Restructuring Consulting vs Banking and How to Prepare for Interviews
Earlier this year when I released Restructuring Interviews, I expected it to be purely of interest to those looking to get into restructuring investment banking.
To my surprise, this year I've had dozens of folks go through RX Interviews who had no intention of ever applying to restructuring investment banking, but were rather gearing up for restructuring consulting or turnaround interviews.
The reason why I created RX Interviews was ultimately because there was no practical information out there on what restructuring investment banking really was. Turns out the same can be said for restructuring consulting (or turnaround consulting, pick your verbiage).
To be clear: my background is not in restructuring consulting, so I can't speak to the day-to-day work or the exact interview process.
However, the difference between restructuring consulting and restructuring investment banking is really about what each role emphasizes. For RX consulting, it's operations and financial management. For RX banking, it's capital structure alternatives.
Given just how little information is out there, I've decided to put together this little post to give my thoughts. I'll also briefly cover what areas of RX Interviews appear relevant to restructuring consulting interviews based on what those who have gone through the restructuring consulting interview process have told me.
On This Page
We'll be covering a few different topics here. Feel free to read from start to finish or choose the section you want to narrow in on.
When a company lands into distress to the point that restructuring consultants and investment bankers get involved, it is invariably a chaotic mix.
Note: Often restructuring consultants will be engaged before restructuring investment bankers are, although both are most certainly not invariably involved in every restructuring process.
This is all for good reason, of course. Whether you're looking at doing an out-of-court or an in-court restructuring the reality is that there is a limited amount of time to get something done before the company falls apart even further.
The Role of a Restructuring Investment Banker
The role of a restructuring investment banker is ultimately to come up with creative capital structure solutions to right-size the capital structure of a given company and then help that company successfully implement this solution.
By way of example, let's imagine we have a retailer that from 2000-2015 was growing quickly by expanding into malls throughout the country. Unfortunately for this retailer, the internet exists and the retailer is now buckling under its onerous debt, massive lease liabilities, and lack of in-store customer demand.
In practice, the kinds of things an investment banker would look at to gauge just how distressed this retailer is (and thus what solutions would be feasible) would include:
- What the same-store-sales are (probably quite negative)
- What the liquidity of the company is at present (which indicates how much runway they have and how they could entice creditors into coming to the table to negotiate)
- When debt in the company's capital structure is coming due
- Trends in EBITDA, EBITDA margin, FCF, etc.
After looking at all of this, an investment banker may come to the conclusion that perhaps a full Chapter 11 is unneeded. Perhaps the financials aren't that bad and a turnaround is possible (due to the help of restructuring / turnaround consultants). Therefore, perhaps an out-of-court solution would be better.
To this end, the RX banker may advise the company to pursue a debt-exchange combined with a new debt offering (perhaps with quite a bit of PIK interest) in order to de-lever the capital structure, push out when debt is coming due to buy the company time for a turnaround, and put the company on a more sound financial footing overall.
The banker would then go to the creditors - whose consent would be required for any kind of exchange - and try to work out this out-of-court deal. If successful, then that's the end of the bankers role on this engagement.
Obviously, this is scratching the surface to say the least. But hopefully you get the point that a restructuring investment banker is staring at cap tables, looking at ratios and trends, and coming up with innovative solutions surrounding the capital structure.
The restructuring investment banker will try to put the capital structure of the company on sound footing, but what the company does with their new breathing space is up to them (and potentially their restructuring / turnaround consultants).
The Role of Restructuring / Turnaround Consultants
Restructuring consultants will be hired in an entirely separate engagement process to investment bankers.
While restructuring investment bankers are focused on the capital structure, restructuring consultants are much more focused on the cash flow statement side of things.
Restructuring consultants will - just like any other consultants - spend a significant amount of time with the company in person at their headquarters and in their stores.
Carrying forward our example of a distressed retailer, the restructuring consultants won't just note that same-store-sales are declining. They'll ask why and try to come up with answers to questions such as:
- Can sales be turned around?
- Are there certain stores that are a lost cause? Can those specific leases be gotten out of?
- If we were to get out of leases, what leases would provide the best return?
- Can supplier agreements be renegotiated at better terms?
- Can we manage cash outflows better?
- Can we get cash inflows to increase?
- The working capital is not looking great, what elements of working capital can be improved? How do we get to near positive territory here?
- What would a three-month, six-month, or twelve-month turnaround look like?
- What should be the metrics of success for a turnaround?
These are all somewhat typical consulting questions, however often consultants at MBB will generally be focused on making healthier companies even more profitable. Further, classic MBB consultants will be operating on longer timelines than RX consultants will be.
One thing that sets restructuring / turnaround consulting apart from traditional management consulting is that there is quite a bit of technical work involved that is communicated to restructuring investment bankers.
This work requires sharp accounting skills that are often (to be frank) above those that investment bankers have.
The prime example of this would be the creation of the 13-week cash flow model if the consultants are engaged when the company is in Chapter 11. This model is a cash-accounting cash flow model for the company that's projected over the next 13 weeks.
Because restructuring consultants are on the ground and in the weeds they are in the best position to create these. I have heard that questions on how you would think about modelling these do come up in full-time restructuring consulting interviews.
Fortunately, there are many copies of real-world models floating around since they'll be included in every Chapter 11 filing.
Further, restructuring consultants may also play a kind of advisory role in things such as asset sales that restructuring investment bankers may propose as (once again) restructuring consultants often are most up-to-speed on where the company really is financially at present.
So you can really think about a restructuring consulting - from my outside perspective - as being composed of two parts.
First, you have the traditional consulting aspect of advising the company on strategy changes it can make immediately and in the short-term. However, these strategy changes are always about keeping an eye to stabilizing current FCF and maximizing future FCF (there's no room for much risk with stressed or distressed companies).
Second, you have more technical aspects that revolve around modelling out 13-week cash flows, sending detailed financials of the company to bankers, doing a deep dive into working capital changes or possible lease discharges, etc.
There's a reason why restructuring consulting interviews are more technical than your usual management consulting interview. It is complex, detailed work that goes far beyond just suggesting some ideas to management for them to possibly one day adopt.
Like with restructuring investment banking, there are some large restructuring consulting shops and then a number of smaller ones. For example, most traditional management consulting shops will have a RX team of some kind, but they generally tend to be far down on the league tables.
Below is not a ranking of RX or turnaround consulting firms. I haven't ranked them for two reasons. First of all because I only have an outsiders perspective and don't pay that close attention to who is on the rise or not. Second of all because like in RX banking, RX consulting league tables are fundamentally flawed as not all engagements will be well-known or incorporated into league tables (the way announced M&A deals are).
I think generally speaking there are three large restructuring consulting shops that tend to hire the most fresh undergrads or MBAs without prior experience in a RX role.
These would be: AlixPartners (Alix), Alvarex & Marsal (A&M), and FTI Consulting (FTI). All these firms have wide mandates and pursue engagements across industries aggressively. These three certainly have dominated the transactions I've seen.
Like I said, league tables are always a bit suspect in restructuring and top ranked shops are not necessarily indicative of giving you the best experience or exit opportunities.
However, The Deal does do power rankings for RX consulting (what they call restructuring advisors). In terms of restructuring investment banking, The Deal's rankings do comport largely with my own view of how RX investment banks should be ranked (Evercore, PJT, HL, and Moelis being ranked in the top four) so perhaps their rankings are good for RX consulting as well.
As mentioned before, much of my knowledge of how restructuring consulting interviews are structured comes from those who have gone through RX Interviews - even though the course was created for RX banking - and then let me know how it went.
I've spoken to those who have interviewed at Alix and FTI and it generally seems like the best way to prepare is to think about the interviews as having two components.
Traditional Consulting-Style Questions
The first component would be thinking about the unique circumstances of a hypothetical distressed company - say a retailer - and then coming up with operational improvements in much the way you would in a traditional consulting interview.
Like everything in restructuring, these questions will have a restructuring spin on them.
So, for example, you would think about how to answer the questions that I listed further up on this page.
I would think about answering these questions under some of the following constraints:
- Your answers should fit into 1, 3, 6, and 12 month turnaround plans (meaning you shouldn't talk about grand visions for what the company could look like in 5 years)
- You should think about things that are not only not overly capital intensive, but perhaps that save cash (e.g. working capital improvements, getting out of leases, etc.)
You should probably spend some time reading about companies like distressed retailers or oil and gas companies that have been turned around. In particular, look to those that have done successful debt restructurings.
An example (although I haven't followed them very closely) would be GameStop, which did a large out-of-court debt restructuring and which currently has a high flying stock price.
While GameStop wasn't that distressed earlier this year, they were in trouble and thus needed to do that out-of-court deal. They also brought on new board members with e-commerce backgrounds, are trying to get out of leases, and are generally a good demonstration of an old-world brick-and-mortar store revamping itself with some apparent success to date.
Consulting-style questions are always quite open-ended and ambiguous. I would suggest spending time thinking about the constraints mentioned above and what solutions can exist to put the company on more stable footing in the short term that are not capital intensive.
This (obviously) primarily means looking at areas to find efficiencies and doubling down on capital-light, profitable areas of the business.
Traditional Restructuring Technical Questions
Unlike traditional consulting interviews, restructuring consulting interviews appear to have a heavy bend toward more traditional investment banking "technical" questions.
This makes sense given the more technical modelling work that requires non-trivial accounting knowledge in order to complete.
Further, just like in restructuring IB the work being done by restructuring consultants is very specialized and is likely not a great fit for everyone. So if you show contextual understanding surrounding what attributes distressed companies have, what possible restructuring solutions the company will be looking at, etc. it shows you are not only prepared, but actively want to work in RX.
I've compiled a list of 15 restructuring interview questions if you'd like to get a sense for the kinds of questions that may be asked.
As for the RX Interviews course itself, the feedback I've had from those who have done RX consulting interviews is that it provides great contextual understanding of the restructuring process and that the RX accounting and RX overview questions and answers were very good prep for the more technical component of the interview.
With that said, it probably is best to ignore (or not bother memorizing) the more pure distressed debt style questions I've put in the guides. Further, I don't go over the 13-week cash flow in any depth - since it's not a big part of RX IB in practice - but you should absolutely spend time reading through publicly available ones prior to a restructuring consulting interview.
A common question I receive surrounds the likelihood of being able to enter into restructuring consulting and then move to restructuring investment banking after two or three years.
From what I've observed in the industry, it's generally unlikely that RX consulting folks will end up at places like Evercore, PJT, or Lazard. This is largely because what those firms look for in laterals is direct, transferable experience on RX IB transactions. So you will most often see laterals come from slightly smaller RX IB shops as opposed to from RX consulting (even if it's at a top shop).
However, it does appear that breaking into some of the smaller (in terms of deal flow) RX IBs is possible from RX consulting after two or three years. Most I've seen will come in as a senior analyst, not at the associate level.
The one exception to all of this I'd make is that if you do RX consulting, get a top MBA, and then recruit for RX IB you'd be in a very strong position to get interviews and offers at just about anywhere.
With all this being said, prospects looking at RX consulting should not feel like RX IB is the be-all and end-all.
Yet another reason why I wanted to create RX Interviews is to communicate the fact that while RX banking is prestigious, high paying, etc. it also provides such a specialized skillset that you can't just "go corporate" after burning out.
Instead, your exit opportunities from RX banking are high-prestige, high-pay, high-hour jobs on the buy-side (or you can just stay in RX banking). For some, this is great! They don't want to leave high finance and the pay is hard to beat in RX banking or on the buy-side for distressed work.
However, the classic path of doing M&A and then getting a cushy, 50-hour a week corporate development job paying $100,000-200,000 can not be replicated in RX banking. That's just a reality that needs to be considered for those entering into RX banking early on.
However, with RX consulting because you have a more "strategic" focus and are integrated into certain companies for prolonged periods of time, you do build a skillset more valued by corporate America.
It's not at all rare for a young RX consultant to be well liked by a company they've been placed at and then be hired to continue on with helping the company turn things around for the longer term.
In fact, if you're a young RX consultant who has done a number of engagements across (for example) retail you're in a strong position to help struggling (but not distressed) retailers turn the page as they try to do a "soft reset" of sorts. So there are corporate development exit opportunities outside of just the companies you've worked for or that are quite distressed.
The point is: in RX consulting you do build a valuable strategic skillset, strong accounting knowledge, and practical CorpDev-style modelling skills. You may not be a strong candidate for an internal M&A group at a Fortune 500 company - due to the strong competition from former M&A investment bankers - but you also have a highly differentiated skillset with much less competition for strategy roles at companies trying to reinvent themselves (or who are in a more distressed position).
Again, this is just my outsiders perspective on all of this. However, often outsiders are able to help you see the pros and cons of a role a bit more clearly.
I would break down the exit opportunities from RX consulting as follows:
- RX operational roles within large credit funds (in particular, those run by PE funds; essentially this role operates as RX consultants just for portfolio companies of the PE fund)
- Lateraling to different (perhaps more niche) RX consulting firms
- LMM / MM distressed-orientated PE funds (with an operational focus likely)
- RX banking (likely at one of the smaller shops)
- Corporate role at a company previously engaged with that wants help with a longer-duration turnaround
- Corporate role at a stressed (not distressed) company that is looking to reinvent itself (explore ways to streamline, rightsize, expand into new opportunities, etc.)
Overall, my view is that RX consulting offers a great diversity of exit opportunities. However, the timeline, recruiting process, and nature of the roles will simply be different than in RX banking (where after 18-30 months you leave to a distressed credit or PE fund).
However, if you're at all interested in a more "hands on" operational-focus then RX consulting would potentially be a great fit. Of course, the downside is the lower pay, but that comes at likely less hours (or hours that feel less onerous perhaps!).
Initially I just wanted to put together a little post about RX consulting, but this is now nearly 3,000 words.
Obviously, I can't speak to the day-to-day job, how fulfilled folks in RX consulting are, etc. as I've never worked within it. However, I certainly think it's a great place to begin a career or spend a few years.
In terms of interview prep, obviously there's very little out there. From what I've been told, you should think about it as the two components I listed above: operational / classic consulting questions and restructuring technical questions.
Folks who are interviewing for a restructuring consulting role have seemed to find RX Interviews helpful on shedding light on what restructuring is, what technical questions exist, etc. so be sure to check it out if interested (you can just skip over the parts that clearly focus on RX IB).
As always, best of luck and I hope this been helpful.