on how to meet their financial challenges and to help them procure financing, whether it be from stock offerings, bond issues, or derivative products.

In Nutshell, Deciding how to raise capital is a major decision for any company or government. In most cases, they lean on an investment bank – either a large Wall Street firm or a “boutique” banker – for guidance.

MM Rao


A Leaf from the History of Goldman Sachs

Henry Goldman Leaves the Firm

Theme : Leadership

As World War I engulfs Europe, a rift develops among the partners of Goldman Sachs as Henry Goldman asserts his allegiance to Germany and his ancestral roots.  With the death of firm founder Marcus Goldman in 1904, Henry Goldman and his brother-in-law Samuel Sachs became co-senior partners. Together they would preside over substantial growth for Goldman Sachs into the early twentieth century. Henry Goldman’s push to expand the firm was both complemented and tempered by the risk-wary Samuel Sachs. Among their accomplishments was Goldman Sachs partnering with Lehman Brothers (and Henry Goldman’s good friend Philip Lehman) to establish inroads into the insular world of investment banking by targeting clients such as United Cigar (1906), Sears (1906), and Woolworth (1912).

But when Germany declared war on Russia and then France and the United Kingdom in August 1914, following the assassination of Archduke Franz Ferdinand, heir presumptive to the Austro-Hungarian empire, a schism emerged among the leaders of the firm. While the majority of partners clearly backed the Allies, Henry Goldman was a vocal supporter of Germany, a situation encountered at other German-Jewish firms where partners had family, personal, and business connections with Germany, such as Kuhn, Loeb & Co.

Despite entreaties from his partners to tone down his sentiments, Henry Goldman was defiant. His very vocal and problematic support of Germany sowed much discord with the other partners, particularly during negotiations of the Anglo-French private loan of 1915 floated by J. P. Morgan & Co. (to which Samuel and Harry Sachs subscribed personally) and the June and October 1917 3½ percent and 4 percent Liberty Bonds financing the US war effort. His sympathies posed a particular risk to the firm’s business in London through Kleinwort, Sons & Co. 

As the war progressed, Henry Goldman’s position within the firm proved untenable. In October 1917, he retired from the partnership after 35 years, taking with him significant capital. With the departure, the firm would lose a long-time leader and a vast network of contacts for its underwriting business. Waddill Catchings would replace Henry Goldman as partner in charge of industrial financings.

The departure would also lead to a rift between the Goldman and Sachs families that would last for decades. Henry Goldman and Samuel Sachs never spoke again. In the 1920s and 1930s, Henry Goldman would travel to Germany, where he witnessed firsthand the fall of the Weimar Republic and the rise of Hitler’s Nazi regime. This article was originally published as part of a series commemorating the 150th anniversary of Goldman Sachs’ founding in 1869.

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MM Rao
MM Rao
11 nov 2021
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