Unlocking Value At Goldman Sachs: Leveraged Buyout?

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The point of our new Big Idea feature is to get the conversation started. Our very first item is fortunately proving the concept. The question of what to do to unlock hidden value at Goldman Sachs—we suggested spinning off the hedge fund business—is getting talked about.
This morning we discussed Thorold Barker’s proposal for a Goldman Sachs Glasnost. (Risk factor: look how well openness worked out for the Soviets!) The second proposal of the day comes from future Portfoliofinancial blogger Felix Salmon, who thinks that the DealBreaker and Financial Times ideas aren’t radical enough.
Felix writes:

Blackstone, or KKR, or Silver Lake, or someone along those lines, should just buy Goldman already. People have been talking about the first $100 billion private-equity deal for some time now – and this could be it. Goldman is a great PE target: an undervalued company with highly-paid managers who historically have hated the idea of a public listing, with all the disclosure requirements associated with it.

Could Blackstone actually buy Goldman? We asked a couple of investment bankers about this idea. Most thought the idea was far fetched until they took a look at the math. A private equity firm would have to pay-up some premium above the $85 billion market capitalization for Goldman. So pencil it in at $100 billion. Sounds ridiculous until you remember that a couple of private equity firms are trying to buy a Texas energy company for around half that. Maybe a private equity shop spending $100 billion to own a premier global financial institution isn’t so far-fetched.
Our bankers raised a couple of objections, however, that you’ll probably want to keep in mind.
“Where would they get the financing?” one banker asked. He pointed out that Goldman, at least, probably couldn’t finance the acquisition of itself. What’s more, other investment banks might be hesitant to leap into the financing of an acquisition aimed at making one of their fiercest competitors even fiercer.
“There’s no way Goldmans PMD’s want to work for Steve Schwarzman,” another said. And that might actually be the stake through the heart of the idea. Goldman’s partnership is probably not eager to put themselves under the control of a private equity firm. “After all,” you can imagine them thinking, “this is Goldman Sachs!”
Could Goldman Sachs be a private-equity target? [Felix Salmon]
Earlier on DealBreaker:
Unlocking Value At Goldman Sachs: Spin-Off or Transparency? [4.11.07]
Will Goldman Become the Next Public Hedge Fund? [4.4.07]

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