Googleplex News: Goldman Sachs IPO's Facebook

NY Times January 3, 2011, 10:22 am Investment Banking

Why Facebook Is Such an Important Friend for Goldman Sachs

By PETER LATTMAN

Brendan Mcdermid/ReutersGoldman Sachs sent Facebook a friend request, and Facebook accepted.

The news that Goldman has taken a stake in Facebook, the white-hot social networking giant, has tongues wagging from Wall Street to Silicon Valley. As first reported by DealBook, Goldman has invested $450 million in a deal that values Facebook at $50 billion. As part of the deal, Goldman is looking to raise as much as $1.5 billion from its wealthy clients to invest in Facebook alongside the firm.

The move is straight out of Goldman’s playbook. The firm has a long history of “friending” America’s hottest companies and chief executives. By collecting so many important friends, Goldman generates big fees.

The ancillary benefits of buying a stake in Facebook are several. First, it has likely established itself as the leading candidate to win the very lucrative and prestigious assignment of Facebook’s initial public offering, whenever that day comes. Then, of course, there are secondary share offerings, mergers-and-acquisitions business and other banking fees that would inure to Goldman.


.Second, Goldman’s private wealth management clients — handled by the firm’s money management unit for rich families — can boast to their friends on the golf course that they own a pre-I.P.O. stake in Facebook.

There is also the huge paper wealth being accumulated by the Facebook co-founder, Mark Zuckerberg, and his fellow executives that will some day be monetized and have to be managed. Goldman would likely have a leg up there, too.

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