The Engineering Gold Rush in Investment Banking

Abstract

HR Discussion In the wake of the 2008 financial crisis, the investment banking industry was vilified by most of US (and perhaps rightfully so) as one of the main facilitators of “The Great Recession.” We cheered on as the industry was subject to an onslaught of new federal regulation, forcing many investment banks to slash thousands of jobs and drastically cut compensation for those on Wall Street. It is almost poetically ironic that with the recent downturn in the energy industry, investment banking (specifically energy investment banking) is well-positioned to not only weather the storm, but flourish in the current environment. Those who have followed the market closely in recent months are likely aware that the drop in commodity prices has forced many operators and service providers to slow production, cut costs, and restructure their current portfolios. The general consensus of industry experts is that it is only a matter of time before the industry sees a sizeable wave of merger and acquisition deals and consolidation. Consequently, energy investment banking groups are not only capitalizing on said restructuring, but will be one of, if not the main, beneficiaries as many companies in the industry will be forced to sell off assets and/or consolidate. Before diving into the specifics of what this means from a hiring perspective, it is important to understand how the energy investment banking industry, and particularly acquisitions and divestitures (A&D) groups, have evolved over the past 10 years. Before 2005, any type of transaction facilitated by an investment bank that required nuanced, technical due diligence was almost always outsourced to a third party engineering agency. For example, if an operator intended to divest an asset, an investment bank would be engaged to represent and advise on the divestiture, with any technical analysis likely handled by an independent advisory. The investment bank would take the findings of the third party agency and incorporate its analysis in determining the price/ fair market value of said assets. Senior level investment bankers would then pitch the potential acquisition to prospective buyers. As the energy investment banking industry became increasingly competitive, many investment banks began to realize a competitive advantage by conducting in-house technical analysis and evaluation for their clients. One example of this was Jefferies acquiring Randall & Dewey, a large and reputable independent oil and gas advisory firm, in February 2005. Through this acquisition, Jefferies was able to realize the value of conducting in-house technical analysis. Moreover, having seasoned reservoir engineers and geologists accompany traditional investment bankers as they pitched to C-suite executives (many of whom are engineers or geologists by background) proved to be paramount in winning new business.