What is “distressed” PE…who gets in??
Title. Terrible lack of info on the topic compared to growth PE etc so decided to pop the question on here. Some other things I’m curious about:
- What backgrounds are most competitive for distressed PE ( RX IB, RX consulting, FP&A…) ? How does recruiting look like for this? Is it possible to switch back and forth between operating and investing roles?
- What firms lead the space / tier list of firms, and what is the industry going to look like in the next 5 years? Is it dying or booming?
- What does day to day / work in general look like at a distressed PE firm as compared to growth PE? Which would you say is more intellectually simulating / interesting?
- What is the good, bad and ugly of working in distressed PE? What personalities are most common in the space?
What does comp look like compared to growth PE & what are common exits from the space?
Appreciate any insights. TIA ppl.
Self bump
A few thoughts, coming from more traditional MM buyouts:
Rest of your questions can be summarized by the below comment from a while back. My 2 cents from working with troubled portco's - distressed companies are constant heart-attacks. You either love the fast-paced "holy shit, shit's fucked, we need to move ASAP or we're bankrupt and everyone's out of jobs" or you enjoy working on longer-term strategic growth opportunities with more stable companies. I feel like in the distressed world, you're just trying to put out the immediate fire / save the business vs. trying to take a decent business and turn it into something special.
Anyways - here's the comment from JS Turnaround that i thought sums up your other questions:
“OP, objectively healthy PE is better, easier, more exit ops, more glamorous, less risky and probably pays better. Everyone in the world will pick healthy buyouts except for two groups; (1) candidates who just aren't blue-chip enough to be recruited and (2) quirky weirdos who are somehow turned off by all of that and want a little more jungle warfare in their life.
Distressed is absolutely more intellectually stimulating. Speed helps make it more interesting/stimulating. Lack of a crowd and lack of a formal selling process make it so much more interesting. Straight up healthy PE reminds me of an art auction at Sotheby's; Let's all dress up real fancy, drive our Rolls to the auction, overpay for an asset within a highly choreographed sales process and then bake in the warm satisfaction of compliments from my peers for overpaying on such a choice asset.
I look at special sits (insolvent C&I businesses in my world) as trying to defuse a complicated bomb that everyone is running away from, under the pressure of both time and fear of competition. Any classically trained MBA in the world would look at these situations and rightfully proclaim that it's too far gone, hope is lost and they will fail to make payroll in 3 weeks. Every single fact supports that conclusion. Plus there is all sorts of liability, risk and (quite frankly) shit swirling around the deal. Any gentleman would quickly run away, shower off at the club and return to the auction house with his chums. But if you just sit there and stare at the flopping corpse in a shitstorm, and think deeply, solutions start coming to mind. And if you stare long enough, creatively enough and fast enough, you might see something that no one else has seen - a new method, structure, plan, partnership, angle of attack. And if you can develop a thesis fast enough you might outpace both the pending insolvency and your competition and walk away with an uncontested great deal. Well, at least an uncontested great thesis. 2/3 of the fun is turning that crazy thesis into a reality. And that is way grittier, exhausting and more intuitive that getting the deal in the first place. Compare that to the soulless thesis of; "We'll buy it at 6X, not fuck anything up and sell it for 9X".
I'd say personality fit is most important and being honest with yourself about where you'll be most at home.”
Admittedly also not my world, but RX consulting also might give you a chance at making the jump, given that you'll be working with PE professionals at times.
I've seen quite a few Rx Consulting guys exit to PC as opposed to PE honestly... Maybe because a lot of their FA engagements are awarded to them by banks? Which is interesting because Rx Consultants are very hands on/operational (especially the interim management guys) so you'd think PE would make more sense
Not true vast majority of guys at PE groups of these names (i.e. which play in deep value/SS, but are investing primarily for control equity) come from m&a backgrounds. The credit guys yes mostly Rx but this is credit investing not equity. Loan to own strategies would be in the credit team but there's barely any opps for this anymore
Happy to do this – I work at a MF SS shop (BX TacOpps, Apollo HV, Ares ASOF, Sixth St Strategic Cap). Posted a bit before.
Half of us are from M&A, the other half of us from RX. We have absolutely no preference other than a strong technical aptitude, which we'll test you on anyway - so 'everything' is competitive - it mostly comes down to the individual. In previous years, we have begun to go OC with a wide mandate for team, bank, school or even geography - but yes, we tend to go in with more confidence with banks or groups we've previously hired from. Sometimes on a deal-by-deal basis we steal the PE/Credit guys and they may stick around. Aside that, at the more experience hire levels, I see lawyers or PortCo execs who have done really well in previous engagements. Unfortunately I haven't seen RX Consulting or FP&A in my team or any of the other places I interviewed.
What does day to day / work in general look like at a distressed PE firm as compared to growth PE? Which would you say is more intellectually simulating / interesting?
My gf works in growth so can tackle this haha - their sourcing component socializes the work they do a lot more than ours. So your one driver of day-to-day is that, but at risk of stating obvious… it really depends on who you are. You may hate 30 min calendar blocks every 1 hr because it distracts you and can't focus, or you'll love it. I can tell you our work is definitely interesting (to me?) – you're usually looking at pockets of capital that have no support from DL or PE, so can opportunistically deploy very creative structures, drive returns and have incredible lens on capital investing. It ultimately serves you super well for any type of role, and most of the aforementioned firms do look at public and private opportunities. But don't get me wrong, you still get your fair share of 'vanilla' work as well like provide a financing tranche to P2P. So very varied, but very wholistic I'd say.
What is the good, bad and ugly of working in distressed PE? What personalities are most common in the space?
What does comp look like compared to growth PE & what are common exits from the space?
Genuinely don't think I could generalise. Maybe others can. A lot more perspectives on cash flow, cash flow investors – but that's by nature of investing senior to your fcf yield. Have come across some very interesting people across the spectrum, and without being politically correct – it really does depend on your shop. Some of the old school CIOs I've seen in meetings can be a bit "intense" but those are negotiations and so that zeroes out my argument… won't comment too much on comp bc the website has enough datapoints for each strategy, you can do the comparison. Exits - you name it
That's so weird...I spent time recruiting for RX consulting at one of the big 3, and the consensus was that consultants are capable of moving into distressed PE due to skillsets, and would get looks from recruiters...but then when asked how many actually made the jump the answer was '1 or 2', justification being that out of 100 consultants, 99 of them would much rather try for C-Suite than PE. Made sense at the time given, but it sucks not having a general consensus...again, might be due to limited datapoints.
So the ppl recruting you at Rx consulting told you they all got distressed PE looks and that no one made the jump because they all want c-suite, and you took that at face value? MBB is much more likely compared to RX consulting to get into c-suite, the personalities are much more likely to want to be c-suite, and they still send much more to PE than "1 or 2".
unrelated but as someone going to one of the shops listed here this summer, what advice would you have on how I can set myself up for success?
Hey, congrats on getting in and welcome to the SS world!
My main takeaway would be the usual - read as much as you can, contribute to memos (aka learn on the job), and take time out to schedule some weekly sessions with more senior associates to see what direction of learning you should progress in. I did this and helped a ton with expectations. If there's someone even more senior you get along with, ask them for good resources / subscriptions they're subscribed to. Take your time to get to grips with the style of investing, to really take some time to read about the hairier-end, "the real "impetus" of the industry i.e., when things go into stress arena. Just for WSO users, regardless of your M&A/RX background, some of what we do is a 'hybrid' mix of a lot of vanila stuff, with a credit twist e.g., providing financing but at HoldCo level with some intercreditor rights that do X or Y. So having some parlance of both sides of the field is very useful, as it may otherwise feel like a very steep learning curve and you really want to be focusing on the substance of the work you do as opposed to finding definitions. Of course, it's a learn-as-you-go industry, and I don’t think anything preps you better than being in a live situation and having to brute-force see that a PIK with a liq. pref might be the best way to capture sponsor upside or go out with a super narrow whitelist because you know this is your trade. But either way, my view is that knowing a little about these things before going in might be semi-useful to really clarify 101 doubts when you hit the desk… but that goes for any team/sector.
Other than that, I'd say enjoy the time off, keep at it in banking, your hours might be marginally better (shop-dependent) so maybe begin a hobby!
Hi, thanks so much for answering. Have you seen anyone with backgrounds in Distressed debt or high yield trading or financing groups like the distressed products group at DB break into distressed PE funds? Thank you!
bump
Really hoping to get into distressed PE or special situations, think the deals are fascinating and the strategy is poised for great performance. Currently set to begin with a top FSG group (all modeling in house). Given the technical exposure, along with a lot of work internally with credit/lev fin and externally with big sponsors, would love to hear others thoughts on the viability of exiting to distressed PE/SS, or if getting into RX would provide a clear advantage.
Very strong possibility. Will need a little more grinding to unveil your interest in the space (unfortunately not the most natural HH mandate to go to FSG, esp for exp hires) - but definitely doable.
(sorry for hijacking the post) what about mba grads? prev. experience in BB FIG IB / M&A at a conglomerate? Thanks a lot!
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