Interview Question: Why Restructuring?

In a traditional M&A interview, it's rather rare to actually be asked why you want to do M&A.

You may be asked why you want to join firm X in particular, but rarely will the very notion of joining a M&A group be questioned. 

In restructuring things are different. As they should be. Almost everyone who interviews for a M&A job roughly understands what the job is and types of analysis done. 

In restructuring I believe the vast majority do not roughly know what the job is and most certainly do not know the types of analysis are done. 

For that reason, "Why Restructuring?" comes up almost invariably and you need to have an answer prepared that is both compelling and shows a contextual understanding of the job (and it's downsides, of which there are some). 

What Sets Restructuring Apart

Good answers begin with acknowledging what makes RX unique: it combines finance, law, and psychology in a sometimes chaotic blend. Every deal is unique, because the capital structure, industry, and players in the capital structure are unique (assuming a debtor-side mandate).

As we talk about in Restructuring Interviews even the precedent transactions in the appendix of pitch books - that are often presented as case studies - very rarely have that much to do with the company being pitched. 

Restructuring also operates in a time crunch that generally absolves the need for analysts and associates to spend endless hours formatting and re-formatting. There are always superfluous elements to investment banking - that's just part of the job - but in restructuring it's generally less. 

A good answer to this interview question will include contrasts that illustrate (implicitly) that you understand what sets M&A and restructuring apart.

For example, if you want to say that part of what makes restructuring appealing to you is that it involves strategic thinking then you should illustrate why this isn't broadly true throughout investment banking (in your view).

The appropriate rationale to give in this case would be that strategy in M&A involves coming up with a target company to acquire and then figuring out the right valuation and payment mix. This is strategic, sure, but it's fundamentally different than the strategy involved in restructuring.

For example, every pitch in restructuring will include multiple restructuring possibilities that are wildly different and accomplish fundamentally different things. Perhaps the first option is an amend and extend, the second option is an exchange, and the third option is an amend and extend and exchange combined (or you could just have multiple different kinds of exchanges; some using different techniques like IP transfers, for example). 

Which one of these strategies is most important depends on:

• The health of the company now and the capacity to turn it around (meaning, is getting them more runway sufficient or do they need to really restructure from the bottom up)
• Who are the relevant creditors who need to give consent; are they distressed funds looking for a fight or institutional investors who will go along with a sound out-of-court plan
• If new cash is being raised, who is likely to contribute that cash and what are they going to demand in terms of conditions on that new money

Even at the early stages of a pitch, as you can hopefully tell, restructuring possibilities branch off in a myriad of ways. That's part of the uniqueness of the field and the inability for any other area of finance to really replicate the diversity in what is done day-to-day (check out the top books on restructuring for more). 

An answer the illustrates this uniqueness - perhaps pitched using the "uniqueness" parlance I used above - will be quite impressive. 

What the Downsides of Restructuring Are

If your interviewer is reasonable and quite nice, it may be worthwhile showing that you understand what the downsides of restructuring are as well.

It's important to recognize that unlike in M&A, you can't just go and get a "Corporate America" job after your analyst or associate stint. You're either going to stay in finance - at the highest levels - or get out to do something entirely different.

In other words, you aren't going to build a rolodex of healthy corporate clients who want you to join in a corporate development capacity. In RX you're building a very specific, specialized skillset. It's very well compensated, but it's not necessarily transferable. Bringing this up in an interview shows maturity and acts as an acknowledgment that you understand RX is not just a trendy area of investment banking, but will set you on quite a different trajectory through life than if you did M&A. 

Choosing How to Blend Them

Ultimately, you need to read the room to decide what to include and what not to. If your interviewer is a bit miserable, it's not a good idea to talk about downsides of restructuring. If your interviewer is upbeat and wants to hear you talk, it'll be impressive to show that you've thought about what it means to join restructuring. 

Whatever answer you come up with must demonstrate that you understand how restructuring is unique and the best way to do that is to contrast it with M&A. Show that you know what the differences are and point out that you find what makes RX unique to be intellectually exciting (either because it blends finance, law, and psychology or because every deal is unique, etc).

Best of luck as always! 

P.S. - I have written more about this and added lots more context about the day-to-day of the job within the Restructuring Interviews course, if you're curious.