Help me understand Turnaround &RX consulting
Hi fellow monkeys, I am a RX Analyst at an EB and am looking to find out more about the consulting side of things as am getting bored and am considering spicing things up.
Anyways, what do you guys do exactly in RX and turnaround consulting? Not vague missions but actual work?
how would you compare the work between A&M, AlixPartners, FTI, Big4s and others present in this space?
Do they cover the same services or some are more operations-focused while others are more financials focused?
many thanks,
fellow monke
I had offers to work at A&M and FTI (I rarely see opportunities pop up for Alix) and ended up accepting an offer at a smaller accounting shop (due to them offering completely remote work and minimal travel which is important to me due to personal family reasons).
The big players (A&M/Alix/FTI) often work on large bankruptcies; therefore, you are simply a very small cog on large (but cool) projects. For example, A&M won the FTX work and had 40+ people working on the file. You, someone who recently just left an EB at the analyst level, might get assigned to do just AP analysis for months (seeing who can be paid and who can be extended/effectively ignored), or work on preferences (determining gross exposure, new value, and net exposures), or AR improvement (trying to collect on extremely aged receivables). Overall, this kind of boring work is only worth, in my opinion, if you are are hired at A&M given the significant pay increase in comparison to Alix/FTI.
Smaller players, like GT, BDO, CR3, Big4, Forvis, etc, are more often brought in for mid-market companies that are distressed. The bank often demands a financial advisor is brought in, so one of the above is hired, and they are tasked with building/maintaining/rolling a 13-week cash flow model every single week. Then you will report variances on it weekly while assisting with trying to get the company refinanced. While you are pitching to potential equity/debt investors you are often dealing with a borderline incompetent management team so things like carveouts, margin analysis, and financial reporting improvements are implemented by you and your team.
Both are very different, I chose the latter because working day-to-day with company management seemed a lot more interesting, and significantly less hours.
Spot on.
Thank you, that’s very helpful!
would you consider that the Big4 and the likes spend their time doing FDDs/CDDs and cash flow projections whereas the likes of A&M/FTI/AlixPartners spend their time looking at all the practical ways to reduce/optimise costs on an operational level?
Meanwhile medium-sized consulting firms are also operationally-focused but do more things and have actual client exposure?
Did I understand correctly?
This is a great overview and I agree. You will work on larger "sexier" deals at Alix/FTI/A&M (Big 3) but you will only be working with a very narrow piece of the engagement until you get more experience. At smaller middle market firms, and there are a lot of good ones, you will have more responsibility and get better experience faster, but work on smaller deals. The pay at the Big 3 might is generally higher than most middle market players, but you would be surprised at how close it can be, and the travel is probably less at the smaller firms. Alix/FTI/A&M can often be on the road 80-100% of the time. All that being said, if you get to the point of gaining more valuable experience at the Big 3, which might take a while, you will probably have better exit ops with the big name on your resume.
In terms of the type of work you can expect, this poster is spot on. But I would also add it is not uncommon to see sell-side/distressed IB type work. It is a bit of a gray area but basically a Rx/Turnaround firm does not need to be a licensed securities broker-dealer (i.e., investment bank) to advise on capital raises if the capital is senior secured debt or M&A transactions if the transaction is an asset sale (e.g., 363 sale in bankruptcy or an article 9 sale outside of bankruptcy, among others). I have worked on deals where we were the normal turnaround advisor and the engagement morphed into a sell-side advisor deal where we marketed the company for sale or refinancing of debt. In some cases the company may bring an investment bank and you partner with them on the deal. I have also seen some Rx/Turnaround firms start adding formal IB divisions so they can advise on all types of distressed deals, although it is not common.
Receiverships are also becoming a large piece of the engagement pie depending on the state you are in. Interim management roles and Chief Restructuring Officer (CRO) roles are common. There is definitely a lot of variety in the type of work in Rx/Turnaround, the pay is good, with the downside being there is often travel and you are usually in higher stress situations because you are always working with distressed companies.
One other random thought to add is you will need to do both three-statement modeling and 13 week cash flow modeling, and understand how each mode impacts the other (cash vs accrual accounting). You won't necessarily be doing DCFs or LBO models regularly, although you might have to model out a refinancing and the impact of the new debt and associated terms. But coming from IB that shouldn't be an issue for you. The 13 week cash flow will be new but it isn't rocket science.
Spot on take from RCJ92.
Only caveat I'll add is re: IB type work, such work may be siloed off from the traditional RX team if the firm has a separate securities arm. At which point, folks working on the deal are required to be licensed, just like bankers.
Bump - also interested
Best case scenario: Turn-around
Middle case scenario: Restructuring
Worst case scenario: Insolvency
Worked with A&M, FTI, Alix on multiple times during my gig in banking.
One thing to note is that they are comped based on billable hours.
They are also more focused on improving operations compared to pure balance sheet financial engineering which is what bankers are more concerned with.
For some deals, these rx consultants are also hired to perform third party liquidation analyses as part of presentations to the court and investors. Also, banks cannot do receiverships/provisional liquidation type of roles, on which rx consultants or Big 4 get mandated often.
Adding on top of these third party liquidation analyses you mentioned, RX consultants regularly perform liquidation analyses for companies for Best Interests test for creditors, showing that the creditors are better off with the proposed restructuring vs. a liquidation.
I have worked on engagements as a RX Advisor at a non-A&M/Alix/FTI firm. Pretty much all the comments are right so far. I'd just add the following:
1. The first phase of the engagements is usually to understand what the Company's cash burn is and where we can immediately plug the holes. At least for the ones I've worked on/helped with, the Company is a bit of a sinking ship and we need to stop the water flow immediately. This can be a few weeks of intense work and fire drills
2. While you're plugging those holes, you're also getting your arms around what the Company is, what data they do/don't have, and trying to figure out a path forward after you stop the bleeding. This and the fire drills mentioned above can make the initial set up of the engagement pretty intense
3. Once you have a feel for the Company, have stopped the initial bleeding, etc., you now really start to formulate a business plan and work with Management, Advisors, Industry Experts, etc. to build a 3-statement model and slides around what the Company will do to turn itself around. I found this to be the most fun part of the engagements. Usually, the work is also divided whereby one person owns the 3-statement model and the other does the 13 week cash flow. You'll have to know each side because the 13 week needs to talk to the 3-statement model as much as a cash vs accrual-based model can reasonably do
4. Now you've plugged the holes, you have your business plan, and are in the maintenance phase of the engagement. You're basically tracking on a certain cadence (weekly IME) how the business is performing, what risks to hitting the plan are, etc. It's basically like being the interim CFO/Finance team, which is good or bad depending on your thoughts on corporate finance/accounting roles. In between your weekly reporting, you're also doing all sorts of random things. It could be helping interview team members to onboard permanently, ad-hoc financial analyses related to risks/opportunities from your weekly reporting, negotiating with vendors/customers, etc. This is the chiller part of the engagement, but it can still be somewhat busy because there's usually something breaking or new analysis that needs to be done.
5. You either now have managed to turn the Company around or you've done what you can and it's time to liquidate, recommend a sale to a distressed buyer, etc.
FWIW, I generally liked Restructuring work and think it's one of the best experiences you can get in consulting. My only issue with the work was that I personally found it really difficult to truly turn around a dying business. There's a vast difference between an otherwise healthy business that has fallen on tough times and needs to identify solvable issues and a fundamentally broken business that has strained relations with customers, suppliers, or has a product that flat out cannot compete in the marketplace.
I've mostly dealt with the later (others can correct me if that's not always the case) and it felt like a lot of the work I was doing was just stretching out the runway for the Company long enough to maybe hit some purple patch where everyone in the industry is thriving and they start to get business by virtue of this. So in the end, I was kind of delaying the inevitable and just slowed the death of a company. Maybe that's not the worst thing in the world, but I just wish it were easier to successfully turnaround a business through our work. The upshot is you learn a lot about finance, strategy, operations, etc. and a lot of the Execs I worked with actually read/took my analysis seriously since they needed ieas on what to do.
This was very well put. As someone that has been in rx consulting and distressed PE (portfolio ops and investment team), I think you might have had a few of the bad ones. I have seen a number of businesses where they have fallen on hard times (for various reasons) and needed an event to help drive it forward. This can be in many forms… though it feels like the most popular that I have seen is a strong / solid business tucked inside a dumpster fire. This usually leads to a carve out or spin off that benefits all parties involved.
Makes sense. That's why I wanted to caveat that it might have just been luck of the draw. I'm not officially part of a Rx consulting team, but have been loan staffed too them when deals were slower in my group. For additional context, I worked in financial due diligence for a long time and am currently in a financial modeling/FP&A group, so we are in high demand when restructuring is hot and there's no immediate bench available in their group.
Despite mine being dumpster fire of companies, I will say though that even a lot of the folks I worked with doing it full-time for years said they rarely are able to fully turnaround a business. I don't know if it's just because we're Big 4 and get the crappier jobs than FTI/Alix/A&M or what, but pretty much all of them said it was rare that they were able to take a business from unhealthy to healthy. Usually, their value add was getting a couple of quarters at most through a sale/liquidation vs pennies on the dollar. I still think though I've learned the most through restructuring engagements than any other work I've done, which is why I'm considering pivoting to it full-time at a firm that gets better projects.
Don’t think big4 has much of a presence.
Big 3: alix, a&m, fti
then brg, portage, ankura, riveron, m3, cr3, etc
Debtor side work is right hand man to the management team, typically working directly with the CFO. Typically starts with a 13wk cash flow to get an idea of liquidity forecast, but can transition into helping out with all sorts of things: vendor management, AP process support, AR support, operations, etc. all depends on the engagement. I would say it’s typically more finance/strategy focused.
Stressed - might just be managing cash through a rough patch out of precaution, some turnaround strategy work
Distressed - buying time in hopes of a recovery in some part of the business, a refinancing, or transaction to help give the company a longer runway
Restructuring - more of a process professional helping support businesses and management teams through bk process, helping file reports, motions, manage vendors, etc. Good exposure to other professionals (bankers, lawyers, investors, etc)
I get the sense that bigger firms are more siloed, middle market firms are more responsibility, but you have to take initiative and ownership of your work to be given the responsibility. Very much a go getter type of role. Overall, I think it is a great place to learn about the inner workings of a business in a pretty practical way. You can be fully involved in internal processes and get a feel for what it’s like to work in some of the roles.
Currently at a rx consultant at a mid-market shop. My complaint is that it feels like we are glorified accountants doing at times tedious, process based work. Managing cash and reporting variance to the lender / other interested parties isn’t very big picture or strategic, and it feels like what we provide is in many ways commoditized. I personally was attracted to the working in bankruptcy and understanding the nuances of the code. Wondering if anyone on the banking or even legal side has a perspective on this. It also is very accounting heavy with a lot of CPAs (heavy accounting is not my background).
Is most of the work you're doing creditor or debtor-side work? Even at my Big 4 firm, the debtor-side work certainly has a liquidity/corp fin component to a lot of what we do, but I've always done A LOT of ad-hoc analysis on profitability, how much our financial position would change if we sold certain assets, etc. If it's creditor work, then I'm not surprised. Despite all of our independence restrictions, we've certainly done a lot of financial operations analysis or quantitative/strategic work.
Certainly, we're not building "growth share matrices" or whatever the hell strategy consultants do, but I think it's still strategic to me in the sense that we're evaluating decisions that could make or break the company's performance or what initiatives they need to pursue.
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