Story so far:

Covid-19 has led companies to continuously innovate and rethink the ways in which they can provide value to their existing customers and stay relevant. With the Mergers & Acquisition market down by 47% this year at just $1.1 trillion, Goldman Sachs plans to commercialize its internal merger matchmaking application called ‘Gemini’ (based on the concept of various dating applications) so that its clients can start embracing technology for deal making as well. The investment bank aims to take advantage of the record low interest rates across the world and declining organic growth which can lead to consolidation across industries in the near future.

How does the application work?

The application which is currently being used internally by the bankers of Goldman Sachs will help its clients to identify underperforming divisions of their business which can be easy targets of activist investors, (investors who use their stake in the company to put pressure on the management to implement significant changes). It can also be used to identify sale or spin-off opportunities and potential targets to acquire based on their financial performance. The functioning of the application is based on a formula which compares the key metrics such as revenue, profitability etc across peers to give a score to a particular division which can be used to assess its performance. It also indicates how the divisions can grow through mergers and what synergy benefits can be availed. Apart from this, the application also identifies business divisions that perform poorly on the ESG criteria (i.e. Environment, Social, Governance), an investment trend which has picked up recently.

Is the Application sustainable?

The application has been developed in response to the current health crisis which has led to fundamental changes in the operating environment of the companies which will force them to take a harder look at their current business lines and evaluate strategic options. Since deal making can no longer happen face to face due to restrictions on air travel and work from home norms for the foreseeable future, introducing automation in M&A matchmaking seems to be a good option to revive the slowing deals market.

The only question to be asked is whether this technology has the potential to displace the traditional role of an investment banker? Let us know what your views are in the comments section.