Today we visited with a lovely fellow (as they say here in England) at Blackstone who works in the corporate restructuring group.
Following are a few highlights from our conversation:
Restructuring is a fairly new concept in the EU; not very many banks or corporations are very familiar with the practice, so it’s a fairly nascent market. The UK has much stricter bankruptcy laws, which mean that the whole restructuring concept is a bit trickier to deal with. Blackstone is one of the few firms doing restructuring deals in the EU, but Houlihan Lokey and Lazard are a few of their main competitors. The restructuring market is much more saturated in the US, but it remains to be a very small (and cut-throat) community.
At most firms, restructuring generally falls under the "advisory" business, but is very different from M&A or capital markets. While M&A transactions typically involve a fairly straightforward auction process (build a book, build a list, call the list), restructuring deals are much more complex and unique. Why? Because they involve several more parties per transaction and are often less predictable. Most companies undergoing restructuring transactions are over-levered and have serious operational issues in addition to their capital structure (i.e. a liquidity crisis). Also, there is much more tension and drama involved because there is generally a losing party involved; so unlike an M&A deal (where each party is excited about their newfound "synergies"), restructuring generally involves a bit of pain for the equity holders during the de-leveraging process. Unlike an M&A deal, banks are typically brought in and retained (hired) by the creditors, rather than the corporation or the equity holders.
As most of us know, restructuring is a counter-cyclical business. For those that are less familiar with the term, this means that when the market is hot, the restructuring guys get to play golf on the weekdays, but when the market crashes (and all the other bankers get laid off), these guys roll up their sleeves and get to work.
At the first open house, we were all giving each other high fives for timing the market just right and getting into b-school at just the right time. A lot of people are thinking about going into restructuring in order to capitalize on the much anticipated recession, but is now the right time?
It's yet to be determined, but (according to my new friend at Blackstone) chances are... it’s too late. Restructuring isn't something you get into for the short run; it's a very specialized practice that takes a few market cycles to really understand the business and get to know the players. It also has a short window of opportunity because, unlike the weather in London, there are typically more sunny days than rainy days in any given market cycle.
That said, Blackstone hasn't seen any significant increase in restructuring deals... yet. It seems that most of the de-leveraging has been taking place in the capital markets, but hasn't yet hit the corporations, who seem to still have a lot of cash on their balance sheets. A few bad quarters and this could change very quickly.
Okay, there it is. I'll end with saying that I don't have a restructuring background, and most of this information was derived from one conversation, so I'd love to hear anyone else's thoughts about the matter. Is now is the right time to get into restructuring?
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