Can we start a thread on the pros and cons of different coverage groups from a work / career perspective?

In other words, why might one want to work in (for example) consumer & retail (setting aside prestige and stuff)? What makes the work especially appealing from an intellectual / professional perspective? What are some unique aspects of the vertical? What makes the work especially unappealing? What about power & utilities? FIG? etc.

As a prospect, it would be enormously helpful to learn more about the differences between the groups at a more abstract level. Obviously I know the differences between what they materially do do, but I'm wondering more about what the work is like qualitatively in each group.

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Comments (57)

  • Associate 2 in IB-M&A
Jun 11, 2021 - 5:41pm

Honestly and not to be difficult, but I think you're asking the wrong question. You should instead try honing in on what industry you find most appealing.

Simple test: if you open the WSJ and see a headline article on each industry, which one are you most likely to read? The O&G one? The utilities one? The consumer one? 

Most Helpful
Jun 13, 2021 - 12:15pm

Can't say anything from any direct experience, but what people in Power & Utilities & Infra tell me is that the space is traditionally characterized by high leverage and stable cash flows (government contracted), meaning your mindset is less about growth (i.e. TMT), and more about risk management of your downside. It's a pretty fun field for people who like to see tangible stuff getting built, like highways, but its extremely modelling heavy and could be dry for many people as well. Then again though, if models is what you like doing, you could probably enjoy it, because at many banks, the P&U Infra coverage group does the entire model, without M&A even touching it. 

  • Intern in IB - Ind
Jun 13, 2021 - 4:00pm

P&U also does a lot of work in the renewable energy space now that it's a growing sector and the new administration is more supportive of it. That's why I think P&U is really great, you get to work with standard utilities companies but also get exposure to a fast-growing sector. I've really enjoyed my experience covering the industry, it's cool to be at the forefront of the energy transition and see how far ahead and behind different parts of the world are in terms of their energy usage.

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Jun 14, 2021 - 11:48am

On the modelling, a lot of teams don't want M&A touching the model as they can be quite industry specific. I'm from NatRes and similarly when I was at a big bank we didn't want M&A touching our stuff.

Power and Infra will spend a lot of time talking to pension funds and similar as likely buyers. Big offices with lots of low cost capital. I think it's toned down now as regs catch up on off balance sheet accounting, but used to see lots of sale / lease back structures and similar. It's definitely a growing sector.

Jun 13, 2021 - 1:23pm

Healthcare

Pros : A lot of healthcare is counter cyclical. Biotech will always be hot. A lot of HC services buyouts who to some is very interesting. If you're an expert in this field as a senior banker, you will always be highly sought after by banks. HCIT is a great cross between healthcare/TMT and has drawn a lot of PE investment (and IMO, where a lot of high flying unicorn startups will appear for years to come).

Cons : Long hours. Esoteric industry. Not "sexy" like TMT (which to some may matter). Limited exit ops post banking due to a very specific industry? I'd argue a lot of other coverage groups have more flexibility in terms of relating to other industries.

Jun 13, 2021 - 3:31pm

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  • Prospect in IB - Gen
Jun 15, 2021 - 2:27pm

Thanks, this is really helpful. Do you work in C&R (or did you)? If so, could I PM you?

Jun 16, 2021 - 3:21pm

Undoubtedly you have the least differentiated skill set (in a bad way). If you spend a 2 or 3 years in FIG or Healthcare or Software etc. you will have a knowledge and skill set that puts you above the competition (ie irreplaceable). Consumer is intuitive and an easy industry to go into with little to no prior knowledge.

  • Analyst 2 in IB-M&A
Jun 14, 2021 - 1:42pm

Intern in IB - Gen

Real estate?

I started in the REGAL group and hated it. Very few M&A assignments, REIT clients all have the same operating model so you learn little about business/strategy/interesting growth stories and the work isn't very transferable to other industries unless you want to do FP&A for a REIT (yuck)

  • Intern in IB - Gen
Jun 14, 2021 - 1:51pm

Thanks for sharing your perspective. What kind of bank were you at? I'm heading into BB REIB and wanting to keep my options open moving forward… can you talk about how you moved on from that group since it wasn't a good fit for you? 

  • Intern in IB-M&A
Jun 13, 2021 - 8:37pm

What groups are the best for those not necessarily looking into PE but looking to keep options wide for corp dev, start-up etc? Would all coverage groups be looked at similar just for having the ib background or would something like a tech group or consumer group look better to then target companies in those industries?

  • Analyst 1 in HF - Other
Jun 13, 2021 - 10:17pm

Worth noting that some groups like Power, Energy, Real Estate and FIG can pigeonhole you somewhat for buyside opps. It matters less if it's a really well regarded group within the bank (i.e., Goldman FIG can go wherever they want) but worth consideration when you think about joining those groups. People in those groups often only get shown sector specific buyside roles/have to really prove that they want to do other stuff. 

  • Analyst 1 in HF - Other
Jun 13, 2021 - 10:42pm

Groups like industrials, consumer, TMT generally pigeonhole you the least. For those pigeonhole groups I mentioned, the headhunters think the modeling is different from traditional PE LBO modeling and in general it's easier to place candidates in those groups into sector specific buyside roles. Energy banking analysts have an easier time getting energy focused roles, etc.

Jun 14, 2021 - 1:35pm

Pros:
-Typically a heavy focus for most firms in Toronto given its significance in Canadian markets
-With the breadth of commodities, at any given time there's usually a subsector of mining that's hot (ex. gold prices are down and precious metals companies aren't doing much, pivot focus to base metals, specialty commodities, etc)
-Very capital intensive business- the majority of companies are pre-production and are constantly going to market to fund exploration, development, construction, etc.
-Many junior bankers are more attracted to other sectors like tech/cannabis/etc., so opportunities in mining sometimes have less competition at analyst level
-Many mining companies pay their corp. dev. guys very well compared to other industries fi you're interested in that career path
-Fairly easy/logical to put together comps & precedents for valuation. As opposed to tech, where assembling a peer group/list of precedents can be difficult when the business is the first of its kind, with mining, variables like development stage, primary commodity, jurisdiction and size make screening for comps/precedents fairly simple

Cons:
-Mining work is different than in other sectors (save for maybe O&G), so moves to different coverage groups or buyside generalist roles may be difficult 
-Relatively low PE exit opps- while there are several sizeable mining-focused PE funds, many are based abroad and have fairly lean headcounts
-Commodity risk- even with the breadth of commodities typically covered, there are still big fluctuations in sector activity based on commodity prices/market sentiment. The size of the parties at PDAC (large mining conference held in Toronto every winter) is a pretty accurate indicator of how much money mining companies are making. In very slow times, junior mining bankers have been moved over to other coverage groups.
-Generalist investor skepticism- after many years of poor performance from the mining sector (2011-2019), many generalist investors are still hesitant to buy back into anything but top tier mining companies

  • Analyst 2 in IB-M&A
Jun 14, 2021 - 2:18pm

Technology (LMM): 

Pros:

-Tons of quality LMM exit opps for growth equity investors or MM buyout shops

-Also really cool industry exits if you want to do Corp Dev or Strategy for a big tech firm or startup

-Interesting companies - you will learn a lot of interesting stuff outside of just finance from learning up on your clients

-Diversity of sub-sectors and plenty of potential acquirers, both financial & strategic, helps deals get closed at good prices on the sell side

Cons:

-Sometimes when you're working with a high-growth company that's not positively cash-flowing it's a bit of a guess-and-check game as to how the market will feel about it. Normally we get pleasantly surprised but occasionally we have a client that potential investors just don't understand

-Putting together CIMs/Teasers can be a bit more arduous because the business models can be difficult to visualize/explain for dummies. 

-Hours can be gnarly, Tech seems to be pretty active across the board right now

Jun 15, 2021 - 12:10pm

I would think about your coverage group choice (at the junior level) as optimizing for 4 factors, which you can weight however much they are important to you: 1) strength/dealflow, 2) industry interest, 3) culture/people, and 4) to what extent the group does its own modelling.

I think it's understated above how many people choose coverage groups just because they're strong, and I do think there's some merit to that (Nat Res/Power at Barclays, Consumer at BAML, Industrials at Citi, etc.). SAs assume they won't like X industry, when in reality they're a summer analyst that knows nothing about nothing. The argument is that winning mandates in an industry you're lukewarm about is probably more fun than losing out on mandates in a industry you love. This obviously translates to other upsides as well like exit ops, comp, etc. 

Ideally you'll find a group that is strong and you find interesting, but even the top banks have relatively weaker groups.

Unfortunately, it's very rare you find a coverage group that's strong, you find interesting, and has at least a decent culture. Its possible, but frequently summer analysts and analysts have to settle for 2 or even 1 of those 3 factors.

At this point, whether the group models might be difficult to optimize for.

The bottom line is: figure out what's important to you, and focus more on how X group at Y bank fairs in each of these 4 categories than X industry as a whole. GS Consumer =/= JPM Consumer =/= BAML Consumer =/= Barclays Consumer etc. (all great groups, but my point is they vary more in those other three categories). 

  • Analyst 2 in IB - Ind
Jun 15, 2021 - 1:17pm

Healthcare is a great group in my opinion (probably biased given it was group I was in)

Pros

-Healthcare is roughly 20% of the economy, the sector is incredibly complex, dynamic and noncyclical

-Healthcare touches most other industries, so you are exposed to a wide breadth of business models and business stages. I don't think any other group gives you this exposure as a junior analyst. You have highly acquisitive large pharma companies, pre-revenue biotech companies raising equity to fund drug development, mega MedTech companies (pretty basic business models, just like selling widgets), HC services companies (a lot of PE interest in the space and opportunity to work on buyouts) and HCIT companies at all different stages (vertical SaaS companies, virtual doctors, etc). You work with B2B and B2C companies.

-Most companies are valued on traditional metrics. A lot of these companies are valued on free cash flow, EBITDA, etc and the techniques are broadly applicable to other industries. The modelling done for biotech companies is extremely intricate, so you build a solid technical skillset (after modelling a biotech company, modelling a plain vanilla HC Services / MedTech company is a walk in the park)

-Broad exit opportunities. I didn't experience anyone being pigeonholed based off HC. Try to find a MF/UMM fund that doesn't invest in HC... There is significant "traditional" PE interest in a few of the verticals (services, HCIT) and the skillet from HC is broadly applicable to other industries. Additionally, I have seen a lot of people go to growth equity / VC (HC groups do a good amount of work with high growth, innovative companies), hedge funds (most have a HC group or tilt), or to industry (biotech companies need people with IB background).

Cons

-Biggest con with HC across the street is the industry is extremely busy (20% of GDP and very dynamic), so usually multiple sectors and products are firing on all cylinders at a time. Biotech companies are constantly going public, pharma companies are highly acquisitive, services companies are often buyout targets. As such, the HC group is usually a sweatshop at most banks. This provides for a great learning opportunity, but there are probably much easier groups that will get you to same destination 

Jun 15, 2021 - 11:04pm

"Biggest con: too much deal flow"

For anyone reading this just got turned off by that - rest assured sector coverage won't be the obstacle between you and buy side exit opps

Jul 14, 2021 - 8:31pm

General curiosity, as a IB banker in HC Services - are roll-up strategies acquisitions by PE firm more of a LBO or a growth investment (in your opinion)? I understand debt is often used in HC service deals but a lot of the outpatient clinics that get bought out seem to come with an investment thesis that involves rapid growth to more clinics or larger facilities to serve a bigger portion of the population.

Jul 14, 2021 - 8:07pm

Any insight into industrials/ADG?

Industrials doesn't have the same level of exits that Tech/HC would but if you like the industry it's just fine. With ADG specifically, I would say that if you do it past the analyst level you might be slightly "pigeon-holed" or typecasted by PE firms and other banking grounds that work with commercial clients. If you like the industry I think it's a great one to be in for the long haul - very recession proof. 

Jul 14, 2021 - 8:39pm

This. Know someone who used to work at a top generalist M&A group and eventually became a senior principal at a MM PE firm focused on family-owned industrial companies.

It's not really a "sexy" industry but he appears to really enjoy it. It's definitely recession proof in certain subsectors. A few of his portfolio companies where he's a board member will always be needed in society.

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