by Brian DeChesare Comments (12)

Energy Investment Banking in Houston: Pathway into Private Equity, or Another Reason to Move to New York?

Energy Investment Banking Houston

Just how different are the regional offices and headquarters of a large bank?

In some cases, not very.

But in others, they’re more like different planets.

Houston falls somewhere in between these two extremes.

There are similarities to New York, especially if you’re in the natural resources group, but the recruiting process, pool of candidates, and exit opportunities all differ.

I wanted to get the full story, so I recently caught up with a reader who worked in a bulge-bracket oil & gas investment banking team in Houston and then joined a tech startup:

The Last Stand at the Alamo: Breaking into Energy IB in Houston

Q: Can you walk us through your story?

A: Sure. I’m originally from an Asian country, and I went to university at a non-target school in Texas because I won a generous scholarship there.

My school was a “non-target” in the broad sense, but it was more of a “semi-target” for IB roles in Houston because the targeted schools there differ.

I was interested in finance from an early stage since my brother worked in the industry, so I aimed to get as many internships as humanly possible.

I did corporate strategy, real estate, and private equity internships all before junior-year IB recruiting began, and then I won a summer internship offer in an energy IB group at a bulge-bracket bank in Houston.

Unfortunately, my timing was horrible: Just as I started, commodity prices crashed, and deal activity, especially in the upstream (E&P) sector, froze up.

As a result, many Analysts in my office ended up working on a lot of equity offerings rather than M&A or debt deals, and placements into PE were worse than usual.

I worked on a few midstream and upstream deals and gained decent experience, but I wanted to move to New York and work in a generalist PE role.

That proved almost impossible, so I ended up joining a tech startup, first in a finance role and later as a Product Manager.

Q: Not exactly the typical exit, I’m sure…

How would you summarize the recruiting differences in Houston?

A: Banks in Houston like to recruit students from schools like Texas A&M, Rice, and the top UTs because they want students who want to stay in Texas.

Those schools aren’t necessarily “targets” for banks in NYC, but they are for Houston-based groups.

Also, even if you’re at a lesser-known-but-still-good school (e.g., anything in the top 20-30 in the state), you still have a shot at IB because there will be alumni in the energy finance industry.

In interviews, they do ask about energy-specific concepts, but the amount of technical knowledge you need is exaggerated.

You should know about the following topics:

However, you don’t need to be an expert: They’re not going to give you a 5,000-row NAV model and ask you to complete it.

In my experience, people get tripped up on the “fit” questions more than the technical ones.

Specifically, a lot of finance majors in the state want to go to NYC or immediately exit for buy-side roles, and interviewers pick up on that.

That’s a huge mistake because banks in Houston want people who a) want to stay there for the long term, and b) want to stay on for Associate roles and move up the ladder.

Sector Selection: The Main Determinant of Your Fate?

Q: Thanks for explaining that.

Which banks have the strongest presence in Houston?

A: Barclays and Citi were among the best when I was there, and Credit Suisse was strong as well.

Evercore, Lazard, and the other bulge-bracket banks (BAML, JPM, MS, GS, etc.) also have a presence there.

Plenty of middle-market and industry-specific boutique banks also do well but work on smaller deals.

Since oil & gas is capital-intensive and since energy companies raise equity and debt all the time, the full-service banks with large Balance Sheets are generally better bets.

When I was there, Citi tended to do more equity deals, CS tended to do more high-yield issuances, and Barclays was more diversified.

But banks change over time, so you should NOT assume the descriptions above still hold up – always look at this year’s league tables to get a better sense of the trends. These were just my high-level impressions.

Q: Thanks for the run-down.

You’ve mentioned a few times that banks want people who are committed to living in Houston for the long term. How did you like it there?

A: It was a big minus for me. I had lived in Texas for several years in university, so I thought it would be fine.

But many bars in Houston close early, and there isn’t much to do on weekends.

The first six months were OK, but the routine quickly became repetitive. It’s fine if you’re married and raising a family, but it is not a great place for younger/single people (in my view).

Q: We’ve covered the verticals within oil & gas before, but do you have any thoughts on the best ones for gaining deal experience and exit opportunities?

A: Most people are drawn to the upstream segment because it seems sexier than midstream, downstream, or oilfield services, and it’s where some of the biggest deals take place.

That’s mostly accurate: You will work on more equity, debt, and M&A deals if you focus on upstream companies, even if commodity prices have crashed.

However, it’s often better to focus on midstream deals if you want to break into private equity, for several reasons:

  • Energy PE recruiting is very specialized – midstream PE funds recruit mostly bankers with significant midstream deal experience.
  • Few people understand MLPs and the different tax and legal structures in-depth, so you set yourself apart if you’re an expert in this area.
  • Many Analysts who work on midstream deals work with only one large company for their entire time in banking. As a result, they become experts on that single company, which is a big selling point in PE interviews.

The downstream and oilfield services segments are fine as well, but there were fewer buy-side opportunities in those.

Private Equity Placements, or Just Private Placements?

Q: Thanks for explaining that.

On that note, what percentage of Analysts at your office won buy-side roles?

A: Around 60%, but that percentage was lower than normal because we were in an energy downturn.

In normal years, 80-90% of the Analysts in bulge-bracket energy IB groups should be able to find buy-side roles.

The process is similar to the one you’ve described for NY-based PE recruiting: The mega-funds start quickly and try to finish in a weekend, then the middle-market funds start, and then smaller funds recruit in a less structured way after that.

The only difference is that you recruit for the energy groups at these funds, or with energy-specific funds.

Q: From that last sentence, it sounds like it’s almost impossible to win buy-side roles at generalist firms or groups.

A: I would say so, yes.

Among the Analysts in my office, only one won an offer at a generalist PE firm, and he did it by moving down-market and joining a lower-middle-market fund.

If you tell headhunters, “I want to work in consumer/retail PE,” they’ll respond with, “But are you sure you don’t want oil & gas private equity jobs? We’re not going to send you anything else.”

Q: And that’s what encouraged you to switch into a different industry.

A: Pretty much – although it was also quite random.

I had always been interested in technology, and I saw the news that one startup I followed had just raised a Series A round.

I thought, “They just raised money. Now they’ll need someone to manage it.”

So, I emailed the CEO to ask about it, went through a few rounds of interviews, and accepted an offer there.

I spoke with the key people on the phone, and they asked for a few references, which my Associates and VP happily provided. And then I spoke with the CEO for a few hours and received an offer right away.

Q: Great. And what has it been like so far?

A: I spent the first few months putting in place accounting and finance systems for the company, but we hired a bookkeeper for most of that once the systems were in place.

After that, they moved me into a Product Manager position because I was very interested in the company’s industry, and I wanted to work with users to develop features.

The biggest challenge is aligning the company’s goals with users’ wants and needs.

Executives often dream up pet projects they want to pursue, but sometimes they don’t correspond to what real people want.

The hours are much better than in banking (usually 9 AM to 6-7 PM), but if something urgent comes up, we have to be there. Software breaks all the time, and emergencies are common.

I plan to stay here for at least the next few years, but in the long term, I want to launch my own startup or move into venture capital.

Q: Thanks for that summary.

Is there anything else you’d add for bankers who are considering tech startups?

A: Life at a startup sounds “cool” if you base it on TV shows or movies, but it’s a big struggle, especially when you’re still seeking product/market fit, or you can’t raise money.

Your game plan should not be “Join a startup – any startup!”

Instead, find a specific industry or company you’re interested in, and see what roles might be available there. And don’t limit yourself to finance-related roles or you’ll come up short, especially at earlier-stage companies.

It’s incredibly different from the stability you get in banking, and you won’t last unless you have a deep personal interest in the company’s industry.

Q: Great! Thanks so much for your time.

A: Sure thing, I’m always happy to give back to your site.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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Comments

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  1. Hello there,

    Thank you for this great interview.

    I am just curious as to whether or not the recruitment process is the same in London?

    1. Banks in London obviously do not focus on recruiting from schools in Texas, but the interview questions may be similar. And then there are other differences like assessment centers, competency questions, etc., do a search of this site.

  2. Brian,

    I am about to join an energy group in Houston after graduation. Would you recommend picking up an energy specialization at my school before starting? Will this help me stand out amongst other bankers? I don’t plan on staying in energy long-term, but I don’t know much about energy now, and I don’t want to be behind others when I start.

    Thanks.

    1. Yes, it could help, but it would help you more to learn about the technical side of energy, as in the actual engineering/drilling/science required since most bankers know little about that.

  3. Quick one – Non-US citizen (Australian, with option thanks to our trade deal for a non-lottery based work visa) with an upstream background across Australia, Middle East and Norway plus energy-focused PE internships – looking to become an M&A adviser to the oil and gas sector in Houston. Currently doing an MBA at a FT top 10 school in Asia and exchanging to UT McCombs shortly.

    Assuming I reached out and networked pretty aggressively, how would my background be viewed in Texas, where it’s been mentioned that the willingness to stay is very important?

    1. I think you might receive some skepticism because the first question will be: “Why not go back to Australia, the Middle East, or Norway? There’s more to do there than in Houston.”

      So, if you don’t have a solid, specific answer for that one, it might be tough despite your experience.

  4. Hey Brian,

    What would you say the strongest (most prestigious) teams at Nomura are?

    Industry Coverage:
    Financial institutions, consumer, healthcare, communication & media, industrials, natural resources and power, financial sponsors

    Product Groups:
    equity advisory; debt financing (acquisition and leverage finance; debt capital markets) and solutions businesses (equity solutions, risk solutions and insurance solutions)

    What would you say is the strongest team in EMEA?

    Thank you

    1. I don’t know anything about any of those teams in the EMEA region, so you should probably decide based on your own interests/goals, reach out to a few people at Nomura, or just depend on the advice of random people online.

  5. Having moved to Houston a few years ago to gain expertise in Energy groups, I’ll echo a lot of this. What the author says about the importance of Texas ties/ the alternative ‘target’ landscape is very true. The route if you’re a ‘target school’ guy is to reach out to alums as you might expect – enough of the MDs are transplants with Ivy backgrounds – and these guys are much easier to sell on your commitment to energy/stay in the area, if you don’t have anything explicitly tie-ing you to Texas. (And there’s much more ‘cross-Ivy’ support than in the Northeast, where there are loads of alums of just your school alone.)

    PE exits are very good if you stay within energy. IB attrition is about the same, so the number/pool of bankers available for the PE funds is a much closer ratio than say in NYC. Also, there’s a lot more networking/ less rigidity about networking up. You can have a relatively unconventional trajectory, and if you tell a good story, can still land a gig with a Megafund.

    While expertise initially is not required/high, demonstrating interest is. Also, for PE interviews, expertise is a real plus if you have differentiated experience. (On this topic, a pretty common ‘unconventional background’ would be to study geology (specifically stratigraphy), go work for an E&P, and then join an A&D team at a bank.)

    On the personal life front – I cannot echo what the interviewer said enough. As a single guy, dating in Houston (and it’s specific to Houston) is BRUTAL. There’s not really a singles scene/singles culture, and Houston dating tends to be very ‘friends of friends’ in networks that are pretty closed – unless you have a connection with a network already in Houston who is willing to introduce you. To give you an idea of just how closed – two Houstonians who aren’t in the same network (that’s to say they weren’t in the same group of friends in elementary school) are very unlikely to date or extensively socialize for that matter. People don’t really meet people out here. Add in gender imbalances due to O&G being very male dominated, and the southern tendency (very bad here) to get married very young, and the available dating pool is very limited. (I’d logically assume Houston dating to be great for single ladies as a converse, but most of my female friends here are married – theme here – or travel/ have relationships elsewhere.)

    Additionally, as the author above states, the nightlife here is very limited, and there’s not much to do on the weekends as soon as you exhaust the few museums and attractions (doesn’t take long). New York it is not.

    Dallas and Austin both have better dating scenes, friendlier people, and frankly a more generally professional crowd with better gender balance, and that’s sort of been my sanity saver. (In the office we joke that you save a lot of money in Houston… which you then spend leaving Houston whenever you can.)

    Relocating from Houston to elsewhere, especially for energy finance professionals is difficult. The industry is very entrenched here. Your best bets are to lateral to a firm or fund that has it’s HQ in another energy hub: London, Sydney, Dallas or Calgary are likely the easiest (most appealing bets). If you felt like you weren’t deprived of a social life enough while in Houston, Aberdeen and Abu Dhabi are also possible. (Half kidding here. Don’t move to Aberdeen or AD.) Austin is an option if you can find a more tech-centric role in energy.

    Of the verticals within energy – upstream, midstream, downstream – all are worthwhile, although because of the cycle, different ones are in vogue at different times. AVOID like the plague, OFS or oilfield services. The deal sizes are way smaller and the clients are as cheap as can be because of where they are on the food chain. There are also far fewer deals. Do not make the mistake of thinking you can shift from OFS to u/m/d or for that matter from u, m or d to one of the others, as specialization happens quickly. (Unless you’re at a bulge and do a good job getting deal experience in all three – which is not easy to do again, given the cycle.)

    Happy to comment further, so feel free to shoot questions on this thread.

    1. Awesome! Thanks for adding all that and for volunteering to answer questions.

    2. Hi,

      I am a sophomore at a lower ivy currently. I am from Houston and I would prefer to work there in investment banking. You seem to be very knowledgeable on the Houston investment banking scene. Do you have any advice or suggestions on how to get a summer analyst position at a Houston bank from my position? Thanks in advance.

      1. Sorry for the late reply. All the bulges will recruit at your school – and will typically be thrilled to have an ivy-leaguer to send down to Houston (assuming you pass muster of course). If for some reason you missed the recruiting window, and/or you’re targeting a non-bulge, your best bet is to reach out to ivy (or even ivy +) alums (preferably at the MD level, but any level is fine honestly) and start requesting informational interviews with them.

        (‘Lower’ ivy is in no way a knock in Houston – Rice/UT are the upper crust of the recruiting pool, which tends to be largely Texas A&M alums. You’ll even get some from smaller Texas schools. Ivy Leaguers are unicorns here and tend to look for each other.) Don’t allude to this of course.

        All the things Brian emphasizes doing (having a good story, solid interviewing skills, things you should discuss with senior bankers during interviews) are strongly relevant. Also since you’re a Houstonian, after you’ve made initial contact/a good impression, the next time you’re back on vacation, suggest (in advance) connecting in person with these individuals over coffee. (You will meet them downtown near their offices, as they don’t have time to go far from there.) Making the connection in person is big here.

        The bulges will of course source through their recruiting programs for the most part; the boutiques will be fairly opportunistic and driven through networking. I wouldn’t shy away from starting with boutiques – lateraling up is very much done here from boutiques to bulge brackets on the IB side (not unheard of elsewhere) and from smaller PE shops to the megafunds (unheard of everywhere else, although you might have to move progressively.)

        Overall your ask seems pretty feasible to me, so hopefully it gives you enough to go on. If not please do ask clarifiers – and I’ll try to pay more attention than I have to the thread.

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