Capital Markets vs. M&A Forum

[Vassy Lien]

Hi Everyone.

I am trying to choose between capital markets and M&A for my upcoming summer associate position. I know that given the state of the economy both practice areas will likely be slow this summer, but I am thinking in terms of the longer term.

I’d appreciate it if you guys could tell me what there is to love and hate about each specialty. I’ve done google searches, but the articles I’ve found are written by practitioners who clearly love the path they’ve chosen and so do not present the downsides.

[jigiwo1898jupiter]

CapM: more predictable process; more rote process; able to be involved more at a more junior level; less interesting; more stable; easier to understand at a more junior level; worse exit options

M&A: less predictable timing and process; harder to be involved at a more junior level; more interesting; less stable (feast & famine); harder to understand at a more junior level; better exit options

[TexasBigLaw]

CapM: more predictable process; more rote process; able to be involved more at a more junior level; less interesting; more stable; easier to understand at a more junior level; worse exit options

M&A: less predictable timing and process; harder to be involved at a more junior level; more interesting; less stable (feast & famine); harder to understand at a more junior level; better exit options

Agree wholeheartedly with this. Went in as a junior wanting CM for all these reasons, ended up M&A for the same reasons.

[Vassy Lien]

Thanks both of you! This helps a lot. I have two follow up questions, if you don't mind.

What parts of capital markets did you find least interesting?

What made M&A particularly more interesting?

[QContinuum]

I'd add that even though M&A has its ups and downs, cap markets is even more sensitive to economic downswings than M&A. Cap markets work always seems to be the first to dry up whenever uncertainty spikes. With M&A, you have a runway of deals rushing to close, and also work driven by companies hoping to avoid bankruptcy by selling themselves off before they run out of liquidity. With cap markets, work can halt almost instantaneously.

[lsatprepguy]

I'd add that even though M&A has its ups and downs, cap markets is even more sensitive to economic downswings than M&A. Cap markets work always seems to be the first to dry up whenever uncertainty spikes. With M&A, you have a runway of deals rushing to close, and also work driven by companies hoping to avoid bankruptcy by selling themselves off before they run out of liquidity. With cap markets, work can halt almost instantaneously.

I'm not sure that this is entirely correct. I'm completely slammed right now as a mid-level cap markets associate right now while M&A colleagues are slow. The crisis has caused interest rates to drop, and Companies are issuing debt like crazy to take advantage of it. Sure, equity has slowed, but there is the opposite side to cap markets that people forget about. Overall, it might be firm specific. But, if anything, the recent events have resulted in me being more busy.

I'm also not sure I agree with the post above that says Capital Markets is easier at the junior level. Maybe if you're doing cookie-cutter deals. But, if you are actually thinking through securities law questions and working on deals which involve those types of questions, I can't imagine this is easier than M&A junior work, which I presume is mostly legal due diligence and checklists. Albeit I've haven't done more than a few weeks of M&A, so take that opinion with a grain of salt.

I think the last thing to add to the posts above is that, at least in my experience, your typical capital markets associate also is responsible for Exchange Act reporting and corporate governance work. This versatility broadens your exit options. I agree, though, that if you are going to a firm where capital markets associates just churn out deal after deal and they're all the same, your exit options will be slim.

[TexasBigLaw]

Thanks both of you! This helps a lot. I have two follow up questions, if you don't mind.

What parts of capital markets did you find least interesting?

What made M&A particularly more interesting?

For me, CM is very rule-based and formulaic. It's easier to solve problems, and the process is very similar from deal to deal (at least compared to M&A). That makes it easier as a junior to understand, but boring as you get more senior. The risk if you screw up a CM deal is enormous, even by biglaw standards, so companies will tend to go for experienced firms even for easy work. Great for the firm, not great for the bored associate doing their millionth offering.

M&A is a little overwhelming at first because every deal can be very very different, especially if you're at a high-prestige firm where the deals are really sophisticated, and they have a lot of moving parts. Companies tend to go with cheaper firms for the easy, standard M&A work, so if you're at a top firm, deals typically aren't coming in the door unless they're huge or difficult (and difficult usually = interesting). It can take years before you really feel like you know what you're doing, and even as a partner you may frequently get curveballs you haven't seen before. For some people (like me), that's what makes it enjoyable. I also like the negotiating aspect - CM is more collaborative (which many people prefer), whereas M&A has more frequent truly adverse situations where you're duking it out with opposing counsel. As Q said, it's also less dependent on the market. Between PE work and bankruptcy, you at least have a chance at working when the market goes to hell, whereas CM work can really fully stop.

I also think you become more of a generalist in M&A since you work more frequently with specialists, so you get more of a taste of L&E/EBEC, real estate, IP, etc. There's some of that in CM but not to the same extent.

I didn't work in cap markets all that long so take my perspective on it with a grain of salt. There's plenty of great things about CM work too - just wasn't a fit for me.

[JF215]

Thanks both of you! This helps a lot. I have two follow up questions, if you don't mind.

What parts of capital markets did you find least interesting?

What made M&A particularly more interesting?

For me, CM is very rule-based and formulaic. It's easier to solve problems, and the process is very similar from deal to deal (at least compared to M&A). That makes it easier as a junior to understand, but boring as you get more senior. The risk if you screw up a CM deal is enormous, even by biglaw standards, so companies will tend to go for experienced firms even for easy work. Great for the firm, not great for the bored associate doing their millionth offering.

M&A is a little overwhelming at first because every deal can be very very different, especially if you're at a high-prestige firm where the deals are really sophisticated, and they have a lot of moving parts. Companies tend to go with cheaper firms for the easy, standard M&A work, so if you're at a top firm, deals typically aren't coming in the door unless they're huge or difficult (and difficult usually = interesting). It can take years before you really feel like you know what you're doing, and even as a partner you may frequently get curveballs you haven't seen before. For some people (like me), that's what makes it enjoyable. I also like the negotiating aspect - CM is more collaborative (which many people prefer), whereas M&A has more frequent truly adverse situations where you're duking it out with opposing counsel. As Q said, it's also less dependent on the market. Between PE work and bankruptcy, you at least have a chance at working when the market goes to hell, whereas CM work can really fully stop.

I also think you become more of a generalist in M&A since you work more frequently with specialists, so you get more of a taste of L&E/EBEC, real estate, IP, etc. There's some of that in CM but not to the same extent.

I didn't work in cap markets all that long so take my perspective on it with a grain of salt. There's plenty of great things about CM work too - just wasn't a fit for me.

This isn't accurate.

[The Lsat Airbender]

Underrated aspect of CM from a 2L perspective is that it's probably the single easiest (albeit still not easy) way for a monolingual American JD to work overseas in a London/Toronto/Singapore/etc. satellite.

[TexasBigLaw]

This isn't accurate.

Super helpful contribution

[jigiwo1898jupiter]

Thanks both of you! This helps a lot. I have two follow up questions, if you don't mind.

What parts of capital markets did you find least interesting?

What made M&A particularly more interesting?

For me, CM is very rule-based and formulaic. It's easier to solve problems, and the process is very similar from deal to deal (at least compared to M&A). That makes it easier as a junior to understand, but boring as you get more senior. The risk if you screw up a CM deal is enormous, even by biglaw standards, so companies will tend to go for experienced firms even for easy work. Great for the firm, not great for the bored associate doing their millionth offering.

M&A is a little overwhelming at first because every deal can be very very different, especially if you're at a high-prestige firm where the deals are really sophisticated, and they have a lot of moving parts. Companies tend to go with cheaper firms for the easy, standard M&A work, so if you're at a top firm, deals typically aren't coming in the door unless they're huge or difficult (and difficult usually = interesting). It can take years before you really feel like you know what you're doing, and even as a partner you may frequently get curveballs you haven't seen before. For some people (like me), that's what makes it enjoyable. I also like the negotiating aspect - CM is more collaborative (which many people prefer), whereas M&A has more frequent truly adverse situations where you're duking it out with opposing counsel. As Q said, it's also less dependent on the market. Between PE work and bankruptcy, you at least have a chance at working when the market goes to hell, whereas CM work can really fully stop.

I also think you become more of a generalist in M&A since you work more frequently with specialists, so you get more of a taste of L&E/EBEC, real estate, IP, etc. There's some of that in CM but not to the same extent.

I didn't work in cap markets all that long so take my perspective on it with a grain of salt. There's plenty of great things about CM work too - just wasn't a fit for me.

Concur with all of this.

I would add that for the most part, my CapM client interactions (when issuer-side) are not that great--seems like we are just there to get them their money, and most requests are an imposition. CapM UW-side interactions aren't really any better.

M&A client interaction is much more of what I think people thought of being a corporate attorney in law school--you are helping them negotiate, decide things that actually matter to them (rather than 5 million in some dumb builder basket or something), etc.

[bigadi99]

Also adding that capital market has foreign exit options where firms will pay cola above local rate. UK and HK being best for COLA. Singapore I have heard does not offer much of a cola but i could be wrong.

[Idontwanttomakeaname]

I will say as a junior in cap markets, the lifestyle thing is way oversold (at least at the v10 level) and you shouldn’t do it if that’s the reason. Bond offerings, especially now that companies are worried about their capital markets access, can be on insane timelines with pretty much no notice (I’m 2 for 2 in 2020 getting my 3 days weekends blown up by a deal that the firm found out about on Friday afternoon that’s launching the following week). I think M&A hours are worse at their worst but cap markets isn’t exactly a lifestyle job.

[gontid]

There seems to be a consensus that cap markets work dries up quickly in a downturn, but if you look at the websites of firms with top capital markets practice (e.g., DPW), it seems like during the pandemic all they do is notes offering. Are these not considered cap markets work?

https://www.davispolk.com/news/list?fie ... +and+Cases

[The Lsat Airbender]

There seems to be a consensus that cap markets work dries up quickly in a downturn, but if you look at the websites of firms with top capital markets practice (e.g., DPW), it seems like during the pandemic all they do is notes offering. Are these not considered cap markets work?

https://www.davispolk.com/news/list?fie ... +and+Cases

There's a mad dash right now because companies are trying to raise cash while they still can, but the nadir of a downturn, and the resulting tightness of credit, usually gets a lot slower.

[Anonymous User]

Think you have to do what YOU enjoy the most. Cap markets is generally more technical which appeals more to a small niche of people. Having said that, you need to get realistic. This is a recession, probably will be around for a while. Neither area is great. M&A has better exits, so if you get canned there are plenty of corporates you can join. So all things being equal and preference being the same, do that. But things are never equal...

[babylawyer101]

Cap markets first year here who also was choosing between these. I agree with a lot that has been said (essentially Cap markets is more rule based and technical). While M&A hours are typically more wild, Cap markets is slammed right now with everyone trying to get liquidity, which shows that it also has its highs and lows. I would also add that Cap markets has a significant amount debt side work to it, so it’s not like the market tanks and we are all out of a job.

I also agree that M&A seems to have better exit options, probably because they see more documents that an in-house attorney routinely has to deal with. This also translates to higher group turnover, at least at my firm. While I do not regret my group choice, I would say the biggest surprise to me is how much the client and their financial advisors have already prepped the deal before it hits our desks. I would say 1/5 deals is something the seniors/partners really need to weigh in, the rest the financial advisors have pre-baked into something we are pretty used to dealing with.

[LBJ's Hair]

FWIW, PE M&A isn't really counter-cyclical. Common misconception. Intuitively, you'd think that private equity is a huge buyer doing recessions because valuations are depressed and they buy the dip.

Not the case, at least in aggregate. Private equity deal volume directionally tracks strategic M&A, which drops precipitously during recessions. Source: Pg 17 https://www.mckinsey.com/~/media/McKins ... -2018.ashx

Large part of this is probably tighter credit markets: Can't finance at 6x leverage? Can't do the deal. Also means your natural buyers -- other PE and strategics -- aren't there, so harder to exit positions.

[sms18]

FWIW, PE M&A isn't really counter-cyclical. Common misconception. Intuitively, you'd think that private equity is a huge buyer doing recessions because valuations are depressed and they buy the dip.

Not the case, at least in aggregate. Private equity deal volume directionally tracks strategic M&A, which drops precipitously during recessions. Source: Pg 17 https://www.mckinsey.com/~/media/McKins ... -2018.ashx

Large part of this is probably tighter credit markets: Can't finance at 6x leverage? Can't do the deal. Also means your natural buyers -- other PE and strategics -- aren't there, so harder to exit positions.

Agree with this. Another misconception about PE is that people generally think PE sponsors have a lot of cash on hand that can be deployed whenever they want (e.g., war chest of $2 trillion in aggregate). This is not always the case because in order to deploy capital, PE sponsors need to call capital from the investors. Investors are technically required under the subscription agreement to provide capital upon a capital call, but if an investor is having a tough time because of the market & etc., a sponsor would generally try to work around it somehow rather than forcing the investor to cough up the money, despite all the rights & remedies available to the sponsor in such case (e.g., because this is ultimately a relationship business). Restrained ability to call capital (equity) plus tighter credit market noted above (debt) makes it a challenging time to do deals.

[Anonymous User]

Also adding that capital market has foreign exit options where firms will pay cola above local rate. UK and HK being best for COLA. Singapore I have heard does not offer much of a cola but i could be wrong.

Lots of speculation that UK COLA will be reduced/phased out/removed across the market even before the pandemic made the economic situation less promising. It causes resentment between US and non-US associates and will be hard to justify when those US lawyers aren't grinding as many hours. Pretty small group of people who receive it as a benefit, but not something I'd tell anyone to count on still being around in the future.

[Anonymous User]

I straddle doing both cap markets and (mostly non PE) M&A and still struggle with trying to focus on one or the other. My cap markets/securities work involves the bread and butter quarterly and annual filings along with corporate governance issues (and IPO's) and you get to interact with a lot of different companies on an ongoing basis. I enjoy being able to cultivate relationships with these companies whereas I have very little interest in PE companies, so my work load is more securities than M&A work. I enjoy the predictability of my securities work because I am still always learning and building on a foundation of knowledge, whereas sometimes with M&A, I feel like each deal is so different that sometimes it feels like building from the ground up again (especially with diligence and getting to know the target/buyer).

For me, public M&A is a great way to bridge my interest in securities law and the masochistic fun of an M&A deal. As someone else said, don't be deceived into thinking cap markets is a lifestyle area of work--when there's a push, it's a big push and it can really suck. That being said, the only times I've wanted to cry at work have ever been for an M&A deal. It is incredibly stressful, always different and convoluted, and very demanding. However, it is also very rewarding when things go well, and after a deal is over, I'm excited for the next one.

If you can try a bit of both or push to try a bit of both, I highly suggest it.