What to Expect in Restructuring at a Big 4 Firm in Italy: The Best Place for Turnarounds?
“Never let a good crisis go to waste.”
It’s a famous quote, but it doesn’t just apply to geopolitics or government policy.
A crisis can be the best thing for your career as well – if you use it the right way.
Our reader today found this out firsthand when he became obsessed with investment banking at a large bank… just as a financial crisis or two struck his country (Italy).
But he didn’t let the crisis go to waste.
He used it to win an offer in a Restructuring team at a Big 4 firm instead, which came with a lot of advantages:
Crisis Management 101: Turning IB Experience into a Restructuring Role
Q: Can you walk us through your story?
A: I attended a top university in Italy for my undergraduate and graduate degree, or a “3 + 2 degree,” as it’s known here.
In continental Europe, you’re expected to complete an undergraduate degree (3 years) followed directly by a Master’s degree (2 years); if you don’t do that, you can’t apply for certain jobs, and your salary will be lower.
I graduated with good, but not spectacular, grades, and did a credit-related internship, followed by an internship at a boutique investment bank in Rome.
I won interviews for that role through alumni networking, and the entire process finished up within a week.
I completed a 6-month internship there – as in countries such as France, extended internships are common in Italy – and then won a full-time role.
The job was fine, but I wanted to work at a larger bank, so I applied to a graduate role at a bulge-bracket bank in Milan and won an internship there.
I performed well, but the economy was going through a downturn, and my group had a lot of office politics, so they reduced the number of slots and ended up picking a different intern for the one full-time role.
But I had stayed in touch with my colleagues from the boutique bank, and a former Director there contacted me to explain that he would be starting a new Restructuring practice at a Big 4 firm – because of the downturn – and asked if I wanted to join.
I said, “Yes,” and I’ve been there ever since.
Q: Staying in touch pays off!
Were there any big differences in the IB recruiting process in Italy compared with the process in the U.K. or U.S.?
A: Not really; you still start with short HR interviews, you do technical rounds with Associates or hiring managers, and then you do final rounds with Directors/Principals and MDs.
You might interview with only one person if it’s a boutique firm, or, at a large bank, you might meet everyone on the team and speak with 2-3 MDs for a group interview.
Larger banks may also conduct assessment centers, which are similar to the ones in the U.K. you’ve described before.
One difference is that it’s very common to hire 3 + 2 graduates rather than students who completed only the standard undergraduate degree.
Your school name is very important, though not to the degree it is in, say, France; that’s mostly because alumni from the same universities tend to cluster together at the same banks.
As in other regions, firms expect interns to know the job already and to complete tasks independently, so you need prior banking or corporate finance internships.
The Italian Job: Restructuring
Q: Thanks for that summary.
What’s an average day in the Restructuring team like?
A: There is no “average day” because it depends on the deals we’re working on, their current status (e.g., fieldwork, negotiations, updates, fine-tuning, or closing), and whether I’m in the office or traveling.
On average, an Engagement Manager works on 3-5 deals at once.
Our team has two Engagement Managers and one Assistant Manager, and the Assistant Manager leads one smaller transaction independently and works with the Engagement Managers on bigger deals.
Our counterparts – clients, bankers, lawyers, and other professionals – dictate the pace of the day, so we’re often in “reactive mood.”
Sometimes I’ll be working on Excel for one deal, and then two lawyers involved with another transaction will contact me and ask for urgent information, so I’ll have to drop my task and respond.
I spend around 50% of my time building models and valuations in Excel, 25% preparing presentations, and 25% attending meetings with clients.
I spend that much time in Excel because I’m only involved in pure financial advisory engagements: I don’t do financial due diligence (FDD), operational restructuring, or independent business reviews (IBR).
However, these tasks vary from office to office: Rome, Milan, and Bologna all do things a bit differently, and some focus more heavily on FDD or IBR.
If the team members come from IB backgrounds, the group tends to focus on financial advisory. Overall, FDD and IBR are more common in other locations and at other firms.
The best part of the job is that you get client exposure to top executives from day one, unlike at a large bank.
Each deal requires collaboration with professionals in different fields, so you build a wide network as well.
The worst part is that your work depends on the inputs and constraints set by your counterparts, so you often tweak models and update assumptions thousands of times because people keep making different requests.
Also, the timing is tough because the entire process can speed up or slow down depending on others.
Q: Which types of Restructuring deals (debtor vs. creditor) do you focus on, and are there any regional differences in Italy?
A: Almost 95% of my deals are debtor-side financial advisory assignments, i.e. advising the management team of a distressed company, not its creditors, on the company’s best options.
I prefer working on debtor assignments because the work is more interesting and complex, and you get to learn about a company’s operations in more depth.
Also, you spend more time “triangulating” between the debtors and creditors to compromise.
Both out-of-court and in-court assignments (similar to Chapter 11 in the U.S.) are common.
Italy has seen a few “restructuring waves,” and the sector has become far more complex over time.
A few years ago, “amend and extend” deals, where creditors simply let companies extend loan maturities, were common.
But that just postponed the inevitable, so the market is now (as of 2017) asking for definitive solutions, such as debt-for-equity swaps, renegotiation of key debt terms and covenants, and asset sales and divestitures to repay obligations.
Alternative investors have also become interested in distressed debt here, which could create a wider variety of debt packages to recommend to clients.
Most of the technical work – analysis of bond pricing and yields, covenants, liquidity, recovery/hurdles, and debt capacity – is similar to Restructuring anywhere else.
A few differences include:
Industries: Banking, real estate, construction, energy, fashion, and shipping have all seen a lot of restructuring deals. Banks, in particular, have struggled with non-performing loans (NPLs).
Options: Debtors have three primary options:
- A Restructuring Plan (which includes a postponement of claims, debt refinancing, and no court involvement);
- A Debt Restructuring Agreement is an in-court procedure for creditors that represent > 60% of total indebtedness. Creditors who don’t sign the agreement must be repaid in the 120 days following court approval. This option is preferable when the company has mostly tax or financial debt since it’s easier to reach the 60% threshold. Creditors may agree to a partial repayment as well.
- A Pre-Bankruptcy Arrangement Procedure is similar to Chapter 11 in the U.S. system. It includes court supervision and approval, automatic stay, and creditors’ priority, and the company could continue operating or just sell its assets.
Creditors vote on a debtor proposal for the timing and repayment percentages, and then get repaid based on that. “Cramdown” (i.e., the bankruptcy court can forcibly modify loan terms to improve the outcome for all parties) applies to everyone.
Balance of Power: Italian law tends to favor employees and, therefore, debtors. A few very large companies here have issued debt under foreign laws (e.g., English/Amsterdam/Luxembourg law), so it’s a bit different in those cases, but most SMEs have issued debt under domestic laws.
Q: Great. Which banks and accounting firms in Italy have a strong presence in Restructuring?
A: Large investment banks do not focus on Restructuring because Italy has a high number of small-to-medium enterprises (SMEs), and the big banks care more about transactions with large, public companies.
If a bulge-bracket or other large bank gets involved, the firm tends to work with another advisor for due diligence and operational restructuring – often a Big 4 team.
Of the elite boutiques, Rothschild and Lazard are involved in high-profile Restructuring deals here; Evercore, Moelis, and the rest don’t do much.
The Big 4 firms play a substantial role in the market, and some firms had established their teams before the ongoing financial crisis.
Others started more recently and have been doing mostly Independent Business Reviews (lender advisory), which is quite different from debtor advisory.
Should You Work in Restructuring at a Big 4 Firm?
Q: Before we started, you mentioned that compensation was lower than in IB. How much lower?
A: Well, it’s not just at Big 4 firms; Italian salaries are far lower than those in other European countries, especially Germany and the U.K.
For example, an IB Associate at a large bank here might earn only 35-40% of what an Associate in London would earn.
And at a Big 4 firm, you’ll earn only ~50% of what IB Associates here earn.
The problem is that bonuses at Big 4 firms generally only go up to ~30% of your base salary, though some firms may offer a bit more to attract talent.
Big 4 firms use a very tight pay scale, where you sacrifice compensation in your first few years for a more “visible” and straightforward career path.
Q: So, it seems like compensation is one of the biggest negatives of this job.
How would you summarize the trade-offs?
A: The biggest benefits of Restructuring at a Big 4 firm are:
- You gain a deep understanding of companies, at least if you advise debtors.
- You build a wide network since you interact with so many different parties and have a high level of responsibility from day one.
- You gain a lot of exit opportunities since you can go to distressed or credit funds, distressed PE funds, turnaround consulting firms, Restructuring groups at banks, etc.
- You get a more straightforward career path with advancement and pay increases at set times.
The main downsides are:
- The compensation is far lower than in investment banking, but the hours are not proportionately lower.
- It’s less “prestigious” than IB/PE roles.
- It’s a very reactive job, even more so than investment banking.
Q: Thanks for that summary.
What are your long-term plans?
A: I’m not too obsessed with exit opportunities, so I’m planning to stay where I am for now.
I want to work here until the ongoing financial crisis in Italy is resolved, and I want to see how the market changes over time as alternative investors enter.
I don’t think I’ll stay here forever, so I might move to a different distressed role in the future.
Q: Great. Thanks for your time!
A: My pleasure.
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