Executive Blog

Commentary: “Goldman seeks more middle-market deals.”

In a recent article on Yahoo! News analyst Joseph Gian­none, discusses Goldman Sachs’ move towards more middle market com­panies. Typically in the past, the colossal Goldman Sachs has gone after blue-chip companies with its average deal size around $3 billion. The middle market is "an area historically we do not cover very well," said Goldman Sachs Chief Executive Lloyd Blankfein during a Merrill Lynch investor conference in November. He said middle-market deals will be a top priority.

The new direction taken by Goldman Sachs demonstrates the new finan­cial resources that are becoming available to both middle-market compa­nies and even small business. As financial institutions across the board are seeking more profits and have technology that allows more ef­ficient client servicing, these institutions are moving to capture smaller and smaller clients. Thus we are seeing large power­houses like Goldman Sachs moving into the middle-market sectors. Similarly regional banks that once only served the mid­dle-market segment now are mov­ing to serve more aggressively small business client.

As Giannone’s article as points out, companies should also be wary when larger players like Goldman Sachs enter the game. These institutions are taking a profit risk by loss of fee sizes from smaller middle-market com­panies. Where they are trying to make up for this is in auxiliary services such as M&A advisory, direct principal investing, and other activities that they typically don’t perform for large-cap corporations. However, if profits don’t materialize as projected, these large institutions could easily pull out causing havoc for the mid­dle-market sector.

Other groups such as CitiBank and Merrill Lynch will be following suit with Goldman Sachs. In short, middle-market executives are wise to take advantage of these big name capital institutions entering the market. However, they should do so cautiously and with the use of out­side fi­nancing consultants and investment advisors before teaming with the big boys.

posted by Michael Anders @ Monday, February 19, 2007