Rx vs. M&A Fees: Who Wins?
I'm curious as to which group generates more fees on average? Do top Rx groups outpace average M&A groups in fees, or M&A still tends to win? Given that M&A deals are usually larger, I would think they are ahead, but since so many restructurings are out of court it's not always easy to understand the fees generated.
Separate question, what is a typical fee structure for an Rx group that is advising a group of lenders? Thanks for all insight!
Depends on the success fee set up and how the bankers do
You can look up the fee structures for debtor/creditor mandates for specific firms on admin sites (eg stretto, Omni, etc)
For example:
https://cases.stretto.com/public/x191/11749/PLEADINGS/11749011724800000…
Appreciate this!
Bump!
wrong question
(deleted the fees part because of inconsistencies)
it's wrong because you're missing that there is a +20:1 ratio in terms of times when a financial advisor is involved in M&A deals vs. restructuring, so even if the average M&A might be paid a bit less, the fact that there are x20 deals means that you make way more in revenue from a business standpoint, so it's more profitable overall
But on RX, in general, if you are interested in this path as a career, forget about banking, look at fees for other advisors:
so I get that there's some obessison about RX because of exit opportunities, but if you really live and breathe restructuring/bankruptcy, then consulting/Kirkland is the place to be because they dominate this side of business
This is very helpful and you definitely read part of my mind in terms of what I am thinking for a career in banking. I'm honestly not super clear on the main differences between Rx consulting and banking so I'm sure I should find some threads on those.
In terms of the economics at the bank level, couldn't some groups still have MDs paid higher in Rx rather than M&A if the groups are smaller? I know that the amount they are smaller doesn't make up for the +20:1 ratio of deals, but does that bridge the gap a bit?
Given how popular RX consulting has been recently, you'll find plenty of posts on the CO forum and the IB forum about the topic. For people who r too lazy to go search though, in a nutshell...
RX consultants: r the hands-on operators and financial mechanics. They jump into the company itself and help it fix its internal mess, stuff lk running out of cash, bad ops, messed up fincials, etc. They might actually take interim roles like CFO or Chief Restructuring Officer (CRO), and help stabilize the business, forecast cash flow, create turnaround plans, and run cost-cutting initiatives.
They also help creditors (like lenders or bondholders) by digging into the company’s numbers, verifying if the company’s forecasts are legit, figuring out what kind of recovery the creditors can expect, etc (this is more akin to RX IB...a fair amt of RX IB knowledge is needed for RX consultants, esp the ones on creditor engagements).But overall, they’re in the weeds. Think financial triage + operational fixers. They also set the overall plan, that the RX bankers on the deal follow.
RX IB: focused on the deal side — advising either the company or creditors on capital structure solutions (debt exchanges, DIP financing, Chapter 11 plans, etc.). Their job is to craft and negotiate deals between all the stakeholders (equity holders, lenders, unsecured creditors, etc.). They’ll model out recoveries, value the business, and run the restructuring transaction kinda like M&A bankers, but for distressed companies.
They’re not running the company or fixing ops, they’re strategic advisors focused on the financial engineering and negotiation process.
*If you go look at the Deal's or similar RX league tables, you'll see that the RX consultant are usually on more $$ deals than RX IB, reason being that not all restructurings need bankers / dedicated RX IB firms. Sometimes the consultants themselves play the part of the bankers, or no bankers are brought in at all. Dedicated firms are brought in when there's better sense in hiring a specialized RX IB firm rather than let the consultants do it. Also in response to the above comment, yeah consulting / kirkland dominates the space, but imo the work they do is also more fun / interesting.
Didn’t PWP get $100mm for shockwave medical…
true, just looked it up. Had outdated numbers in terms of highest fees so will edit it thx
Believe they are getting even more from FTX if I recall.... could be wrong
If you live and breathe restructuring you obviously want to do banking not law/consulting because banking is actual financial restructuring. If you love looking at capital structures, waterfalls and thinking of creative debt solutions you aren't going to want to start working on operations of a company or drafting legal docs lol
Also looking at total fees on select deals isn't useful (especially when consultants stay for years after the Bk working with the client whereas bankers just work on the deal). Overall Rx banking comps better than rx consulting/law at junior/mid levels. Probably more equalised with law at senior level.
What lol, banking isn't the one and only restructuring, I'd argue it's the least impactful of the three bc the whole point of a RX process is to make sure the company can operate going into the future, and bankers don't do that, they also aren’t fixing broken ops or sitting in war rooms with management. Lawyers and consultants do. Matter of fact, bankers can't even get deals done without lawyers. In the grand scheme of things though, they're all "real" RX, so just pick ur flavor. In general, the stuff RX bankers do is a very small (and narrow) part of the actual process, so if you actually enjoy restructuring, banking isn't the place to be.
Not sure about these numbers. Below from Lazard's final Lehman fee app....
then got the wrong fees given by the google search AI, didn't look the docs, just removed altogether the part because doens't help the general message
I believe the exact opposite of what you said re: volume vs fee % is true haha
That or its a poor read by me - often RX is higher volume and lower % fee
I’d argue M&A has more variance than RX. M&A you have the guys at the low end shops scrapping to clear 1M a year and the ultra EB rainmakers getting paid 40M+, while RX there’s really only a few elite shops that do it. At the especially lean firms seniors are getting paid big time 20M+ but low end probably higher than low end M&A.
Just my two cents from what I’ve seen at my EB
How many seniors are really being paid 40mm+? Just from public filings of these EBs, the CEOs make between 5mm-30mm over the last 3 years which doesn't make sense if there are seniors making more than them, or maybe I'm missing something?
CEOs are not the ones generating revenue... Same thing for Investment Banks. DJ Sol makes ~$30M/y, but every year there is a couple articles about some GS trader making 80M that year because whatever coverage universe he is in was super volatile and he was on the right side of it. I.e. Name Officers does not always equal highest paid in the company.
Ex: https://www.bloomberg.com/news/articles/2023-12-12/goldman-trader-who-was-paid-100-million-since-2020-to-step-down
(i remember seeing some more extreme cases, but couldnt care enough to spend more time finding them)
At CVP there is a good amount and assume the same for EVR. GS definitely a healthy amount of guys making 8 figs
Worked in RX. Your typical fee on an RX deal ranges from $5mm - $20ish; varies based on if you’re creditor side (lower side of fees) or debtor side (higher end) and whether the deal is in court or out of court, with in court typically generating more fees (although newer LM Engagement letters have started incorporating things that track to discount capture, making them a bit more lucrative).
Comparing RX vs M&A fees is hard because RX deals will never have a gangbusters $50mm deal, but can consistently grind out 15-20 deals averaging $10mm on super lean deal teams (part of the reason some M&A analysts leave banking with no deals while RX analysts usually leave w 2-3); net result is usually higher fee per head for RX than M&A counterparts
This is super helpful, thanks for the insight. 15-20 deals at $10m average is still pretty crazy. Given that EB Rx teams don’t have nearly as many MDs as other groups, it sounds like they’re getting pretty good comp on average. I would definitely appreciate more insight into newer fee structures for LMEs if possible!
LMEs often involve some sort of discounted exchange. A lot of company-side ELs will have 25bps exchange fee, in addition to financing fees, rather than a fixed restructuring fee (although you can kind of imply one from the other and vice versa anyways)
Just by way of example for a [$2bn] LM exchange and [$250mm] super senior new money raise you might get the following:
[6 months] x $150k monthly retainer = $600k
Exchange: [50bps] x $2bn = $10mm
New Money: [100bps] x $250mm = $2.5mm
Total: $13.1mm
This is probably on the lighter end for a transaction of this size (should probably be closer to $20mm) but should give an idea.
However, lot of sponsors / lenders have been pushing back on banker fees recently given how frequent / expensive it's getting. Banker fees tend to be relatively bigger $ out of court since there's less lawyer work whereas in court deals are really where the law firms really suck the estate dry.
You need to factor how the fees are split among MDs / groups
The more hands reaching out to claim credit for initiating the fees starts shrinking the pay
M&A probably has more ppl trying to claim credit I think
I would assume that changes based on the type of bank, no? If GS helps a company raise capital and then that same company comes back to GS to their M&A team for a merger I can see the capital markets team wanting to get a piece of that, but that exact analogy doesn't happen at EBs as often.
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