M&A Outlook...Talks at GS With Jane Goodall, Ethologist and Conservationist...Tokyo's First Social Bond

[Goldman Sachs]( [BRIEFINGS] August 5, 2021 M&A Outlook: How Companies Are Positioning for Growth Equipped with high cash reserves and low financing costs, companies have been on a record-breaking M&A spree for months now, and according to Goldman Sachs’ co-heads of global M&A, they show no signs of slowing down. “Clients believe we are entering—and we are in—a period of sustained above-trend global growth and want to take advantage of that,” explains co-head Mark Sorrell in the latest episode of Exchanges at Goldman Sachs. “Many clients have taken cost out, repaired balance sheets, done a lot of self-help and focused on organic growth.” His fellow co-head Stephan Feldgoise adds that a lot of the activity is concentrated among companies in the $500 million to $10 billion range. “That's been the engine room of M&A throughout this boom; I expect that to continue,” he says. “That's also prime striking ground for private equity, and it's prime striking ground for SPACs. It's prime striking ground for large corporates that want…[to add to or strengthen] their existing business.” [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=M%26A%20Outlook%3A%20How%20Companies%20Are%20Positioning%20for%20Growth&body=https%3A%2F%2Fyoutu.be%2FEovMGY7krcw) Talks at GS With Jane Goodall, Ethologist and Conservationist Above (L to R): Stefan Bollinger of Goldman Sachs and Jane Goodall, ethologist and conservationist Since arriving in Tanzania’s Gombe Stream National Park in 1960, Jane Goodall has revolutionized how we view other primates such as chimpanzees, and has expanded that work to educate the world on animal rights and natural preservation. It was not a given her work would succeed, she explained in a recent episode of Talks at GS. “I was shocked when I got to Cambridge and was told the chimpanzees should have been numbered, not named. That's more scientific. And you shouldn't talk about them having personalities, minds capable of problem solving,” she said. “But I knew they were wrong.” Since her paradigm-shifting discoveries about chimpanzee behavior, Goodall has expanded her work to look at the conditions surrounding chimps and their human neighbors—and how environmental degradation is a threat to both. “I learned about the plight of so many African people living in and around chimp habitats. The crippling poverty, the lack of good health and education facilities, the degradation of the land as populations grew,” she said. “And that's when it hit me: If we don't help these people find ways of making a living without destroying the environment—cutting down the trees to get some fertile soil to grow food or to make charcoal—if we can't do that, then we can't save chimpanzees, forests or anything else.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%20With%20Jane%20Goodall%2C%20Ethologist%20and%20Conservationist&body=https%3A%2F%2Fyoutu.be%2FyMx0tvmXnFw) Briefly…on Tokyo’s First Social Bond In June, the Tokyo Metropolitan Government (TMG) made history when it sold the first municipal social bond ever issued in Japan—and saw a record-high participation rate from international investors. We spoke with Satoru Kawahito and Hiroaki Kasai from Goldman Sachs’ public sector and infrastructure team in the Investment Banking Division to discuss the transaction and what it means for the future of the public sector funding space in Japan. This was a first-of-its-kind issuance in Japan. Can you give us some background on the transaction? Satoru Kawahito: There has been a surge in social bond issuance over the past year or so, as the COVID-19 pandemic continues to highlight inequalities that require new solutions and the financing to implement them. In March, the Tokyo Metropolitan Government updated its long-term vision, recognizing the profound impact the pandemic has had on the city. Centered on the two pillars of structural reform and sustainable recovery, the plan consists of 21 strategies designed to create a safe, attractive and enjoyable city where citizens have an equal chance to fulfill their potential. Social bonds, where proceeds are earmarked specifically for projects with a measurable social benefit, were a natural choice to help fund these plans. TMG’s debut, 30 billion yen five-year bond, which priced in June, will help fund schools for children with special needs, programs to support mothers returning to the workforce and a low-cost loan facility for small- and medium-sized enterprises impacted by the pandemic, among other projects. What drove such strong demand? Satoru Kawahito: Institutional interest in ESG investing has grown exponentially over the last few years. While environmental issues have been at the vanguard of socially responsible investing, the experience of the pandemic and its human toll has renewed focus on the social element of ESG and, in turn, fueled global investor appetite for social bonds. Hiroaki Kasai: Last fall, we helped TMG tap into this demand by issuing a 60 billion yen, five-year “COVID-19 response bond” to fund rescue financing for cash-strapped local businesses. Given the urgent need, TMG prioritized time to market and opted out of seeking an independent second opinion for the issue. Instead, we helped TMG explain its fundraising plans directly to investors through a series of online sessions. While the bond attracted significant demand and priced tightly, certain investors couldn’t participate in the offering since their mandates required accreditation for ESG investments. Since then, TMG has drawn up a social bond framework based on the International Capital Market Association’s Social Bond Principles. We helped TMG structure its debut social bond based on this framework and included a second opinion from an established local ratings agency, which made the offering accessible to a wider ESG investor community. As a result, the bond priced at the tightest level since March 2020 for a Japanese local government bond, with a yield of just 0.005%, or 75% lower than the earlier COVID-19 response bond. The vast majority of Japanese local government yen debt is held domestically, yet this offering attracted one of the highest-ever participation rates from international investors for a Japanese municipal bond. Why was that? Satoru Kawahito: Whether based in Japan or overseas, investors’ motivations are essentially the same: a commitment to ESG and a desire to contribute to pandemic relief. However, when you consider that the deal saw participation even from first-time investors in yen-denominated debt, we think a few other factors were also at play. Hiroaki Kasai: First, the offering size, at 30 billion yen, made it easier for larger international ESG-focused investors to take part. To date, Japanese municipal ESG issues, particularly green bonds, have often been around 5 to 10 billion yen in size, making it difficult for larger investors to secure their minimum purchase size. Second, the rarity value and Tokyo’s brand were also important. While social bond issuance from Japan has risen from 35 billion yen in 2016 to 915 billion yen in 2020, issuance levels are still well behind the U.S. and Europe. As investors around the world hunt for yield, there is always an added degree of interest in debut issues—all the more so if they come from a high-quality issuer and with a credible ESG label. With an economy bigger than Turkey’s and annual bond issuance of around $8 billion (U.S. dollars), Tokyo is a well-established issuer in the global capital markets with an excellent credit history. International investors who may have been interested in last year’s COVID-19 response bond but chose to stay on the sidelines were now able to take part in a fully accredited issue. Finally, Japan’s local government bond market is second only to the U.S. in scale, with $57 billion of issuance in fiscal year 2018. Globally, Japanese local government non-yen debt has a loyal following in the international investor community, who is attracted by the country’s strong credit record, excess spreads over Japanese government bonds and robust investor protection regime. We were able to help TMG tap into this existing investor base, too. [For more on the local implications, read the full Q&A.]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly%E2%80%A6on%20Tokyo%E2%80%99s%20Debut%20Social%20Bond&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Fbriefly%2Findex.html) Goldman Sachs Media Highlights Bloomberg - July 29 [Buy the Dip Mentality Makes Sense, Says Goldman’s Oppenheimer]( (2:18) [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. Goldman Sachs has no obligation to provide any updates or changes to the data. No investment decisions should be made using this data. 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