How Goldman Sachs is changing its culture to win more deals

Key Points
  • Goldman is responding to a revenue slump by seeking to drum up another $500 million by moving senior bankers far from Wall Street to be closer to clients.
  • The regional push has resulted in more than 75 new deal agreements, including ones for GFL Environmental and KMG Chemicals.
  • Goldman is holding a CFO conference in Seattle for the first time on Tuesday, with executives from Amazon, Apple and Microsoft expected to attend.
David Eisman, Goldman Sachs partner.
Source: David Eisman

David Eisman built his reputation off sealing a $13.7 billion merger between Amazon and Whole Foods last year. A crucial part of the Goldman Sachs partner's success: Going local.

Months before that transaction was announced, Eisman's relationship with Amazon got closer when the Los Angeles-based investment banker decided to uproot his family and move 1,350 miles to Seattle, where the retail giant is based. As part of a new regional push, Goldman announced last year that Eisman and three other senior bankers were starting or expanding offices in Seattle, Atlanta, Dallas and Toronto to shrink the distance to clients.

This is the new Goldman Sachs: hungrier and perhaps ever-so-slightly more humble.

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The banker moves are an effort by Goldman to drum up another $500 million in revenue by 2020. It's a key component of a bigger plan by Chief Executive Officer David Solomon to boost revenue by $5 billion by broadening its banking and trading client base, finding growth in smaller markets and pushing into retail products like personal loans. Solomon's main challenge is to improve results that have been stung by a multiyear downturn in trading revenue.

The new strategy puts it in direct competition with J.P. Morgan, which decided in 2012 to place investment bankers in regional offices to pitch commercial banking clients. Dimon's gambit worked: J.P. Morgan boosted investment-banking fees for the segment to $2.3 billion from $800 million. They hope to reach $3 billion in revenue within 3 years.

Goldman has from six to 15 bankers in each of these new offices, according to Matt Gibson, co-head of the bank's global investment banking services. While the firm already had outposts in San Francisco, Houston and Chicago, the vast majority of bankers work from the firm's New York headquarters.

"There's that much more trust that your interests are aligned because you don't want to screw it up if you're going to have to answer to someone who's effectively a neighbor," Eisman said. "There's a level of comfort that you're going to be accountable and have their side of the equation. It only increases the closer you are in proximity and the more time you spend together."

Goldman figures that if it can embed its people into communities where executives and board members live, they can win more business with big corporations they already cover and smaller public and private companies that the bank has historically ignored.

How the Whole Foods deal came about

For half a decade, the Goldman partner had quietly been in discussions with Amazon about a radical, category-defying deal that would mark a series of firsts.

It would be the e-commerce giant's first big move into physical stores. The potential acquisition would give Amazon scale in grocery, a $5.7 trillion category that had mostly eluded it. And it would be the biggest takeover that Jeff Bezos had yet to attempt.

But Eisman, 47, was still surprised to get the call from Amazon on a Sunday afternoon in May 2017: it wanted Whole Foods. Things were moving quickly after activist hedge fund Jana took a stake in the organic food chain weeks earlier. Suddenly, the years Eisman and his colleagues had spent courting Amazon were about to pay off: Goldman Sachs became the sole adviser and lead financier for the deal announced that June.

From casual discussions Eisman had with Amazon over the years to the actual takeover talks, discretion was paramount, he said.

"As much as everybody thinks they know everything, this is a company where they don't assume they know everything, and they spend a lot of time studying," Eisman said. "We spent years working with them on retail, and these are sensitive topics. If Amazon telegraphed to the world that it was thinking about physical retail, it would've sent shock waves years before the deal happened."

While Eisman thinks he would've gotten the nod even if he hadn't moved his family to Seattle, it solidified the relationship with Amazon, he said. Living closer to clients results in more meetings and social interaction, including a night out with Amazon's mergers chief, Peter Krawiec, and their wives, he said.

Goldman Sachs CFO Martin Chavez to leave for securities division
Goldman Sachs CFO Martin Chavez to leave for securities division

Goldman probably earned about $55 million in fees from Amazon's purchase of Whole Foods, according to an estimate from Jeff Nassof, a director at Freeman Consulting Services.

Eisman doesn't have deep roots in Seattle. He grew up in Southern California and attended UCLA. He left law firm Sullivan Cromwell in 1998 to join Goldman Sachs, spending a decade in New York before moving his family to Los Angeles to cover West coast-based companies including Nike.

Still, he had one thing working for him when he got to town: his business card says "Goldman Sachs."

The 149-year old investment bank is still the pre-eminent brand in investment banking, despite the company's trading-related struggles and the rise of new competitors, including J.P. Morgan.

The aura translates into real dollars: Goldman is the world's top merger advisor, with a hand in $1.02 trillion worth of deals so far this year, according to Dealogic. That's ahead of Morgan Stanley and J.P. Morgan.

Goldman gets paid when a company buys or sells itself or a target or taps capital markets to raise money, but its real product is access. The connections its bankers have, in combination with their expertise in industries, leads to a virtuous cycle of more introductions and deals.

First Seattle conference

That will be on display Tuesday when Goldman holds a conference for corporate finance chiefs in Seattle for the first time. Amazon's retail chief, Jeff Wilke, is scheduled have a fireside chat with Eisman in the company's Sphere conservatory, he said. Amazon, Apple and Microsoft executives will be interviewed by bankers including Dan Dees, co-head of Goldman's investment banking division. Another co-head, Gregg Lemkau, will host a private dinner for clients. Solomon, who officially became CEO last week, will make an appearance as well.

The CFO event is something that probably would've been held in New York in the past, but the center of gravity has shifted recently with the rise of powerful tech titans.

The lure of access — of tapping into a high-level, human-run social network — can be powerful. "I've literally hosted the chairman of a big Chinese company" for meetings in Seattle, Eisman said. "They want to meet Amazon and tour Whole Foods and meet the guys at Costco. These guys are global phenomena."

But simply being local doesn't seal the deal, Eisman said. It's a combination of timing, industry knowledge and the unpredictable nuances of the human element.

"There have been times where we've had the local thing and we should've lost the deal, but the client is like `I don't really want to tell these guys no because I like them and they're here,'" Eisman said. "But I've also been in pitches for business where we've had the local element and lost anyway."

Goldman says that the 20-month old plan is already boosting the bottom line. In March, the bank said it was a third of the way to its goal of covering another 1,000 companies and that it had gotten 75 new mandates as a result of the strategy.

In April, Goldman helped GFL Environmental, a Toronto-based waste management firm, get funding from private equity investors at a $5.13 billion valuation. More recently, a cold call from a Goldman banker helped it win a mandate for a $186 million stock issuance for Fort Worth, Texas-based KMG Chemicals.