What's Next for Direct Listings and IPOs?...Talks at GS with Nobel Laureate Dr. Denis Mukwege...Investing in German Companies

[Goldman Sachs]( [BRIEFINGS] October 14, 2019 Podcast: What’s Next for Direct Listings and IPOs? Above (L to R): Jake Siewert and Will Connolly of Goldman Sachs, Barry McCarthy of Spotify, and Greg Rodgers of Latham & Watkins Direct listings — in which companies place shares held by existing shareholders directly into the public market, rather than selling shares through traditional IPOs — are generating interest among companies seeking a path to the public markets. A number of factors, including evolving market dynamics, increased information availability, more sophisticated technology and larger private capital pools, are driving interest in this approach, according to Will Connolly, head of Technology Equity Capital Markets within Goldman Sachs’ Investment Banking Division. “Companies’ needs and objectives are changing,” Connolly said during an episode of Exchanges at Goldman Sachs recorded at the Goldman Sachs Private Innovative Company Conference. “And when those needs and objectives change, it makes sense that people would seek out new ways to enter the public markets and seek out a more diverse set of approaches to enable them to be successful against their objectives.” [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Podcast%3A%20What%E2%80%99s%20Next%20for%20Direct%20Listings%20and%20IPOs%3F&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fpodcasts%2Fepisodes%2F10-11-2019-connolly-mccarthy-rodgers.html) Talks at GS with Nobel Laureate Dr. Denis Mukwege Above (L to R): Asahi Pompey of Goldman Sachs and Dr. Denis Mukwege In the Democratic Republic of the Congo, where sexual violence against women is used as a strategy of war with devastating consequences, Dr. Denis Mukwege has treated more than 50,000 victims since opening Panzi Hospital in Bukavu in 1999. Last year, Dr. Mukwege received the Nobel Prize for his pioneering, holistic approach to treatment and for championing the rights of abused women around the world, which he discussed during a recent episode of Talks at GS. Dr. Mukwege says the Nobel Prize for his work has created “a new platform and we can talk about this question more freely than 20 years ago. And this is very positive because when we don't talk about the question, you can't find solutions for the question... [Sexual violence] is happening everywhere. Everywhere we have statistics — in our home, in the street, in the work, everywhere we have this problem. But I think that starting to talk about it is also to start to get solutions.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%20with%20Nobel%20Laureate%20Dr.%20Denis%20Mukwege&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Ftalks-at-gs%2Fdr-denis-mukwege.html) The Long & Short of It: “Japanification” of Europe? Above: Sharon Bell of Goldman Sachs Europe’s slow economic growth and low inflation have led some market watchers to draw parallels to Japan’s “lost decade,” the period of stagnation following the country’s asset bubble burst. But Sharon Bell of Goldman Sachs Research says that while there are similarities between the two regions, Europe is not experiencing “Japanification,” thanks to industries with significant international exposure and a leadership position in renewables. “Europe will never be exactly like Japan, and there are many ways and industries that Europe is developing now which have potential for very strong growth in the future,” Bell says. [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Long%20%26%20Short%20of%20It%3A%20%E2%80%9CJapanification%E2%80%9D%20of%20Europe%3F&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fpages%2Fjapanification.html) Briefly…on Investing in German Companies Faced with geopolitical uncertainty, a slowing economy and negative yields, more than 180 German companies shared their strategies and challenges with investors at Goldman Sachs’ eighth annual German Corporate Conference, held in Munich last month. We sat down with Goldman Sachs’ Michael Schmitz, co-head of the Securities Division in Germany and Austria, to discuss key takeaways from the event. Michael, based on your conversations with clients, what is the sentiment among investors and German corporates? Michael Schmitz: There was a divergence in sentiment between investors, who were rather negative, and corporate clients, who were cautiously comfortable. Investors, for their part, focused on current economic data which indicated that a slowdown in global trade was weighing on the German manufacturing sector and the DAX stock market index. Meanwhile, German corporations, which have gotten used to operating in a volatile environment, have been guiding earnings expectations lower since the second quarter. The German economy has slowed significantly since 2018, and we expect a technical recession (two negative quarters of growth) in the second half of 2019. However, we do not expect a deep downturn and we believe there’s scope for improvement if and when there’s a pause in the global trade conflict and a Brexit resolution is found. Moreover, support for measured fiscal expansion (including green investment) seems to be gaining political traction in Germany, while the European Central Bank’s latest stimulus package ensures that financial conditions remain accommodative. Indeed, with regard to German equities performance, the picture is not that dire. The DAX is up 18% year-to-date through September. How do you explain that? MS: We think this relative resilience is a function of changes in the German index. While the DAX still has exposure to the slowdown in global trade -- with 15% in China and 35% in industrials, chemicals and autos -- the technology sector now makes up 13% of the index, which is a higher proportion than any other blue-chip index in Europe. Other growth or growth-defensive sectors, such as healthcare and real estate, have also increased as a proportion of the DAX. These sectors tend to do well in a low-inflation and falling yield environment. Altogether, we think the DAX is fairly valued compared with the rest of Europe. Could you share a few thoughts on the negative yield environment in Germany and how companies are thinking about their capital allocation strategies? MS: Over the course of the three-day conference, the topic of corporations’ capital allocation priorities dominated the discussion. Negative yields have incentivized corporates to borrow more and increase buyback activity, resulting in a shrinkage of equity supply as a percentage of market cap. In addition, investors were also focused on whether companies were planning to use their cash to engage in M&A. What are potential challenges that could test the ability of the German economy to deliver long-term growth? MS: The country still has a strong industrial base which is currently undergoing a profound transformation. Investors are observing closely how companies are addressing four major challenges. First, the automobile industry is facing a major transformation as it transitions from manufacturing combustion engines to electric vehicles. Second, there’s a potential for some degree of deglobalization given current economic and political developments. This will have implications on many levels for Germany as its manufacturing sector is tightly integrated into global value chains. Third, companies will need to continue to invest in the digitization of production processes, which is likely to raise productivity and businesses’ ability to customize production on a larger scale. Finally, as climate change becomes an ever-more important topic, German companies have to reduce their carbon footprint. This transition will not be easy and, in some cases, entire business models will need to be redefined. What do you think the prospects are from here? MS: The ability of the German economy to cope with these structural challenges will be decided by its overall innovative capacity and policy responses. Germany has always been known for its innovative strength. Given this, we are optimistic that the country will be able to cope with the structural challenges mentioned earlier. Also, Germany has some distinctive advantages: low debt, high savings, low financing costs and a highly-qualified workforce. These factors will not insulate it from the shorter-term headwinds, but should provide the basis for longer-term growth and prosperity. From an investment perspective, many of the German equities we like fall into one of four categories: fast-growth or disruptive retailers, technology, real estate and companies focused on renewables. [Read Q&A]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly%E2%80%A6on%20Investing%20in%20German%20Companies&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fpages%2Ffrom_briefings_14-Oct-2019.html) Goldman Sachs Media Highlights Marketplace - October 9 [How bowling shoes help explain the repo market]( CNBC - October 9 [Goldman Sachs is crowdsourcing start-up ideas from its 36,000 employees]( Bloomberg - October 8 [Goldman Sachs helps loan $1.45 billion to women entrepreneurs]( CNBC - October 8 [5G won’t bring much to the iPhone: GS Apple analyst]( (3:19) [Subscribe]( [Unsubscribe]( The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. 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