Making a major incursion into commercial banking territory, Goldman, Sachs & Co. has landed a lead position on a $3.95 billion loan to Britain's Powergen for its acquisition of Midlands Electricity.
The power generator's announced intention to buy the distribution company for $3.02 billion represents just the latest merger in Britain's rapidly consolidating electric utility industry.
Commercial bankers, however, were much more focused on Goldman Sachs' role and on what the big deal by an investment bank might mean for the syndication market.
"The line between investment banks and commercial banks in Europe is a little more blurry than it is in the United States," said Kevin Meenan, principal of Meenan, McDevitt & Co. "Goldman getting the lead mandate is a precursor of what we're likely to see more of in the United States."
Goldman won the deal for the investment-grade company in part because it was already the merger and acquisition adviser to Powergen.
"As far as we were concerned, we met with their loan syndication group through the M&A contact," said John Rennocks, Powergen's chief financial officer. "We were happy to give them the role of organizing the bank financing."
Indeed, bankers said the same forces that have encouraged commercial banks to become one-stop shopping centers by developing their capital markets operations have spurred investment banks to build their loan syndication teams.
"This is just the one-stop-shopping concept," said another banker. Goldman is just using one of its other areas to generate some additional business, he said.
Bankers said the deal was evidence that the syndication efforts of Goldman, Merrill Lynch, Lehman Brothers, and other investment banks have started to make some headway.
"It's not all that surprising to me that Goldman won the deal," said a commercial banker. "They've hired a lot of ex-commercial bankers, and are working to provide credibility and distribution" in their syndications operation.
Nonetheless, bankers expressed some surprise that Goldman won a deal of this size.
And while Goldman's position on the Powergen deal represented a potentially significant breakthrough in the lending arena for the New York- based investment firm, it did not guarantee Goldman a lead position on the other utility deals expected to follow.
"The bank groups for the electricity industry are diverse," said one banker. Japanese and continental European banks typically play significant roles in the utilities industry.
With five of Britain's 12 largest utilities reportedly in play, the stakes are high for banks that lend in that sector.
"Like all acquisitions," said a syndicated lender, "with the liquidity in the market, bank financing is going to be an active source" of funds.
Mr. Rennocks said the loan was divided into two tranches, one for the acquisition and the other to replace existing facilities.
Barclays Bank PLC will serve as the documentation agent and Midland Bank PLC will be the syndicating agent.
Several factors could complicate the launch of the deal, including a potential competing bid.
Additionally, the opposition Labor Party has called for the merger to be reviewed on anticompetitive grounds to the Monopolies and Mergers Commission.
The latest utilities deal has not yet received regulatory scrutiny.