In a sign that deal activity is picking up in the banking sector, Goldman Sachs (GS) disclosed in a regulatory filing that it is set to earn $92 million in advisory fees. This fee will be earned after advising Kellanova (K), the Pringles and Pop Tarts maker, on its $36 billion sale to Mars.
Additionally, Lazard, an asset management firm that advised Kellanova’s board on the deal, stands to earn $10 million. It is worth noting that the majority of the fees earned by both Lazard and GS are dependent on the deal closing successfully.
Why Is the Fee Earned by GS Significant?
Given this context, this fee is significant, even by Wall Street standards, especially considering the size of the transaction. Mars’ $36 billion acquisition of Kellanova is the largest U.S. merger announced this year, according to a Financial Times report.
Interestingly, the fees earned by GS for this deal become even more significant compared to other deals done by Goldman Sachs last year. For instance, according to the FT report, Goldman Sachs earned $46 million in fees last year for the $65 billion sale of Pioneer Resources.
It is important to note that sell-side fees are paid to banks as a percentage of the deal value in M&A activity. For especially large deals, long-term advisors earn higher sell-side fees as they lose their clients after the deal closes.
Goldman CEO Noted that Deal Activity is Slow
Furthermore, David Solomon, CEO of Goldman Sachs, noted in an interview with CNBC on Wednesday that deal activity has been slower to return to its 10-year averages as financial sponsors have been slower to monetize their portfolios, partially due to higher asset valuations.
Overall, Goldman’s hefty fee highlights Wall Street’s growing optimism about dealmaking, which had been slow due to rising interest rates and strict antitrust policies.
Is GS a Buy Right Now?
Analysts remain bullish about GS stock, with a Strong Buy consensus rating based on 13 Buys and four Holds. Over the past year, GS has surged by more than 40%, and the average GS price target of $531.69 implies an upside potential of 12.8% from current levels.
