Personal Experience with Houston Energy IBD - Thoughts on Industry Outlook? (Long Post)
tl;dr Lateraled to EB (M&A/RX) from T1 BB. Do people think Energy will hit a rough patch with the impending recession? If so, are BB's destined to fall behind like DB as these Elite Boutiques grow out both their MM and RX practices? Has anyone felt that talent in TX has declined – no longer feeling obligated to recruit from TX? Feel free to discuss anything Energy related, and I’ll also answer any questions!
With all these kids talking about 2020 recruiting, I wanted to turn to the experienced bankers to see your thoughts on the Energy IBD industry. For some background, I graduated from an honors business program at a target Texas university and ended up at a top Energy BB (GS/MS/Barcap). I've been here 5 years (A2A), and I enjoy the work I do. But, I recently made the personal decision to lateral to a prominent EB in the space.
Throughout the years, I’ve been fortunate enough to get staffed on some of the largest O&G mergers, but our firm has also come up short. Even with Occidental, there has been less M&A from when I started and A&D seems to be a large percentage of my work. The space is constantly changing and adapting, and one of the key trends I’ve noticed is the growth of EB’s. While brand name BB’s will always be key players in the space, firms like Evercore have entered and dominated in the last couple of years with both an M&A and RX platform. To categorize firms like TPH, Jefferies, and Evercore as boutiques in Houston is quite bizarre to me. Many of these banks do business in the exponentially growing MM, and despite popular belief, we’ve struggled to win in the space even with our brand name. On the other end of the stick, BB’s like Deutsche closed their O&G arm (among other problems), and other BB’s have struggled to compete. "Struggled" could be an overstatement, but it's not like it was a few years ago given the cyclical nature of O&G.
Outside of personal connections, I chose to lateral to an EB due to its prominent RX arm. When you talk to MD’s in Houston, it’s common knowledge that O&G hasn’t performed that well. There’s an impending recession, and even if it’s never going to be as bad as ’08, there’s likely to be hits to firms across the streams. Many E&P companies are struggling with debt on the BS, and even OFS has taken large hits. This led me to the conclusion that banks with a strong RX arm will be best positioned over the next couple of years. I admit that I never quite understood the "Elite' nature of many of these RX firms including PJT, Moelis, Lazard, HLHZ, Guggenheim, etc as Houston is distanced from NY, but everyone's heard of PJT, Moelis, and HLHZ in Restructuring. Yet, there are still questions like how can PJT run its O&G practice in NY? – it’s almost laughable. On the other hand, PJT’s reputation in NY is great, and they’ve worked on many of the recent Energy restructuring mandates. Moelis is another firm that has leveraged its RX arm and overseas connections. HLHZ has been moving some of its NY RX bankers down to Houston, and Lazard has also beefed up both its MM and standard M&A/RX practice. Even Guggenheim has a Houston office now, so it looks to me as these firms are preparing for something. These are my observations, but I want to hear any thoughts and opinions. I honestly believe it's easier to answer a "why our firm" interview question for these EB's than BB's.
This is a discussion at the end of the day so feel free to post your thoughts or any questions!
Side Note: I’ve done some introductory calls with prospective 2020 summer analysts at the standard TX targets, and this is something I’ve noticed. Many students from my alma mater claim that they’ve received exposure to Energy through investment teams and extracurricular activities, but when I probe, many can’t even list the verticals. We’ve always felt obligated to recruit from schools such as SMU, UT, Rice, and TCU because it’s convenient, but there’s a very noticeable gap in finance technicals and even industry knowledge from calls I've done in the past week or so. I think many Houston firms have always pushed away students from Harvard/Wharton/Columbia/USC/etc. in fear of them leaving to NY or Exiting, but I’ve been impressed year over year with many of these students. I've always been one to push for a student from out-of-state that's a stellar candidate, even if their "Why Houston" question isn't quite convincing. Is it just class of 2021 that seems under-prepared, or has this always been the case? Does anyone else that’s interviewed students from both TX and NE see this gap? Have you guys recruited more from standard targets or still primarily Texas?
Not in IB, but I'd be willing to bet on an uptick in M&A in dry nat gas focused companies. The investors have dumped too much cash into these companies that were just told to grow and can't seem be cash flow positive given the new record production levels that are depressing the price curve. How can they be cash flow positive in this $2.5 cal strip environment when they weren't in the $3+ cal environment? These dry gas companies are either going to be forced to look at M&A or bankruptcy to deal with the insane debt levels.
Thanks for the insight, and I agree with what you're saying - many of my friends at great Nat Res groups have shared similar sentiments. To your point, you're spot on that many of the firms (E&P especially) are not free cash flow positive. How long can these firms refinance their debt and kick the can, especially if production is below expectation? I concluded that this can't be done for much longer, but many Houston IBD groups focus specifically on O&G so it's not easy to just shift our focus to a new segment; we all have our bread and butter. There's not much job flexibility, and I would rather stay within the same industry group but doing something different like financial restructuring.
I joined a Houston BB in 2016 from an northeast MBA. That year, there were 8 Houston IBDers my my class. Last year there was one.
The reasons?
1) Oil and gas has been the worst performing sector since that time, and possibly since the financial crisis (well maybe coal and paper/pulp is worse). It’s almost comical to see these stock price performances in E&P and OFS.
2) Peak oil demand and climate change seems to dissuade people from hitching their wagon to the space.
3) BBs are starting to cut headcount in Houston. Cap markets activity is down 90% YoY.
Take this as you will, not here to throw shade (I still cover the space) just provide some facts.
Thanks for the comment - great hearing from someone in Houston IBD as well. Stock performance in E&P and OFS has been abysmal, and many Energy funds have closed shop. Since I've started, I've watched some of these firms transition to penny stocks. Completely agree that O&G has been the worst performing sector, but I could expand it to all of Energy. There can also be an argument made for Financials.
BB's cutting head count was another reason that drew me towards EB's. It wouldn't matter if I didn't get cut as I can only imagine the culture and the working environment. Firms that have the capability to do business at all points of the cycle tend to close gaps faster - I saw a post in another thread stating that PJT, Guggenheim, Houlihan Lokey, and Greenhill were in the lower tiers, but there's no doubt in my mind that their growth would be similar to Lazard's if not even Evercore's. No one really knows when O&G will rebound, and even with these seemingly high oil prices, nothing has changed.
Another reason I would add to your list for the reduction in Houston IBDers in your class is that interest has to be from the candidate as well. Not many people from out-of-state view the industry as "sexy" or "hot," and undergrads and MBAs alike are usually more interested in the NY groups. I admit that we're analyzing wells, building type curves, and not working with some novel technology or drug. I may get some backlash for this comment, but I honestly believe we should diversify our class to include more students from NE schools. However, like I mentioned, we're afraid prospective analysts and associates will leverage our offers for NY, and candidates are also less willing to come to Houston unless they're certain on Energy.
Also, do you remember how many Energy Groups or Houston associates came to your school's recruiting event? Another issue we've had trouble with is that because not many people are from NE schools, it's even harder to build a pipeline. I've always believed that students at schools like Wharton are much more open to talking to Wharton or even Target grads as opposed to random associates from UT or A&M.
Do you think prospective MBA associates seem to be on par across all B schools (Texas and non-Texas schools) with their preparation?
Most banks had 1 or 2 Houston reps at info sessions and our school ran a trek so it wasn’t hard to make the connection. My school has good success in IB placement so no one was trying to use Houston as a backdoor to NY. In fall 2014 there was genuine interest in shale as a game changing story which attracted people from all over. I hadn’t really stepped foot on Houston prior to recruiting but was enamored with the space. This luster is all but gone and if you don’t have a personal connection to TX or O+G it’s tough to attract the talent.
Again, this is based on my personal experience and having spoken to people from my MBA program over the past 5 years. Call it a sample size of 30.
Just to add some more insight for anyone lurking, I received a dm from someone at a NE non-target working in PE in Houston. At large, the students he met from Texas are less prepared and recruit later than most of the NE schools. He specifically mentioned that TX students have not taken the same amount of time preparing for technicals and have less thought out behavioral answers. This could be attributed to the difference in culture, where NE schools prioritize recruiting and learning as opposed to the social culture I experienced in TX undergrad.
Edited**: Going to rephrase this to multiple people have informed me, from both out-of-state and TX, that there's less emphasis on preparation in TX, which often times leads to students from out-of-state to being more knowledgeable. Did not mean to offend anyone from TX as I'm from that same category, but I do believe that my alma mater had a big emphasis on social outings and party events as opposed to hosting instructional workshops. As much as I've been getting many MS's, the truth is that the quality of candidates this year specifically from target Texas schools have not been great, even if it's only a sample size of ~10. When I'm doing these introductory calls, it's common knowledge that the call may lead to a second or even to a super day. I'm also one of the more behavioral calls so it should be fairly lax. But, if a student expresses great interest in Oil and backs it up with "I go to UT/SMU",then he or she should be able to tell me what an upstream company does high level.
If you're currently working as an analyst or associate in IBD, please do comment if you've experienced this trend as well. The tiger mother in me really came out today...
P.S. I did not mean to offend anyone from a TX school. I'm always willing to hop on a call with any students from my school, and I've been a part of an alumni-program mentoring undergraduates.
Just wanted to hear more thoughts, and I'm by no means saying definitively that TX students are worse. I've just personally noticed that many students from out-of-state have been well-prepared, moreso than some of the students in TX, but we've chosen to not extend an offer. There's always a bias to recruit in TX for us, but has no one considered branching out more? It's as if Silicon Valley were to recruit from Stanford and the West Coast exclusively, which they don't.
Current rising junior pursuing 2020 energy banking summer analyst positions. I live in Texas but go to school up north, really want to be in Houston/energy so trying to see what kind of odds I am looking at...Would you mind estimating what percentage of any given summer analyst class comes from Texas schools vs. non-Texas schools?Great post by the way, thanks for starting this thread.
out of curiosity what is the likelihood someone in working in commodities S&T group at BB in NY would be able to lateral to an EB in Houston?
Great post! Thanks for sharing the insights. I think UT and SMU kids are the ones that are well prepared as kids at NE target. Some UT kids might seem underwhelming because McCombs is such a huge school. Top UT students are very savvy imo, but a lot of them choose to go NYC. SMU is an interesting case, it's not a target but it has a target program (Alternative Asset) which seems to place lights out and the kids coming out of the program are well prepared for their gigs. Curious about what your thoughts are, and was wodnering if you could shed some lights on the recruiting for international kids in Houston? Is it still doable for international to get sponsorship these days?
Definitely agree to your point - every school has lights-out candidates, but I think the point I was trying to make is that there is a noticeable knowledge gap. I'm also challenging the notion of only recruiting primarily from TX as I've had SA's that were unprepared, and they could've and eventually were replaced by a better candidate from UT/SMU or a standard "target." To be completely honest, we've offered a return to every single candidate from a NE target since I came on-board, but as mentioned, they often turn it down for NY or even PE. Talk about trust issues...
To be blunt, international student recruiting is not great these days, regardless of location. I know at least 2 firms auto-rejecting international students this year, but it depends. Is it possible? Yes. But, you really have to network and make an impression on current analysts and associates. I speak for many of my colleagues, but if we genuinely like you and think you're a good candidate, we will pull for you. At the end of the day, why should I care if you're international? I care if you can put in the work, and you're willing to learn. From what I've heard from my firm, we're open to anyone, international or domestic, target or non-target. There's a reason we have logistics and legal to take care of any sponsorship issues.
Couldn’t agree more with the above. I am one of the few internationals who managed to secure a sponsored US IB offer from a foreign school. For my firm, it was never about the visa, it was purely about fit, and they were very good about my situation. Long story short - it absolutely does happen. But it’s certainly rare.
This conversation is turning more and more towards recruiting, which isn't bad, but I'd love to hear anyone's comments on the industry outlook (M&A, A&D, RX) and how they believe certain firms are performing! I think this would be great information for anyone interested in the industry as well to show that it's really more than just wells and charts.
Aren't emerging economies only going to increase their consumption of oil? With this in mind, perhaps this is a future upside to the industry. This could spur new waves of M&A, capital raising, etc as demand grows to match the current supply.
There's also the infusion of new technology, data analysis, etc. coming to the oilfield. With OG/OFS bolstering their technical capabilities, this can only be "better" for the industry (more efficiency). I don't know what the direct implications of this to banking are however. Maybe formation of new companies, more complex companies, shifting corporate strategy = increased need for services of banks in this space.
Not in energy, but from what I've seen through reading lots of emerging markets have been interested in coal because of how easy it is to set up and operate. Oil requires more infrastructure, same with renewable sources and natural gas. Until emerging countries get more funding/stability to implement other energy sources I think coal use will continue.
The lack of cash flow in the space (one of the worst sectors in the last 20 years at returning cash) is troubling. In E&P there really aren't any exits of MM operators anymore who were using $100m equity + some debt to prove out some reserves. In OFS, the multiples are horrendous and the big players (SLB/BHGE/HAL) are all essentially on an M&A moratorium (they are still looking at creative structures to get technology, but no true acquisitions).
Other than the megadeal M&A in the space, the short term impact is less fees to go around as hold periods become longer. The long term impact will be a continued struggle to fundraise in the private markets.
I'm still bullish on hydrocarbons, but becoming slightly bearish on the risk adjusted returns in the private markets. If I was advising someone who had opportunities in other sectors, I probably would tell them to avoid O&G in the near term. That said, some people just want to be here in Houston and O&G are the opportunities.
Thanks for speaking on the industry and changes!
Completely agree - most of these E&P companies are over-levered, and cash flow negative. Unlike HC where being cash flow negative is expected, E&P companies aren't start ups and should optimally be FCF positive. To be quite frank, I'm surprised these firms haven't gone under more scrutiny from investors. SLB as you mentioned has been completely battered, but they might be able to gain some footing given that the mega-deal could generate business. What I've seen recently is many firms attempting to "inorganically" increase production through acquisitions. I think from an investing standpoint, people should avoid O&G unless they're doing a special situations play. From an IBD perspective, some of the BB's may begin to be weighed down, while those able to generate business will gain traction.
What is the outlook for renewables in Houston? Both from the industry side and the banking side. Are Houston banks looking to add this in the near future? Do you see Renewables as a natural extension of the O&G Coverage group when the industry really begins to scale, or will it be its own thing?
I have not seen it happening. Every bank has a power and renewables group out of NY so Houston groups are stuck with O+G as their sandbox.
I’ve heard anecdotally that some TX energy PE firms plan to launch renewable funds in the near future but that space is already super competitive and absolute returns are less than half of O+G. Hope I’m proven wrong.
Houston is primarily known for its O&G business. Most Renewables, Power, and Nat Res Groups are run out of NY (i.e. BarCap). As an industry for renewables, there's a lot of doubt. From a non-business, general public POV, everyone talks about wanting to avoid O&G. It's been a point of contention for years, but I've been here for quite some time now, and I still hit the pump to fill my car. I believe the O&G industry specifically is here to stay, but there are other developments in progress. That being said, if you're truly interested in Renewables and Alternatives, Houston isn't the best place to be, and I'd go one step further to say most industry professionals aren't well-versed in that topic.
Not only renewables but alternatives in general have been interesting - I know my group looked into it as a way to add a counter-cyclical business under our belt, but it's challenging since it's not even established as an industry. I believe an IB that wants to do work in alternatives really needs a good grasp of the science. Historically, our Houston IBD groups come from a traditional finance, accounting, geology, or petroleum engineering background; alternatives is unchartered territory, and truly being effective would require an understanding of the mechanisms. I would never feel comfortable submitting work on a deal where I didn't understand the firm's business.
With your experience in energy would you mind making a quick Houston league table? Rising junior here that would be very helpful. Thanks
Bump, this would be awesome to see, especially as Houston has become more A&D focused recently. Seems like some shops have really excelled within A&D historically so I'm interested to see if this has any impact on your rankings.
I knew someone was going to ask eventually, and I hate these tables. I chose to do it in a way that I think will be most helpful to anyone out there -- your standard rankings, but also commentary on where I think the future is. ** I'm going to preface this by saying there is never a "right" tier list. **It depends a lot on preference, verticals, and culture.
Current Standings: Tier 1 BB - Barclays, GS, Citi, CS
From when I first joined, these four companies have led the space in terms of deal flow and exits, and I don't think THAT much has changed. CS has definitely fallen a bit due to having MD's poached, but they've historically placed really well in terms of exits - I have couple of friends that managed to exit to traditional megafunds as opposed to sticking with Energy buy side. I think it's common knowledge that Barclays has lights out placements, and their culture is one of the best. Despite having immense deal flow, the teams there will always go home earlier than most other analysts. GS will always have business, and, I still categorize them as T1 due to brand name. Citi is a great place in terms of reputation, but each and every one of my friends chose to exit as opposed to A2A - they were burnt out for sure. I could write all the commentary in the world on these firms, but I think the most important question is what work are you going to be doing? You'll get a great OFS experience at GS, but you can potentially learn a lot more about E&P at other BB's and EB's Many people say that O&G is all about E&P, and if that's truly the case, I think there's an argument to be made that GS shouldn't even be T1. The only BB above that's solidified itself as T1 is Barclays.
Tier 1 EB: Evercore, Jefferies, possibly TPH
Everyone knows about Evercore's E&P practice and Jefferies' A&D practice. Realistically speaking, you're going to get absolutely cranked at both shops, but it's worth it if you want a near-guaranteed exit to a top shop. From a post-undergrad POV, the comp at any of these EB's is quite nice - I wish I got paid this much at a BB :( Nonetheless, I feel like the boutiques here have established themselves as top of the list so there's not much additional commentary. TPH has always been a good shop in my mind, but friends there have told me that the deal flow is drying up. Great culture from conversations, but I don't know too much about them outside of intelligent senior members. Btw, Evercore and Jefferies are hardly "boutiques" in the space.
Tier 2 BB - JPM and MS
JPM, similar to GS, has a great brand name, and that always plays a big role throughout the industries. They're a bit under the radar in terms of the work they do, but they have a solid midstream practice. They're not as reputable as Citi in this space, but they're doing better than many other BB's. MS had a great year, and I categorize them with JPM for a good midstream practice. That being said, I think these two firms exist mainly due to brand name, and they're not doing any amazing E&P deals - they're going to be as close to your standard NY M&A as you can get, possibly without the late late nights.
Tier 2 EB - Simmons, Moelis, LAZ
This is probably the place where everyone gets heated. As much as many people dislike Lazard Houston and don't think they deserve to even be Tier 2, I would make the argument that the individuals there are quite impressive. Lazard still has managed some decent exits despite having less deal flow over the years. The downside is Lazard anywhere in the world is a sweat shop, which I don't understand because they're not getting the work that Evercore is. The other point of contention is Moelis being Tier 2, which I believe they deserve for both their A&D work and their restructuring practice. They're a big reason why Lazard's deal flow has dried up on the RX side, and they've also managed to beef up their practice through poaching and connections. Simmons has just been doing their work behind the scenes, and they don't get much recognition these days. Still a solid shop, but they don't have the brand name that many of these other firms have.
Tier 3 BB- RBC, BAML
RBC has been trying to grow out its A&D practice for quite some time, but they haven't gotten the outcome they wanted. BAML has sat backseat on some large deals, but you've got to give them credit for not becoming wiped out in an industry that's been filled with the same BB's.
I don't see the point of ranking the rest of the firms T3 and beyond because it's going to be highly disagreed upon, but someone's still going to ask...
Tier 3 EB - Just HL I think I wanted to categorize HL, PJT, and any other boutiques all together in one category for the rest of them, but I think what HL has done in the space at least puts them above the other boutiques. I don't think Lazard has fallen to the point HL has grown so I just put them here solo. They've hired some pretty impressive MD's that have extensive A&D experience, and they've done some good stuff in the MM (OFS). I also heard that instead of doing a lot of their O&G/Energy Restructuring work out of NY, they actually relocated some of the NY RX bankers to Houston. If that's the case, then I would say it's not right to categorize them as an Energy group as opposed to just another one of HL's RX regional offices that have been pretty solid.
Tier 4 BB - UBS, WF, etc.... I don't think there's much of an argument to be made for these firms at this point. I honestly don't know what many of them do in terms of deal flow and verticals, but I do know many have lateraled to better BB's. Most of these firms will just get what they can get.
Tier 4 EB - PJT, Guggenheim, Greenhill I don't care if PJT has its brand name and legacy from BX - there's no way any firm can run an O&G group out of NY. Guggenheim and Greenhill are extremely new, so they haven't done much of anything besides hire junior bankers. I haven't heard much of them, but PJT has always been a bit iffy for me.
Tier 5 BB - RIP DB
**The Future ** This was the part of the reason I wanted to hold this discussion - for rising juniors like yourself, I think the better question is where the industry will be when you graduate. I think from my comments above, many lurkers can see which firms I think are going to do well. At the top, Evercore, Barclays, and Jefferies will most likely be there a couple years from now. They're constantly recruiting top talent, poaching senior members, and they have great deal flow. Furthermore, Evercore is quite the top dog since it also has a restructuring arm, which may be its ticket to the sky in the near future. CS and Citi have hit a slump in terms of deal flow from what I've heard, especially Citi since midstream has too many players now. It doesn't help that we may be approaching a downturn. I believe TPH will rebound since I've been blown away by how knowledgeable the top of the group is. From an undergrad perspective, I've always loved how TPH takes the time to do a summer workshop, which really gives candidates a head start no matter where they land.
I think the real growers are going to be Moelis and HL. Moelis has shown that it can bring in A&D work, and I don't think it's just because of their restructuring practice. For such a lean team, it's quite outstanding what they've been able to do. HL is a different beast, having their bread and butter in the financial restructuring group. Rather than just running a lot of its energy restructuring out of New York, they've chosen to actually bring down members from their "elite" group. Unlike Lazard, HL has seemingly integrated both its RX and Energy practice as opposed to having an energy coverage group just helping out the real RX team. Not to mention, a lot of work is in the MM, where HL has been for quite some time now. In the end, I'm part of the club that believes the top dogs will be E&P focused with good A&D practices and even solid RX practices. If any of these firms can maintain and build good E&P practices, then they'll manage into any sort of downturn.
I've gotten some DMs about PJT, but to be frank, I feel like most of them are individuals who want to just be associated with PJT's brand name. Sure, you're going to be in NY doing M&A with the rest of the advisory group, but how can you justify to anyone that their O&G practice is in Manhattan? There have been rumors about a Houston office for quite some time, but I'll believe it when I see it.
Please feel free to leave comments - I prefer you just post your thoughts or add commentary so I can edit the list rather than just handing me MS for something as dumb as Lazard being T2 instead of T3.
Amazing post and insight into Houston IBD -- great stuff here on both industry and recruiting. You mentioned that you tried to accelerate a candidate, but he ended up signing with a Houston EB. I'm also a prospective candidate for SA2020 and want to do O&G, but literally every single firm refuses to accelerate and very few are willing to call. Do you know what firm he signed with and when? I was always under the impression Houston doesn't care about NE recruiting, and they would always stick to the UT system...
Unfortunately, I don't want to disclose which firm he signed with publicly because that's his business and not that relevant to the thread. I can say that he signed in the April - May time period, and it was extremely early. He's the only person I know who has conducted a formal super day and received an offer with a firm in Houston, but I do know that many firms have started reviewing applications and given out calls (Assuming they're not doing hirevues or a two-stage process)
That's super early - did he have offers from multiple firms in Houston? It seems to me like you're saying he had "calls" with your firm, but this is much different than an interview. What's the timeline for your firm right now? Anything information would help...don't mean to be nosy. I've heard so many different things, but I haven't heard of anyone signing or pushing candidates forward, especially not as early as April or May.
I left energy banking in 2017. Just curious how things have changed since then? Seems things have gotten more dire from tone of this post
When you left energy banking in 2017, we were on the upswing with crude, and our deal flow recovered itself by a decent amount. I was fortunate enough to be signed in the bottom of the downturn, and i only saw the positive buildup to where I am today. But that being said, expectations weren't met. Come 2018, most banks forecasted rising crude prices, but they never came to fruition. Even now, prices haven't been stellar by any means, but I would by no means classify them as low relative to when I first started. From a market POV, these prices would suggest that E&P should at least regain some footing, but this hasn't been the case. Upstream firms have been struggling with production; they've taken on large amounts of debt and are forced to constantly refinance. It seems many of these firms have become distressed, and even other verticals like OFS have performed abysmally. If these firms aren't able to increase production and recover at this part of the cycle, they're most likely going to have to sell off assets or even file bankruptcy during the downturn. From an IBD POV, most of the banks are fine because of A&D work, but M&A has dried up. There's an increasing number of players, but as mentioned before, I have a gut feel that some of the BB's may fall off during the downturn.
From your profile, it seems you chose to go into the buy side, and if you did the standard 2 year exit, you must be around my age. What have you seen, and where did you think the industry was going to go? If you're still invested or cover the sector, what are your thoughts on current prices firm valuations?
Does anyone happen to know anything about Macquarie's houston office?
Unfortunately, I don't know much about them, but I wouldn't classify them as much of a player right now due to small deal flow. I believe most of the firm's presence is in New York, and that actually has an impact on the culture. Since I started in the industry, they haven't done much work on the advisory side, which I assume means the commodities/trading desk has kept them afloat.
thoughts on macquarie now?
Really enjoyed the post, thought OP made a lot of great points. I recently started at an O&G boutique in HTX after doing 2 years in a BB corporate banking group from a non-target. The above breakdown is pretty spot on. In regards to the talent, I've been surprised at how many non-targets (similar to myself) have broken into IB in Houston. From everything I've heard, it is much easier to break in to IB in Houston as opposed to other hubs such as NYC. I think this is most likely due to relatively lax competition as the TX target schools don't always produce top-tier talent, but, I also think it's due to to the waning interest in O&G given that college grads are most likely into more trendy industries at this point in time. Overall I think activity in the industry will remain somewhat stagnant through 2019; one of the reasons why I decided to jump to a boutique IB that focuses on restructuring. In my previous role I was with one of the largest BB lending groups (in terms of admin. agent deals and total commitments) and I started seeing alot of deals turned down this year, which is not a great sign when access to the cheapest source of capital is decreasing in what is already a capital intensive industry. The capital markets have been mostly shut off to energy companies, and apart from select M&A opportunities, dealflow in the space will likely continue trending negatively for the remainder of 2019.
Thanks for the insight, and congrats with your boutique! It's great to hear that we're on the same page. It seems everyone I've talked to here sees the value of a restructuring group when it comes to business, especially within the O&G sector during these waning times. This further supports my statement that the EB's with phenomenal RX groups (Evercore, Moelis, Houlihan Lokey, Lazard) should begin to gain traction. I exclude PJT right now until they can solidify a location in Houston - all the other firms have at least built out a solid coverage group with legacy restructuring bankers. I would extend from 2020 to possibly even 2020 or 2021, when most of the current students recruiting will start full-time. There aren't many catalysts that signal a recovery except for maybe changes in the political scene, but that's always a shot in the dark.
As you mentioned, I think there's a stigma that breaking into IB in Houston is easier, but this is hardly the case for many of the groups here. Recruiting for lean groups at the boutiques like Evercore and Moelis will be difficult for anyone interested, and it might be even harder for students out-of-state. This goes back to the point - Houston shouldn't be a back door for NY, and just because you're from a great school outside of TX doesn't mean Houston is a walk in the park. Like I said above, I probed heavily on a prospective candidate that chose to go to a target school in the NE.
So Evercore #1?
There's not a solidified #1, but Evercore is definitely among one of the best firms you could select. Any of the groups I mentioned above are great for long-term opportunities and exits, each have their own pros and cons. If you prefer to be with a larger analyst class or want to get the "BB Experience", Barclays, CS, and GS are all great options. If you want to be on a leaner deal team, then Evercore, Jefferies, and TPH are all good choices.
That being said, EB's will usually be harder to break into, both from a group culture and technical POV.
Was messing around. Kind of obvious you work at Evercore
I don't think I disclosed my firm, but it could be... who knows? :) Don't think it really matters, haha.
Agree 100%. Clearly works in EVR E&P / upstream group.
Putting evercore’s upstream practice on par with Jefferies or TPH is laughable.
Well, the first thing to note is I haven't even started at the EB, as mentioned in my post; I will be joining as a lateral soon after a leave of absence. Second, I don't believe Evercore has a dedicated E&P group as individuals work across both upstream and midstream. I concur that both Jefferies and TPH have great upstream groups, and I never once mentioned that one firm was better than another. I think all 3 firms are great, especially TPH when it comes to the learning experience. All 3 have good exits historically!
Let us know if you’ll not be starting at Evercore once garden leave is over
I left energy banking in the spring of 2018 (after 5 years) and the industry seems to have taken a nosedive since then. Nearly 2/3 of the people I worked with have left or made lateral moves to other places / coverage groups. It’s not looking good.
Good move.
The events of last week are seriously casting the future of independent shale operators into doubt.
Which events?
What do you think this means for the future of IB in Houston? Will there be any point in firms having a significant presence down there in the near future?
It means that the IB in Houston will have to shift its dynamic away from M&A and possibly more towards A&D and Restructuring. As high hopes mentioned, O&G has been performing terribly for some years now, and from an investing standpoint, returns have been near been minimal for the S&P Energy Index. There's always going to be enough business; it's just the nature of the work. As OP mentioned, firms like Evercore and Moelis that have a solid energy restructuring arm will be able to do well in downturns and bear markets. Other firms, mainly BBs, will have to end up competing for less deals - myself included. The other alternative for BBs would be to look at smaller work in the middle market, which was touched on as well - but, key players in the space have already developed a reputation. Thus, having significant presence won't necessarily mean that you'll be killing it in deal flow, but rather you're not going to end up as the next Deutsche Bank.
One thing I would add is the importance of legacy within the industry - there are some notable names in the space that will always be notable, and I think that plays a big role when it comes to winning mandates. As much as people doubt PJT's O&G group, they managed to poach some of the top dogs overseas - for example, JPM MD with a stellar track record in Africa and the Middle East.
That being said, I think the MD's with legitimate O&G experience have a great platform and an even better understanding of the industry. When I first came into the industry years back, I knew absolutely nothing about O&G besides that firms drilled wells and extracted resources. Fast forward some years, I feel that I still have some gaps in my knowledge that will never be filled unless I'm exposed to them within the corporate side of Energy. While career investment bankers have significant deal experience, those that came from corporate have a significant amount of true industry experience.
Could I DM you? I am pretty confident I went to your undergrad uni and am heading to a SA for IBD in energy and want to hear your thoughts.
Could I DM you? I am pretty confident I went to your undergrad uni and am heading to a SA for IBD in energy and want to hear your thoughts.
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