Restructuring and Turnaround Consulting: The Best Backdoor into Distressed Investment Banking and Private Equity?

If there’s one thing that all bankers enjoy, it’s making fun of consultants.

But that might not be a great idea if you’re interested in restructuring and distressed M&A – it’s one field where a consulting background can give you an advantage.

And if you don’t get into one of those groups as an intern, restructuring and turnaround consulting is often your best path in.

I was curious to learn more, so I recently spoke with a reader at a top turnaround/restructuring consulting firm:

Broken Companies and Random Career Paths: A Match Made in Heaven?

Q: So, how did you get into restructuring/turnaround consulting?

A: I fell into it!

I started my own tech company right out of undergrad, but it didn’t work out.

I had stayed in touch with a few friends who went into investment banking, so I reached out to them, networked, and won an offer in private banking at a bulge-bracket bank.

I didn’t want to be on the retail side of financial sales forever, so I went back to school for a Master’s in Finance degree and then won an internal strategy role at a Fortune 500 retailer.

That job turned into a finance/M&A role because the retailer was contemplating a large acquisition at the time.

But as the acquisition talks died down, so did my job.

I spent a month doing nothing and then decided to apply to all the consulting firms in my area.

I won an offer in a traditional management consulting/strategy team of a well-known consulting firm and thought I would be a management consultant there.

But all the engagements in that group were fully staffed when I joined, so they shifted me to restructuring projects for a retailer instead.

Q: I sense that your story is not too common.

A: Not at all. Most people get into our team from one of these backgrounds:

• Big 4 TS/accounting/valuation.
• Corporate finance roles, such as GE’s FMP program or FP&A at large companies.
• Investment banking.

We also accept around 30 interns per year across all our offices, and many of these interns win full-time return offers.

Q: I see. So, how exactly did you win this role?

A: I won the role mainly because I had worked on internal strategy, finance, and M&A deals at a Fortune 500 retail company.

Since so many restructuring and turnaround engagements involve retailers, my background was a perfect fit.

Many people come into interviews and say, “I want to advise retailers because… I like shopping!”

But that’s a poor response, and you need a better story if you want to get an offer.

I went through 12+ interviews, and 10 of them were dedicated to assessing my background in retail (the remaining few were difficult technical interviews).

I pointed to some of the work I did on dynamic pricing and how to integrate e-commerce, mobile, and brick-and-mortar.

One interviewer had just authored a white paper on the same topic, so we had an in-depth discussion that convinced them I was serious about the industry.

Q: You also mentioned, “difficult technical interviews.”

What did they ask in interviews?

A: They asked a lot of nitty-gritty accounting questions on standards for revenue and expense recognition and how items like stock-based compensation worked.

There were also quite a few questions on modeling capital structure and different types of debt/borrowings.

They didn’t ask about valuation, but they did ask me to build a 13-week cash flow model to assess a company’s liquidity.

This type of model might focus heavily on the most common liquidity ratios, such as the current ratio, quick ratio, and cash ratio as well as metrics like the Cash Conversion Cycle.

I didn’t know how to do that, so I was honest, told my interviewer I didn’t know, and offered to build a normal 3-statement model instead, which worked.

I also received questions on the restructuring process, such as Chapter 7 vs. Chapter 11 bankruptcies and the required adjustments to a distressed company’s financial statements.

I didn’t answer all of those perfectly, but I did well enough to win the offer.

On the Job in Turnaround Consulting

Q: Thanks for that overview.

What has the job been like so far?

A: It’s a jack-of-all-trades role. I spend time on FP&A work, modeling work, and also liaising with bankers and management teams.

In a typical engagement, a retailer might file for Chapter 11 bankruptcy because creditors are pressing the company or because it has a liquidity crunch and can’t pay for upcoming obligations.

The company will speak with restructuring/distressed bankers, and the bankers will usually pitch a sale of the company’s assets, or, sometimes, the entire company.

Then, we’ll come in, perform due diligence for the bankers, and create detailed 3-statement models for the business.

Often, we assume full operational and financial control of the company. They may even contract us to serve as the “Chief Restructuring Officer” in the company’s executive ranks.

We’ll assess the company and make operational recommendations; for example, if the company has 1,000 stores, we might recommend downsizing to 650 stores.

We’ll then create new projections based on 650 stores and use these new projections to negotiate a Debtor-in-Possession (DIP) loan.

From there, the process could go anywhere: A single buyer for the entire business might emerge, or there might be a stalking-horse bidder, or one company might want to buy only 350 stores and the company’s receivables.

We then build a model for each scenario.

We do not do the valuation work – instead, we send the financial projections to the bankers, who complete the DCF, comparable company analysis, precedent transactions, and other analyses.

Bankers then take the valuation and pitch the company to potential buyers using different transaction structures.

But then the buyers might come back and propose something different, and the company will ask us to model the new proposals, such as selling only specific divisions.

Sometimes we do a bit of valuation work to check the bankers as well.

Q: I can see the appeal. A lot of “valuation” is quite boring and consists of data gathering; modeling these different scenarios seems more engaging.

What does this description mean for your day-to-day work?

A: As with all consulting roles, I may be either assigned to a client or “on the beach.”

If I’m “on the beach,” I spend time creating practice models and honing my skills.

For example, I’m off client engagements currently, so I’m looking at one retailer and assessing if it can meet certain financial obligations in the event of scenarios such as asset sales or additional borrowing/repayments.

We also spend time on pitch decks and store visits for prospective clients.

There isn’t necessarily anything wrong with these companies – remember that “restructuring” can take place without declaring bankruptcy.

Sometimes, we visit stores to assess whether or not a potential client could stretch out vendor payments, cut CapEx, or lower its overhead costs.

When I’m assigned to a client, I spend a good portion of my day on modeling work, but there are other tasks as well.

Typically, we’ll go on-site to the client, and 5-8 of us will sit around in a conference room for most of the day trading ideas and working with management.

Depending on the size of the company and deal, the team can scale up significantly, but the average size is 5-8 people.

Ad hoc tasks come up all the time as new bidders appear, and as lenders emerge and demand different terms.

The average day might be spent on anything from building pivot tables with the average spend per vendor over the past ten years (to answer due diligence requests), to updating and sending models to bankers, to doing store visits.

Working Hours In Restructuring Consulting

Q: It sounds more interesting than hibernating in Excel all day.

You had mentioned earlier that the hours were quite bad. How bad are they, and why are they that bad?

A: When I’m on a client engagement, I work 75-85 hours per week.

The average is around 300 billable hours per month, and these engagements often take 4-6 months to complete. Some engagements can go on for well over a year, though.

You can do the math: 300 billable hours per month equals 75 billable hours per week.

Add ~2 hours per day of non-billable time to that, and you get 85 “in-office” hours per week.

In bankruptcy settings, billable hours are tracked by the tenth of an hour – so you need to be diligent about documenting how you spend your day.

On average, I arrive at 9 AM, stay there all day, and leave around 2 AM. I’m not necessarily working the entire time, but I’m more-or-less on call for multiple different parties during these hours.

Remember: You’re working with bankers, so you’re on their schedule.

Also, many distressed companies need urgent help to stay solvent, so long hours are required.

When I’m “on the beach,” the hours are much better: I might arrive at 9 AM and leave at 6-7 PM, and no one says anything, especially since I’m now “Lower Management” (The hierarchy is Analyst, Consultant, and Senior Consultant).

Of course, we’re not necessarily “on the beach” that much: In my last team, three members hadn’t had a week off in over a year.

Q: I see. Now that we’ve established that the hours are bad, what about the compensation?

A: My base salary is on-par with what an IB Associate earns: $120-$125K USD.

However, my bonus is a lot lower since everything is based on billable hours.

There are a few different bonuses at my firm; one is a function of total billable hours worked (also known as your “utilization”), and there’s also a year-end bonus equal to 10-15% of the base salary and an additional discretionary bonus of around $10-15K.

So, if you’re fully committed year-round at the Associate level, you might earn close to $170K all-in.

If you’re working significantly less than that, all-in compensation might be closer to $140K.

These figures are discounts to what IB Associates earn, and they’re also less than what MBB consultants at the same level earn.

However, they are higher than the compensation at small and mid-sized turnaround firms.

(NOTE: Compensation figures as of 2016-2017.)

Q: And now I have to ask about Starwood points. You knew this was coming.

A: Well, who knows if they’ll exist in the future with the Marriott deal?

But yes, there are some nice perks that make up for the lower-than-expected compensation.

For one thing, if we get out of work at 1:30 or 2:00 AM, we can go out for dinner or drinks, spend $3,000, and expense it.

You also expense all your meals and daily spending, so you can save a lot of money when you’re on the road.

You’d never be able to get away with that in IB unless it’s at a closing dinner.

Also, we do rack up a ton of points.

For example, I’ve amassed enough Hyatt points to go to an exotic destination for my annual vacation, rent a fancy suite, and stay there for free for over two weeks.

The Exit: Chapter 7, Chapter 11, or Private Equity?

Q: That is pretty nice; I tend to collect points from credit cards and then never use them.

Let’s continue with this positive point and go into the exit opportunities.

A: That’s one of the main advantages over management consulting at MBB: It’s easier to get into distressed/restructuring roles in both IB and PE from here.

I’ve seen people leave our group for the following opportunities:

• Restructuring Groups at Banks – Including the likes of Rothschild and other elite boutiques.

• Corporate Development and Business Development at Fortune 500 Companies – And if you have 5-6 years of experience, sometimes you can join at the Director level.

• Distressed Private Equity – Many firms focus on distressed retail deals, so you’ll be well-positioned for that.

• Client Companies – Several of my F500 clients have offered me jobs.

• PE Mega-Funds – This one is less common, but I have seen team members get into KKR, Blackstone, Golden Gate Capital, and Silver Lake.

Q: So many exit opportunities, but you have to pick just one.

Which one is in your future?

A: I’m leaning toward middle-market private equity funds focused on retail or turnaround deals.

I’m not especially interested in staying here for the long term because it’s easy to get “trapped” at the Project/Engagement Manager level: You’re good at executing client engagements, but you can’t win enough new business to make it to the Partner level.

Plus, I enjoy the analytical aspects more than the salesmanship, and at the top levels, the job turns into a sales role.

With that said, if Nike offered me a job, I might just take it and cancel my plans for PE.

They have an incredible campus!

Q: I’ll have my people talk to the CEO…

Any final thoughts on the job?

A: Don’t be intimidated by the hours.

You can easily get burned out working 80-100 hours per week in banking, but the workday is more bearable here since we’re always sitting around a table speaking with each other.

The camaraderie we build going out together in strange towns makes it worth the trouble.

Also, you get more networking opportunities in this job than in IB: Even as an Analyst or Consultant, you’ll be interacting with MDs at banks, CEOs, and other executives.

If they like you, they might offer you a job on the spot.

Finally, keep in mind that this role is one of the best ways of getting into Restructuring or Distressed groups, especially if you’re older and missed the internship train.

And if you choose to stay in this role, you’ll do well even when the economy is performing well: Companies can always “restructure” to improve their performance.

Q: That was a pretty strong “sell,” but your logic makes sense.

Thanks for your time.

A: My pleasure. Think about turnaround consulting!

Want more?

You might be interested in How to Win a Full-Time Investment Banking Offer as an International Student in a Non-Target Master’s Program.