Impact of recession on MBB's

Analyst 1 in Other

Curious how a recession would impact the MBB's. Bain I'm guessing would be hit the worst since it's smallest and dependent on PE. That said, wondering what usually happens with hiring, particularly with summer classes of interns (who are largely all expecting return offers.

Comments (10)

Jan 17, 2020

The running gag is that MBBs are recession proof: if their clients are doing well, they need advice on how to outgrow the competition and the market; if their clients are doing poorly, they need advice on how to minimize damage and rein in costs.

My take on the effect of a recession on PE (and therefore PE consulting) is that it will be relatively mild since funds have raised huge pools of capital and will be eager to spend once valuations decrease. Some of the most successful funds were raised around the GFC and invested in ca. 09-10, so everyone will be on the lookout to replicate this strategy this time around.

Regarding hiring, fluctuations are more closely linked to office/ regional performance (e.g. losing a big client) and attrition rates than to macro factors.

Jan 18, 2020

I know in the 09 downturn, MBB hiring at MBA programs fell off a cliff. Much worse than it did for IB, which is of course surprising. I don't know if that was a reflection of the cash flow situation at MBB or if maybe they just have a more careful hiring culture (ie banks are like "we've seen it all before, keep hiring"). My guess is that it's a function of banker pay being largely bonus, thus banks have the courage to keep hiring bc they're protected by ability to pay lower bonuses if things stay weak.

Anyways just wanted to share that observation, it was the opposite of what everyone thought would happen. You may want to try and find out how the financial performance of the firms was in those years.

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Jan 21, 2020

Apparently someone flagged as innacurate. Not sure why. As embarrassed as I am to admit that I'm old enough to have been there, I was there. Any 2010 MBA grad will confirm that MBB hiring was an absolute bloodbath for summer 09, even compared to IB and every other MBA field including other consultant firms. Maybe mitigated a bit for FT but not that much.

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Jan 21, 2020

There was a similar dynamic to undergrad jobs in 2009. In my first two years (2006-2007), if you didn't have a job upon graduating, you were a loser. By the time I graduated, if you had an unpaid internship you were royalty. I heard nightmare stories about firms rescinding FT offers, but it was mostly just everybody clamming up the new recruiting. Big law firm hiring was also directly effected, which people often say is recession proof as well. My impression is that a normal recession would not impact hiring efforts nearly as much as the GFC. It was an historically unusual time.

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  • Analyst 1 in Other
Jan 18, 2020

I'm curious then, how would this impact intern return rates? Most interns go in expecting to get a return. Could tension of a possible recession have an event this summer then? I know banks slashed return offers last summer, for example.

Jan 19, 2020

It'd have to be pretty dramatic to have an impact. Basically, it would only happen if over the summer, MBB decided to slash their full-time numbers and they already had too many people if every intern were given a return offer. More likely, MBB would just not go back to campus for full-time hires as this is what happened in 2009.

Jan 18, 2020

Private Equity will probably do relatively speaking better than corporate in a recession. They're more nimble and sophisticated and also have huge amounts of capital to deploy currently. It'll be consumer facing industries with low margins and high maintenance CapEx that deal in non-essential products that'll be hit hardest, so far example airlines, car manufacturers etc.

Jan 19, 2020

PE firms will have opportunities to buy cheap. Sponsored backed companies on the other hand are much more straddled with debt than a non-sponsored backed company and will likely be hit harder as they have much less breathing room. Most sponsor deals are basically cash flow break even and rely on growth. LBOs have much high rates of bankruptcy than non-sponsor backed companies.

Jan 18, 2020

MBB recruiting is more recession proof than banking for the reasons you mentioned. Having said that, during a downturn, it will be significantly tougher to get MBB interviews if you are at a lower ranked program while the top programs should be fairly safe since that is MBB's main talent pool. Agree that Bain is weaker than McKinsey and BCG: they are smaller and have less industry breadth.

Jan 19, 2020
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