Impact of recession on MBB's
Curious how a recession would impact the MBB's. Bain I'm guessing would be hit the worst since it's smallest and dependent on PE. That said, wondering what usually happens with hiring, particularly with summer classes of interns (who are largely all expecting return offers.
The running gag is that MBBs are recession proof: if their clients are doing well, they need advice on how to outgrow the competition and the market; if their clients are doing poorly, they need advice on how to minimize damage and rein in costs.
My take on the effect of a recession on PE (and therefore PE consulting) is that it will be relatively mild since funds have raised huge pools of capital and will be eager to spend once valuations decrease. Some of the most successful funds were raised around the GFC and invested in ca. 09-10, so everyone will be on the lookout to replicate this strategy this time around.
Regarding hiring, fluctuations are more closely linked to office/ regional performance (e.g. losing a big client) and attrition rates than to macro factors.
There was a similar dynamic to undergrad jobs in 2009. In my first two years (2006-2007), if you didn’t have a job upon graduating, you were a loser. By the time I graduated, if you had an unpaid internship you were royalty. I heard nightmare stories about firms rescinding FT offers, but it was mostly just everybody clamming up the new recruiting. Big law firm hiring was also directly effected, which people often say is recession proof as well. My impression is that a normal recession would not impact hiring efforts nearly as much as the GFC. It was an historically unusual time.
I'm curious then, how would this impact intern return rates? Most interns go in expecting to get a return. Could tension of a possible recession have an event this summer then? I know banks slashed return offers last summer, for example.
It'd have to be pretty dramatic to have an impact. Basically, it would only happen if over the summer, MBB decided to slash their full-time numbers and they already had too many people if every intern were given a return offer. More likely, MBB would just not go back to campus for full-time hires as this is what happened in 2009.
Private Equity will probably do relatively speaking better than corporate in a recession. They're more nimble and sophisticated and also have huge amounts of capital to deploy currently. It'll be consumer facing industries with low margins and high maintenance CapEx that deal in non-essential products that'll be hit hardest, so far example airlines, car manufacturers etc.
PE firms will have opportunities to buy cheap. Sponsored backed companies on the other hand are much more straddled with debt than a non-sponsored backed company and will likely be hit harder as they have much less breathing room. Most sponsor deals are basically cash flow break even and rely on growth. LBOs have much high rates of bankruptcy than non-sponsor backed companies.
MBB recruiting is more recession proof than banking for the reasons you mentioned. Having said that, during a downturn, it will be significantly tougher to get MBB interviews if you are at a lower ranked program while the top programs should be fairly safe since that is MBB's main talent pool. Agree that Bain is weaker than McKinsey and BCG: they are smaller and have less industry breadth.
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