Goldman Sachs TMT Investment Banking: What You Need to KnowPublished:
Within Goldman Sachs, by far the most popular and competitive coverage group to get into is Tech, Media, and Telecom (TMT). In fact, GS TMT is arguably the most coveted group within all of investment banking even though for years Goldman paid their analysts well below what Evercore, Centerview, etc. did.
Note: It should be pointed out that Goldman has finally capitulated and has mostly gotten rid of the so-called Goldman discount in 2021 (although the all-in compensation at a place like Centerview will still be notably higher).
GS TMT's popularity among aspiring bankers is a function of a few different things.
First, it's been an incredibly consistent group when it comes to deal flow. Despite quite a bit of turnover among the partners, GS TMT has always been at or near the top of TMT league tables for the past decade. Further, over the past decade TMT has consistently brought in the most deal flow and deal fees within GS.
Second, it's been an incredibly consistent group when it comes to exit opportunities. Whether you want to go the mega-fund PE route or to a Tiger Cub, you will reliably get looks at top firms. Of course, joining any given bank or group doesn't guarantee anything. But half the battle is getting headhunters to make the necessary introductions, and by joining GS TMT you will ensure that happens.
Ultimately, everything in banking boils down to looking at some level to precedence. Goldman Sachs TMT has been consistently considered to be a top group for so long that the recruiting pipeline is relatively solidified. So, if you're looking to maintain the most optionality possible in what you can do post-banking, then there is likely no better group than GS TMT.
The Goldman Sachs TMT Working Conditions Survey
Chances are you're already familiar with the fact that some analysts in the San Francisco office of GS TMT put together a slightly on the nose anonymous presentation on their "working conditions". This was released internally, but leaked as everyone should have anticipated. Here's just one of the slides from the deck:
Because anything related to Goldman Sachs always draws the attention of the media, when this deck was leaked to the media it created a fire storm. Generally speaking, those who had never spent any time in banking were appalled and incredulous, while those who had spent time in banking were somewhat apathetic to the whole thing.
We've uploaded the entire presentation here if you're curious, and we'd also recommend reading Matt Levine's column that he wrote after the presentation was released for an alternative perspective on the whole issue (Matt said that he thought Goldman would respond to the whole fiasco by just raising salaries and bonuses, which is exactly what Goldman and nearly every other bank did).
While we may put together another post dedicated solely to discussing banking hours and how to get through them, we'd just say this: GS TMT has always been typified by extraordinarily long hours (even by banking standards) and a somewhat stiff culture.
The kinds of hours that are expected of analysts in GS TMT - which have always been 80 to 100 hours a week with the occasional slow week of around 70 hours - is pe se unsustainable over a long enough time horizon.
However, in the past these hours were somewhat easier to deal with for a few years due to the comradery of being around other analysts at the office; taking walks around 200 West at night, eating late-night dinners together, etc.
For analysts in 2020-21 not only were the faced with the deal flow arising from SPACs, but one also was working from home without any of the superficial novelties that come along with working at a place like GS. Further, this was all compounded by the difficulty of trying to explain concepts, what deliverables you want, etc. virtually, which resulted in young analysts getting up the learning curve much more slowly (creating frustrations for everyone).
Anyway, the takeaway point here is that if you join any group that has stellar deal flow and exit opps, you should expect to work an uncomfortable amount. It sound relatively easy in theory, but is much more difficult and miserable in practice as those at GS TMT SF found out.
Goldman Sachs TMT Interview Questions
Below are some TMT interview questions that you should know. Given that Goldman Sachs TMT is by far the most popular coverage group, you should expect to be slightly grilled during the group selection process.
What's most important is to have a relatively holistic understanding of what kinds of companies are housed within TMT (they aren't just all tech SPACs!), and having some idea of how to think about them.
- If you could only look at one metric to determine how healthy a telco is, which would you choose?
- What do you think is behind the increased level of tech M&A over the past few years?
- For tech companies that have lots of recurring revenue, what will they have a lot more of than most companies that bill one-off for their goods or services?
- What have been some notable Goldman TMT deals recently?
One of the most critical things to do in any TMT interview is try to demonstrate that you understand the rough contours of the telecom and media side of TMT (which is why we put together the TMT guides).
This is because the vast majority that try to join a TMT group are doing so either because they know TMT is a popular group to join, or because they exclusively want to work on high flying tech startups. However, the telecom industry is an absolutely fascinating one, especially when it comes to the physical infrastructure side of things.
Anyway, unlike tech companies, telcos are generally incredibly capital intensive. So, when it comes to determining whether or not that capital is being used productively (which would be a primary signal of overall health), you'll look at the spread between ROIC (return on invested capital) and WACC (weighted average cost of capital).
A source of contention among activist investors when it comes to telcos generally is that certain segments of their business are cash cows (ROIC > WACC), while others are viewed as being cash drains (ROIC < WACC). So, activist investors are often lobbying telcos to divest these cash drain portions of the business to create greater capital efficiency and (hopefully!) shareholder returns.
This is indicative of the kind of question you'll get in a superday when interviewing with more senior member of the firm, or when going through the group selection process (if your initial banking interviews weren't for a specific group).
Of course, there's no objective right or wrong answer to this question. What the interviewer is looking for is that you can come up with a coherent list of points that touch on some (but not all) the major themes in play. In other words, presentation is as importance as substance here. While for traditional technical interview questions substance - meaning getting the answer right - is much more important than presentation.
Anyway, let's go over three overarching reasons behind the rise in tech M&A over the past few years.
First, growth through acquisition has become an even more wildly held strategy among the large tech incumbents due to their understanding of how quickly the sands can shift under their feet (e.g., think about Facebook's acquisition of Instagram and how imperative that has been to their growth over the past several years as users have shifted their habits).
Second, as we cover quite a bit in the Tech M&A guide, sponsors (PE firms) have increasingly become comfortably doing deals in the internet and software sub-sectors of tech. While even just three or four years ago tech buyouts were overwhelmingly being done just by tech-focused sponsors like Vista. This is largely a reflection of how many businesses in these sub-sectors have tried to shift toward a recurring revenue model, which of course is something that sponsors love to have.
Third, as public tech companies have seen their equity prices grow so heavily in value, they now have fresh ammo to go out and acquire companies with their highly valued stock.
Over the past few years it's really been a confluence of these three factors that have driven tech deal volumes to such high levels. Of course, overlaying all of this has been the rise of SPACs, which has been a boon to all banks in terms of the fees they throw off.
For tech companies that have lots of recurring revenue, what will they have a lot more of than most companies that bill one-off for their goods or services?
They will have lots of deferred revenue. As a reminder, deferred revenue is when you receive cash upfront for goods or services that you haven't yet delivered or rendered.
Many companies in the tech and media space have moved toward a subscription model whereby customers can pay for goods or services either by being billed upfront for the full year, or billed automatically each month. Most often these companies will offer a hefty discount if you subscribe for the yearly plan as that creates more cash flow stability and reduces churn (as you can't just cancel after a month).
For example, if you want a personal Bloomberg Terminal then Bloomberg locks you into a two-year contract, where you pay $2,305 per month (billed quarterly).
Remember that deferred revenue is a liability because while you've received cash already, you have the responsibility (liability) of then rendering a service or providing a good at a later date.
Note: In the Advanced Accounting Guide we go over a few more advanced deferred revenue accounting questions that crop up when dealing with SaaS businesses, etc.
Most of the time in an interview you'll be asked to walk through a singular deal in a bit of detail (you should aim for your answer to be two to four minutes in length).
However, because of the vast diversity of TMT, folks will sometimes ask you to list off a few deals across tech, media, and telecom.
Goldman is, of course, perennially at the top of the league tables for TMT so finding deals across tech, media, and telecom isn't an overly difficult thing to do.
Here are just some of the major deals Goldman TMT has had its hands in recently:
- Microsoft acquired Nuance - a leading AI and cloud-based intelligence platform in the healthcare space - in an all cash deal for $19.7b in enterprise value. Goldman was the exclusive advisor to Microsoft, while Evercore was the exclusive advisor of Nuance.
- Square acquired AfterPay - the "buy now, pay later" platform - in an all stock deal for $29b. Morgan Stanley advised Square, while Goldman Sachs and Qatalyst advised AfterPay.
- A deal we get into quite a bit in the Media Guide is AT&T spinning off WarnerMedia and merging it with Discovery. This $43b deal is reasonably complex and represents the end of AT&T's troubled acquisition - just a few years before - of Time Warner for $85.4b, which was strenuously litigated over antitrust concerns. LionTree (a leading boutique investment bank that focuses on media) and Goldman Sachs advised AT&T. While Allen & Company (another leading boutique investment bank that focuses on media) and J.P. Morgan advised Discovery.
- Sponsors have been incredibly active throughout 2021 in TMT. If you're ever asked, you could point to Apollo acquired Yahoo (Verizon Media) for $5b or Boomi being acquired by TPG. Note that Goldman and Evercore both advised Verizon Media on the transaction.
Ultimately, there are few groups in all of banking that are better to start your career off at than GS TMT. There are lifestyle considerations to be had, but to be honest banking was rough for everyone from Q2 2020 to Q2 2021.
If you're currently preparing for interviews, be sure to check out the long list of TMT interview questions we put together. There's also the TMT guides, which contain over 300 of the most advanced technicals along with TMT-specific interview questions.
We hope this has been helpful -- be sure to give us any feedback if you'd like us to get more granular on anything in a future post.