Restructuring: The Hottest Group In A Cooling Economy
“Do you ever have one of those days? When you feel like you might just default at any second?”
Whenever the economy starts sinking faster than the Titanic, you start to hear about Restructuring and Distressed M&A all the time.
Sure, everyone else is getting fired – but if you go work in one of those groups, you’re guaranteed a higher bonus even as the broader market sinks, right?
Maybe, maybe not – so let’s take a look at what you actually do in a Restructuring group, how you break in, and what you do next.
A Day in the Life
So what do Restructuring bankers actually do, and how does it differ from other what other investment bankers do?
The main difference is that Restructuring bankers work with distressed companies – businesses that are either going bankrupt, getting out of bankruptcy, or in the midst of bankruptcy.
When a company’s business suffers and it starts heading down the path of bankruptcy, its creditors – anyone that has lent it money, whether banks, hedge funds or other institutions – immediately take notice.
A Restructuring group might be hired by a company to negotiate with its creditors and get the best deal possible, usually in the form of forgiven debt. Or they might advise a company on how best to restructure its current debt obligations either to get out of bankruptcy or to avoid it in the first place.
Another big difference is that Restructuring bankers must work within a legal framework – the Bankruptcy Code – and hence must have a more in-depth legal understanding than other bankers.
Hot or Not?
But if things are heading into a bottomless abyss or if we’re in a consumer-driven recession, you suddenly start getting beer goggles for Restructuring groups.
You take a lot of risk by joining a specialized group like this because the economy and bankruptcies can turn around very quickly – you could say the “Beta” of being in a Restructuring group is higher than other areas.
Debtor vs. Creditor
Broadly speaking, there are 2 types of work that Restructuring groups do: advising a creditor (or group of creditors) and advising a debtor (the distressed company).
You can think of these separate roles as buy-side (representing the buyer) vs. sell-side (representing the company trying to sell itself) advisory in the world of M&A.
Regardless of which side you’re advising, much of the work is similar – valuation, modeling (analyzing different debt structures) and presentations.
It’s not too different from the work you do in other areas of banking, but it tends to be more technical and finance/modeling-intensive, especially compared to something like working on IPOs, which is mostly about revising Word documents.
Most Restructuring bankers believe that you get a better experience as a junior banker advising the debtor rather than the creditor.
On the debtor side, you get closer to the company and gain a deep understanding of its business and finances; you’re also more likely to gain exposure to other areas of investment banking, such as capital raising and M&A, because Restructuring deals often turn into desperate efforts to sell or raise capital.
This is not to say that advising the creditor(s) is “bad”; much of the work is similar and you learn a lot about both finance and law doing either one.
One advantage of advising the creditor is that you get to build relationships with hedge funds and private equity firms that invest in distressed companies – and those relationships in turn can lead to good exit opportunities in the future.
What Analysts And Associates Actually Do
Again, the actual work you do is not worlds apart from the standard banking routine: valuation, modeling and presentations. Deals tend to be more involved and can extend over longer periods – years rather than months – and that equates to a bit less pitching and more deal work, which is always a good thing.
You’ll gain more exposure to debt and the legal framework than your counterparts in M&A or Equity Capital Markets would, but you’ll learn about fewer industries and companies simply because of the nature of your work.
Hours and lifestyle?
Please, this is banking. Keep your expectations in check.
If bankruptcies are springing forth left and right, you’ll be worked like a dog in a Restructuring group – so don’t think it’s any easier than M&A.
The Top (Only?) Groups
Put aside that boutique vs. bulge bracket debate because bulge brackets don’t do Restructuring. There are 3 firms with well-known Restructuring practices: Blackstone, Lazard and Houlihan Lokey (HLHZ).
There are many other banks that have Restructuring groups – examples include Evercore, Rothschild, Greenhill, Miller Buckfire, Moelis & Co., Perella Weinberg and Jefferies.
But Blackstone, Lazard and HLHZ are tops in the field.
Even on multi-billion dollar, complex deals you see Blackstone, Lazard and HLHZ dominating the market with some of the other names here present as secondary advisers.
Since Blackstone and Lazard primarily advise the debtor, they are often viewed as the “top” Restructuring practices. Houlihan, while still strong, rarely represents the debtor on the largest, most complex deals.
How To Break In (Hint: It’s Tough)
The total number of Restructuring bankers is still small compared to the sheer volume of M&A and Capital Markets bankers.
So it’s not easy to break in.
Some banks (Blackstone, for example) recruit separately for Restructuring and keep the Analyst class size very small (under 10). Others, such as Lazard, place you into Restructuring once you’re already in their generalist pool.
It’s tough to break in because of 1) the small sizes, 2) separate recruiting and 3) increased emphasis on technical skills, which few students have unless they’ve had previous banking experience.
You might try for one of the smaller firms’ Restructuring groups, but even those tend to have more rigorous and technical interview processes in place.
As I’ve been mentioning, Restructuring bankers work within a legal framework and have to consider legal issues that other bankers never contend with – so if you’re coming from a legal background, you have a big advantage in aiming for Restructuring.
The skill set you gain in Restructuring is more specialized than what you’d get from working in M&A or Capital Markets, but it also allows you to work at hedge funds and private equity firms that invest in distressed assets (there are far more hedge funds doing this than there are PE firms doing it).
Going to such a fund or a “Special Situations” fund (just another codeword for distressed investment opportunities) is probably the most common exit opportunity for Restructuring bankers.
That said, you can also go to any normal hedge fund or private equity firm as well; even turnaround consulting is a possibility. If you’ve worked for the “top” groups (Lazard or Blackstone), you’ll have a good shot at getting into the biggest funds out there.
Restructuring: Stay Hot in a Frigid Economy
In a poor economy, Restructuring is always the hottest area. Although it’s tough to break into and the total number of bankers dedicated to this practice is small, if you play your cards right you could gain a very specialized skill set as well as access to unique opportunities.
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