Houston Bulge Brackets

I know that at the moment, Houston EB's, specifically Evercore, Moelis, and Lazard, are at the top, but looking a year or two down the line, which Bulge Bracket firms are looking up and seem sustainable? Additionally, any rankings for BB's on the basis of exits, culture, hours?

 

Current Houston BB analyst. At least historically, I would bucket the firms in the following (order not indicative of rank): Strong Energy (Citi, CS, Barclays), Brand Shops (GS, MS, JPM) and Others (BAML, UBS, DB (RIP)).

Generally, the choice between the strong energy BBs and the “Brand” shop BBs comes down to flexibility preference and culture. The strong energy platforms have the best deal flow, while the brand shops (at least GS/MS) do fewer deals on average. The offset would be that GS/MS/JP potentially offer better flexibility outside of energy, but even that is hard to exactly pinpoint. Others can probably give more insight on how specific bank outlooks are. Think the whole comment on the TPH/Simmons thread on the potential death of O&G PE deals is something to consider. Potentially there is distressed M&A in the near term and eventual consolidation (although they have been saying that for years). For BB, would potentially focus on how their deal flow will be impacted by an extended down cycle (debt/equit/M&A deal weighting, client size, etc), flexibility (brand and/or some non-O&G coverage / energy transition), bloat (how many heads will be cut/have been cut) and obviously culture.

I think the bigger question should be if you want to spend your career in oil and gas or not? In the current environment, I just find it hard to see someone planning a long term career around oil and gas. I just don’t know how many cycles we will have until we hit peak demand in the next decade or so. If I were to give advice, I just don’t see the upside for the risk you take pigeonholing yourself into O&G. Myself and my friends in Houston are all trying to figure a way out from what I’ve seen.

 

Is the future really that bleak for the Juniors/Seniors trying to enter in the next 2 years? Also curious as to what kind of opportunities you are considering. Looking to lateral to a different location or exit IB altogether?

 
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Well, the “bloat” of the current IB count in Houston shouldn’t ideally have much of an impact on the analysts starting right now (Class of 2020). For Class of 2021, my belief is that there will definitely be cuts at the summer associate level and potentially cuts at the summer analyst level. All anecdotal, but from my experience with the size of the Summer 2021 SA class, it just doesn’t make sense that they would extend more FT analyst positions. Of course, the banks will not tell you this to your face, and maybe they will be favorable and try to lateral those analysts internally to a different office. Hard to say.

Obviously a lot to unpack on the analyst experience, and this is all coming from my experience in the current environment. Who knows, things could be better down the road.

I would say the actual experience from the BB has been and will likely be sub-par vs peers in other groups. Low deal flow to start, then everything died with COVID, now every MD/VP feels like they have a target on their back to get cut, so they pushing unrealistic deals and jamming the junior team when there is little we can do in this environment. They are in a tough spot with their careers fixed to the industry, little to no hiring by coverage companies and banks on hiring freeze/downsizing. So We are getting jammed down random rabbit holes on deals going nowhere because the client wants to “see what things look like on the other side”.

Then on exit ops, they have historically always been O&G PE as expected. But the returns on that have been poor the last couple funds and I believe that COVID is the final nail in the coffin for some of these funds. It’s hard to see profitable exits for these funds in the near term as anyone with considerable leverage is getting smoked and E&P PortCos where getting into riskier plays. Ultimately see a lot of zombie funds that will be out there but not somewhere you want to go after banking. Generally, a lot of analyst are feeling stuck where it’s an uphill battle to get out of energy and the typical pool of energy PE funds is not looking as attractive as before.

All of this is from the view of a jaded analysts so please take my views with a grain of salt. I am sure there is a light at the end of the tunnel and things will improve. However, if you have the choice to gamble the beginning of your career on that “light at the end of the tunnel” or go to literally any other industry, I think there is a clear answer.

 

Since CS is strong energy, what relevant deals have they been on as of late?

 

I would say my groupings are on a long dated historical basis, which through the lens of exit ops still matters in my opinion even if deal flow is weak. So that group of “Strong Energy” BBs each has broadly out preformed the other BBs with some differences in trajectory and style of deals. Not the most knowledgeable about CS, but generally consider them more of an equities shop in the past. Now energy equities are dead for the near future, but I think it is still broadly considered a strong shop and will be interpreted that way if trying to exit in energy PE. Haven’t touched base with the people I know there, but really nobody in Houston is doing well except for restructuring and some debt products.

 

Are you and your friends looking to move to another group/city in your respective banks? Any luck? For those trying to go to PE are you looking to go to a generalist program at smaller cities?

 

Think it’s kind of a chicken or the egg situation there. On one hand, their is the argument the recruiters/generalist funds won’t know what are strong energy groups in Houston and will instead just weigh overall bank positioning (so GS/MS/JP being broadly considered top BB). On the other hand, students who are generally less “die hard” energy are more likely to go to those banks and then try to recruit generalist. It’s is a very broad generalization, but fits what I’ve seen.

As for differences between the 3, I would say that JP historically has been more capital markets focused while GS/MS are more corporate M&A focused. MS is the smallest of the 3 but has the chillest culture. Not sure on culture at JP, but I remember when recruiting GS being in-line with what others have said about being rough hours and “whale hunting” for the large M&A deals that are few and far between. This is all from a few years ago and comments from friends so could be off.

 

All 3 (GS/MS/JPM) have a fairly consistent record of placing analysts in non-energy PE roles but it’s very dependent on the caliber of the individual. There’s a marked drop off after that.

 

I recently signed for next summer at Moelis. Does anyone has updated thoughts on Moelis? I've seen good things written about them in recent posts, but more insight would be appreciated. Specifically, what are exits like from here? Thanks!

 

Definitely one of the top places to go in Houston right now. Been one of the sleepers in the past but have been crushing it recently on the RX side with Oxy, Chesapeake, Whiting, etc. and arguably one of the best junior experiences since they're a small group + run most processes out of the Houston office. On the M&A side, historically done more out of the box, cross border transactions but will be very interested to see how they leverage new relationships from RX to M&A in the coming years.

Still a pretty new and relatively small group so haven't had too many classes but traditionally exits have been very solid, ranging from energy PE to generalist in Dallas/NY. Think its highly dependent on the candidate.

Have heard good things about culture but word of warning - you will be worked hard.

 

Based on my understanding of mandates to date (announced / heard through the grapevine)

PJT is on a solid number but not to the extent of the others above. Centerview has Ultra going on right now and I think one or two others in the mix.

Intrepid has picked up a few through their partnership with Rothschild and Greenhill got one mandate on a smaller offshore driller that I'm aware of.

 

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