Thoughts on Energy Transition in Houston? Best Groups, Exits, Deal Flow, Comp?
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The energy transition in Houston is gaining traction, with some banks and groups beginning to pivot towards renewables and alternative energy. Here's a breakdown based on the most helpful WSO content:
Best Groups for Energy Transition
Exit Opportunities
Deal Flow
Compensation
Key Considerations
In summary, while Houston remains an O&G stronghold, the energy transition is creating new opportunities. Evercore, CS, and JPM are leading the charge, offering a mix of traditional energy and emerging renewables exposure. For the best exits and compensation, Evercore and Jefferies are standout choices.
Sources: Personal Experience with Houston Energy IBD - Thoughts on Industry Outlook? (Long Post), Is Prestige Really All That Important?, https://www.wallstreetoasis.com/forum/investment-banking/renewable-energy?customgpt=1, Evercore Houston Transitioning into Renewables?, Houston SA 2024
I am currently an associate in Houston and have done quite a bit of work in the space. The reality is there is a lot of smoke, not a lot of fire. Covering that sector is mostly doing capital raises that go nowhere. Or investors send in bids at such low valuations that the whole effort feels like a waste of time. You end up doing so much work because you need to sell the companies really hard. They usually don’t have all the data and materials a company would need to do a proper capital raise/sellside process, so it ends up being a lot more work than a regular company’s process.
Also, fees are inherently lower, so you will find yourself working on deals that 1) require a lot of effort and time, 2) low likelihood of closing, 3) low fees to your bank relative to traditional energy deals.
When you work on deals that bring in low fees to the bank, the group head will care less about it.
Every bank in Houston has an ET practice these days, and they all talk big dreams about it. Similarly, i found that most sponsors and strategics talk a big game on investing in the space but will always either pass saying “it is too early for us” or send in ridiculously low valuation bids that your client feels insulted.
Thanks for the insight, really appreciate it. Few questions:
1) Do you think the scene is going to improve over the next ~5 years or so? Everyone shits on traditional O&G for being on the "decline" but feels like they have been saying that for a while now.
2) Any strong groups in HTX for ET? If so, which ones?
3) Any difference in exits assuming different groups for ET/O&G? Maybe the ET skillset is more transferrable to other industries like P&U or Renewables/Infra? Not sure here, would love to learn
ET was in a much better spot around 2021 or 2022 or so than it is now. The dumbest shit imaginable was getting $100mm in funding rounds or hoodwinking a SPAC. Storing energy by stacking concrete bricks with a crane, generating energy by flying giant kites attached to spooled ropes. Like catastrophically stupid shit that you would expect a high school senior to come up with for a school project.
The ET funds have basically all performed poorly and it's substantially harder to get stupid money for stupid ideas. Most O&G companies that invested in CCS also found it didn't really help them in any tangible way (makes a pretty slide in the IP but doesn't move multiples at all vs. companies who aren't doing anything in CCS).
It will probably be big eventually, but by eventually I mean like ten years. For now even the "good" groups aren't doing a ton
I think it is possible, but banking your career on it as a junior is tough. Imagine you are up for VP promo in 3-4 years, it is a tough year for your group, and you haven’t really worked on anything that generated material revenue for your group. If possible, try to prioritize traditional energy and spend 20% of your time on ET. Easier said than done of course because your staffer will ultimately decide what you will work on
Answering your other questions: would say ET has more overlap with power and utilities groups for sure, but only on the renewables side. My group collaborates with our Power group often on ET bakeoffs/deals.
It is tough to know what groups are strong because deals are so small that they don’t make the news or don’t generate any buzz
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