(Corrects to fix spelling of name in 17th paragraph and to remove quote in third paragraph of story that originally ran on May 31.)
Sometimes deals that never happen are the best kind -- at least for Goldman Sachs Group Inc. (GS)
In recent months the New York-based investment bank failed to put together three potential mergers in the health-care industry. Yet Goldman Sachs managed to pull a takeover out of the wreckage --Valeant Pharmaceuticals International Inc. (VRX)’s $8.7 billion acquisition of contact-lens maker Bausch & Lomb Holdings Inc., announced this week.
Goldman Sachs not only salvaged a role for itself, it landed on both sides of the deal and is likely to reap as much as $35 million in advisory fees along with the largest portion of as much as $140 million in financing fees, according to Freeman & Co., a New York research firm. The bank is arranging debt financing to Montreal-based Valeant, while serving as lead adviser to Bausch & Lomb, according to the companies’ statement on May 27.
The feat comes as Goldman Sachs leads rivals in number of deals done so far this year while trailing in third place in dollar volume, according to data compiled by Bloomberg. Through May 30, Goldman Sachs had worked on 107 deals, compared with 66 for JPMorgan Chase & Co. (JPM) and 57 for Bank of America Corp.
“The league tables become very important,” said Michael Mazzeo, finance professor at the Eli Broad School of Management at Michigan State University in East Lansing. “If you’re consistently on top, it denotes superiority. So they will keep finding a deal until it works.”
Michael DuVally, a spokesman for Goldman Sachs, declined to comment.
In total deal size, Bank of America leads with $171 billion followed by JPMorgan’s $149 billion, the data compiled by Bloomberg show. Goldman Sachs, the leading M&A advisory firm in 2011 and 2012, has advised on about $140 billion in deals this year.
The bank had no role in the $23 billion acquisition of H.J. Heinz Co. by Brazilian investment firm 3G Capital and Warren Buffett’s Berkshire Hathaway Inc., announced in February.
Goldman Sachs also worked for a group of private-equity firms in its bid for life-sciences equipment maker Life Technologies Corp., people with knowledge of the matter said. That company instead agreed in April to be bought for $13.6 billion by Thermo Fisher Scientific Inc. (TMO) in the largest health-care deal this year, leaving Goldman Sachs out of the money.
In the recent spate of health-care deals, Goldman Sachs was aided by representing each of the pivotal companies in various roles.
Goldman Sachs was hired in December to shop Rochester, New York-based Bausch and tried to sell the company for at least $10 billion, people familiar with the process said in January. When that effort failed -- a person with knowledge of the situation said price expectations were too high -- Bausch started interviewing banks in February for an initial public offering.
Rivals JPMorgan, Bank of America and Citigroup Inc. landed the lead advisory positions while Goldman Sachs was relegated to a minor role.
Around the same time, Goldman Sachs was working with Valeant in its attempt to buy rival drug maker Actavis Inc., according to two people familiar with the matter. Howard Schiller, who became Valeant’s chief financial officer in 2011, previously worked for Goldman Sachs for more than 20 years.
The firm was on the losing side a second time when Activis rebuffed Valeant and instead agreed to buy Warner Chilcott Plc in early May.
Goldman Sachs wasn’t sidelined, though. The rejection left Valeant to set its sights on Bausch & Lomb -- and Goldman Sachs had a role with both companies. Meanwhile, Goldman Sachs had also represented Chilcott in a failed attempt to find a buyer last year. Chilcott later named Deutsche Bank AG as adviser in the Activis deal to avoid the appearance of a conflict, as Goldman Sachs was already representing Valeant.
Fees for the Valeant-Bausch deal dwarf what Goldman Sachs would have made as a secondary underwriter on the IPO, said Lam Nguyen, a director at Freeman.
Goldman Sachs is likely to get around half of the $50 million to $70 million for sell-side advice to Bausch & Lomb, Nguyen estimates. JPMorgan would get the rest.
Lenders are likely to earn 1 to 2 percent on the amount they finance for Valeant, or $70 million to $140 million, according to Freeman, with Goldman Sachs probably receiving the largest portion.
While banks with mandates on both sides of a deal can be vulnerable to criticism about being conflicted and not getting the seller the best price, Goldman is unlikely to face complaints in this case because Bausch & Lomb is closely held, owned by Warburg Pincus LLC, said Antony Page, vice dean of Indiana University School of Law in Indianapolis.
“I’m not too concerned about Warburg since they are sophisticated and aware of the potential to be compromised,” he said. “It’s awkward but investment banks face a lot of conflicts of interest.”
To contact the editor responsible for this story: Jeffrey McCracken at email@example.com