Best Industries to Cover in Investment Banking

Hey all - currently a summer analyst at a BB doing investment banking in the Power & Utilities (Natural Resources, some energy) group. Initially was happy to be placed in this group, as it is universally known as a top 2-3 group at my bank. So far, I really like the culture and investment banking in general (especially M&A work), but I must say that I geniunely hate the industry (mostly P&U) that I'm working in.

I am just not a fan of learning about how this industry works. I honestly feel like the P&U space is 100% run by the government, lawyers, and lobbyists. Not to mention the industry is pretty slow and the only M&A like work I'm seeing are a bunch of asset sales that don't really have a fun strategic reasoning behind them (literally selling assets just because they need cash). I feel like M&A work is more interesting when it's a whole company getting bought vs. some asset that is worth like 5% of the parent company. And to be honest, the models get really complicated but I find them boring because they are so accurate due to everything being based off of rate base and other things that are regulated by the government.

With the above and a bunch of things I hate about this space, I am looking to either lateral to a different coverage group for FT (my bank is actually very encouraging of this as many have done it before ) or recruit FT elsewhere. I know that if I wanted to stay with this group Nd jump to PE, i would most likely end up at an infra fund, which I would hate.

So I would appreciate it if WSO could explain/argue what is really the best/most interesting industry to cover for bankers and why. I think it would help if I, as a 21 year old, could relate to the companies I work with (whether I use their products, etc). And what industries are good for exiting to PE/growth equity? Thanks everyone

 
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Judging from why you seem to dislike P&U, you'll also probably hate NR/Energy. Mainly because a lot of movement will be with individual assets, with the strategic rationale in down cycles almost 100% being that the acquirer has a strong B/S and has the capacity to take on assets from distressed co's & utilize economies of scale (ex. Integrated Co. buys gas stores, can leverage existing network of downstream plays; primarily-E&P co. divests non-core assets, benefits from a valuation perspective b/c of added transparency on their revenue mix (conglomerate discount), gets cash on-hand to support them through the low point in the commodity cycle) OR in hot markets, that there's existing recovery infrastructure in place to make a brownfield acquisition worthwhile

The strategic rationale for a lot of M&A in NR won't have a lot of "diversity", but the benefit is that you get to see a wide range of activity from different players depending on their sensitivity to commodity price movement. Another interesting difference is that cost of capital is usually fixed (PV-9,PV-10 for O&G, PV-5 / PV-10 for M&M) because NR doesn't really tend to move proportionally to the economy, and is better reflected by regional effects (geology, gov. regulation). The way to value companies is also pretty set in stone - reserves deplete, so that + avrg. strip pricing / price deck forecasts are the primary drivers for valuation.

Compared to something like TMT, where the way you value a company can be quite different (subscriber-based/recurring revenue, etc) from case-to-case but like you mentioned, it's not necessarily "more" complex. Energy infra / PPP models are some of the toughest, most robust models in existence, and technically CF's are fixed because of agreed-upon PPAs.

But it seems you want to "relate" to the industry you're working with, so C/R or being in Menlo might be of interest.

IMO, no industry has significant more "relevance" than others for the private capital markets, being that a lot of funds will be generalist, but will appreciate the particular expertise you may have in a field. I would say (off the top of my head) that tech is pretty sexy so there may be more tech-specific VCs than other industry-specific VC's though.

 

You basically hit the spot on describing how the P&U/NR/Energy banking is like. It is very complex and I honestly feel that energy bankers are some of the smartest out there who get unparalleled financial modeling training. However, I feel that you either love/hate working with the sector, no between. Huge respect to all bankers who love working in the space, but it just is not for me.

In terms of TMT, isn't it more capital raising focused than M&A? Please correct me if I am wrong, as I have not found much fun working on capital raising deals (too much PPT, not much modeling). And for Consumer & Retail, what kind of M&A do you see in the market? Is it mostly sponsor deals? Just wondering because I know a lot of consumer brands out there are PE backed.

Any idea what working in healthcare coverage group is like? I heard it is another niche/complex industry like energy due to regulations and scientific terms and all that.

 

Honestly, in hot markets, commodity-based industries will see a LOT of capital raising (massive equity/debt raises) because some previously unprofitable mines/wells now become economical.

I honestly don't know too much about TMT, but for C/R the thesis seems to be for a lot of legacy B&M companies trying to stay relevant with the shift to online purchasing. There's a lot of consolidation with conglomerates like Amazon and Walmart picking up anything that fits into their value chain. There are a lot of consumer brands that are PE backed (particularly in food & bev), but not as much compared to a field like Industrials.

And unfortunately, Healthcare is probably what I know the absolute least. Have absolutely no exposure whatsoever. My GUESS though is that similar to energy companies, the value of the company is derived from the value of the asset (the drug / the IP) and the market assigns less value to corporate effects like mgmt / capital prudence compared to other industries

 

First off, those are not investment banking. Banking includes product groups like equity capital markets, debt capital markets, M&A, restructuring, and leveraged finance and coverage groups like health care, financial institutions (FIG) and financial sponsors. The ones you listed about are divisions within an 'investment bank' but because you are at an investment bank doesn't mean you are doing investment banking. I'd read the vault guide to investment banking just as a brief introduction.

 

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