A top Goldman Sachs dealmaker says inflation isn’t likely to stop the IPO and M&A frenzy in 2022

December 1, 2021, 10:30 AM UTC

Frenzy. mania. turbocharged.

All those words have been used to characterize the dealmaking environment in 2021. Regardless of the language, the numbers speak for themselves: In the first 10 months of this year, the total value of global mergers and acquisitions hit $4.7 trillion—a 72% increase from that period in 2020, and enough to make 2021 already the highest year on record, according to Refinitiv, a market data provider.

Few have as good a view of that dealmaking deluge as Kim Posnett, who heads up global investment banking services at Goldman Sachs—the first woman and, at 44, the youngest person to hold the title. Having cut her teeth in the firm’s tech, media, and telecom unit, Posnett has also worked on some of the biggest tech IPOs of recent years, including the 2021 debuts of game platform Roblox, language-learning tool Duolingo, and dating site Bumble, as well as WeWork’s failed IPO in 2019. Her star is rising fast: She’s been promoted three times in two years, including an April nod to co-lead Goldman’s new cross-divisional client services initiative. 

Posnett has been smack in the middle of this year’s lucrative deal flow; Goldman posted $3.7 billion in investment banking revenues in the third quarter, a nearly 90% increase from a year earlier. All that juicy business, however, has been buttressed by near-zero interest rates and soaring stock prices. Now that the Federal Reserve is beginning to taper its bond purchases, and with inflation hovering at 30-year highs, will the M&A and IPO climate cool off? We sought out Posnett to get her banker bird’s-eye view. 

This Q&A has been edited and condensed for space and clarity. 

The environment in the past year or two has been very conducive to dealmaking. But what happens if we do see higher inflation for longer, and higher interest rates?

Posnett: Eighteen months ago, we had similar concerns about COVID. The conventional wisdom was dealmaking activity would slow down, and it did for a month or two, for sure, but then it sped up above and beyond what any of us expected.

The underlying reasons [for that boom] still remain valid. New company formation is accelerating: All those private companies need to be financed, and that’s not slowing down. Second is accelerating strategic activity. Coming out of the pandemic, CEOs and boards had the opportunity to pause and see where and how their industries were changing, and many [are relying on dealmaking] to reposition themselves and their businesses. The third reason is the sheer amount of capital the financial sponsors have right now. As they put that capital to work, that leads to dealmaking activity. 

Kim Posnett of Goldman Sachs
Kim Posnett of Goldman Sachs has helped steer some of 2021’s biggest IPOs, including those of Bumble and Duolingo.
Photograph by Celeste Sloman

If we’d had this conversation a year ago, I would have said, “There’s no way that the industry could surpass 1,340 [traditional] IPOs.” But here we are in November tracking at over 1,800 global IPOs, excluding SPACs. I also expect continued capital markets innovation, and companies getting public through different structures, whether it’s an IPO, direct listing, or a SPAC. 

What’s your take on the specific headwinds?

My view is, maybe rates are 100 basis points higher in two years, but even if rates are 2%, 2.5% for the 10-year [Treasury], that’s still a very accommodative economic backdrop. 

Inflation pressures will largely work themselves out, but it is now clear that this process will take longer than initially expected. Right now, the market is pricing in decent growth for a good enough period of time to support dealmaking activity. If we learn that inflationary pressures are increasing and/or persisting for longer, that may slow things down. 

Given everything we know today, I do believe that dealmaking will remain at these historically elevated levels.

There are several big private companies in the potential IPO pipeline—I’m thinking about Stripe, among others. What are you expecting to see next year in terms of tech companies tapping the public markets?

There are three themes that I think will influence tech IPOs in the next few years. Number one, you have new technologies that have been around for a while, but COVID sped up the adoption. The second is the prevalence of vertical technology—essentially the application of technology into all parts of our economy. Third, e-commerce has given rise to this new generation of huge merchant service providers like Square, Shopify, Stripe. 

You’re also seeing technology and data enable entrepreneurship. You’ve got these large-scale social media and marketplace platforms, this universal access to tools and capabilities, and that’s helping smaller merchants sell; it’s helping individual engineers code; it’s helping artists create content. These tech platforms allow creators to build their own businesses and monetize their own traffic. And to me that’s a major theme in tech over the next few years.

Another big exchange, Coinbase, went public this year. What’s the appetite from investors for more crypto-related public companies? 

It’s still very early days generally in the sector. Do I expect to see more public companies that are in the cryptocurrency digital asset sector? Yes, I do.

$4.7 trillion

Value of global mergers and acquisitions through the first 10 months of 2021, a 72% increase over the year-earlier period

This year there have been reports at Goldman and other banks of banker burnout amid this crazy environment. How are you working to combat that?

Frankly, I think we were under-resourced for a period of time and have been working really hard to address those workload issues. We’ve aggressively hired more people. We’ve stepped up mentoring. We tried to automate as many tasks as possible. Those are all us trying to put more guardrails up to ensure that our junior bankers have a better work/life balance. And you saw this summer that we took steps to raise junior banker compensation. I personally think it’s a really exciting time to be a banker. But there’s no playbook for how to do this coming out of this global pandemic, and we definitely have more work to do.

You’re a creative person—you got your start in acting before heading to investment banking. Have you found a creative outlet that’s helped you decompress during such a busy time?

You know what I started doing during the pandemic, which was great? I started doing meetings while walking around Central Park. I hope that those persist post-COVID because I think it’s great for business. 

A version of this article appears in the December 2021/January 2022 issue of Fortune with the headline, “Goldman Sachs’ IPO VIP.”

This story is part of Fortune‘s 2022 Investor’s Guide.

Read More

LeadershipCryptocurrencyInflationGreat ResignationInvesting