DCM - considering moving from M&A
Just want to hear your views on DCM and why it ISN'T a great career choice?
I am working for a major bank in London and am considering moving to DCM (not sure which area as yet) from M&A. The way I see it:
- Closer to the markets, so more interesting / more varied work
- Much lesser pitching, 10 slide pitches for most companies and "executing" most of the time
- Become specialised in some particular area and hold the job for life more or less as companies always need debt financing
- Potential exit, if needed, in credit related hedge funds / MBAs
- more technical than M&A?
- Go home at 8pm everyday and no weekends
- Bonus at analyst / associate level is pretty much similar to M&A, not sure at VP and above
Your thoughts please?
How on earth is DCM more technical than M&A?
The only technical part I find in M&A is building a model which is pretty much all accounting and knowing excel well, I have built a few fully operational models and I think the only skill to learn is value drivers in different industries, pretty much all other technical part, we outsource to accountants, lawyers and some specialised consultancies (I am in energy banking and we need firms which understand intricacies of, say, coal mines which no bankers are supposed to know apart from high level)
How is it in DCM?
Leveraged finance (HY, lev loan) origination is a very profitable part of the business, where fees can be 3-4% on deals, instead of 1-2% in M&A. Furthermore, the analysis here is much more relevant to credit funds than the work done in investment grade underwriting (very little analysis). Understanding covenants, credit risk, collateral, free cash flow, maintenance vs. growth capex, subordination are all part of the role. I would caution that this part of the market has been very busy for more than two years straight. It may soften as interest rates rise, whereas M&A is beginning to rebound. The only thing I am questioning right now is your timing, but you are right about almost everything else.
I think that was a quality post. +1 I've been trying to work into m&a and have been considering junior entry to the other main two capital market functions as well.
Fees on leveraged finance deals are rarely 3-4%, generally more like 1-2%, but I agree with BankingRUs9's views on timing. HY in particular has absolutely been on fire and what goes up must come down eventually.
That being said, I hold the view that a Capital Markets Group is better than IBD for someone who is lifestyle-focused and interested in sticking around for the long run. The work will be less technical than M&A and some of it will involve doing mindless stuff for other groups (updating creds, fetching rate quotes, etc). You will also have to look through credit agreements which is pretty damn boring. But hours are shorter and much more predictable than IBD. As you move up, you generally will be expected to be an expert on HY in your assigned industry and chime in on calls to give your views on the market. Overall a pretty sweet gig. Job security isn't as great as someone with a P&L in an industry group, but probably better than M&A since you are more specialized.
For similar lifestyle considerations and a better long-term outlook, you should consider ECM. If you truly want to do very little work, go to private placements (I honestly have no idea what those guys even do).
Guys, thanks a lot for your replies.
Could anyone add any more comments they may have?
Cheers!
Yes. DCM is so much more complex than M&A....this is probably why the top funds (HF/PE) prefer DCM/ECM experience to M&A...riiiiiiiiiiiiiiiiight
just to clarify, LevFin is very different to dcm from a lifestyle pov. They do the same hours as bankers and there is a lot hard work analysing shitty companies and pitching deals, don't think those margins come for free! "pure" dcm is much lower margins(sub 1%) but huge deals. You might find it a tad boring though. Consider the type of institutions that raise massive lower risk debt. Personally, I don't understand why anyone would choose to be in a coverage team in the first place. Hope this helps.
Coverage groups vary from bank to bank. At one bank, the coverage group may have its own M&A sub-group. However, even if you are not in the coverage group's M&A sub-group, you will still get opportunities to run the model while M&A simply vets it. Also, M&A sub-groups within coverage groups do not only do M&A deals -- they sometimes will work on equity offerings. Just had to clarify that.
Now to the point at hand. DCM is NOT LevFin. I repeat: DCM is NOT levfin! While DCM and levfin are both market-facing, DCM is comparatively analysis-light. If you're looking to impress buyside shops with your deal experience, a $3 bn bond deal isn't shit compared to a $1 bn HY financing.
Don't misconstrue DCM and levfin. They're very different.
OP is not in IBD.
Could someone briefly explain why HY markets have been especially active recently?
Investors reaching for yields and quality of these leveraged credit have generally been better than pre-crisis era, but mainly valuation was attractive (keyword: was)... but we're seeing some things come back that's not too great like Cov-Lite, HoldCo PIK Notes, some deals are done without LIBOR floors, and generally less protection from investors, but the market is hot...
Can anyone attest to lifestyle, career path, compensation, etc. of Equity/Debt Capital Markets? (Originally Posted: 08/09/2015)
Curious to learn more about these groups and how they are viewed today, post-recession. What are the hours like? Compensation? What type of work do these guys do compared to other groups in investment banks? etc .
bump
What is your motivation for working in DCM? (Originally Posted: 02/02/2012)
Hi everyone
When comparing DCM to ECM, the DCM is always considered as to be the niche. The "sexy" ECM normally wins the race when it comes to questions likke "where do you want to work?".
I wonder why that is the reason?
So I am asking you guys, what is your motivation behind working at DCM? Why have you chosen DCM?
regards, mott
Who says "I want to work in ECM"?
Hmm. I thought everyone wanted to be in M&A/LevFin.
Interested to hear from someone who works in DCM.
Thanks for your responses.
My intention was, to compare the motivation for someone who needs to decide either going into DCM or ECM?
What could you imagine is the motivation to go into the DCM department? What attracts someone to go into this field instead of choosing ECM? (other departments, like M&A or LevFin excluded)
Your personal opinion would interest me :)
I chose DCM because I've always liked the analysis involved with structuring debt. For example, if an operating company has bonds with an X% coupon that mature in 2017 and its parent holding co has a Term Loan B that matures in three years, does it make sense to refinance all of the company's debt today to take advantage of a longer-dated bond with a low coupon, knowing that you'll have to also terminate an interest rate swap at the HoldCo with a large negative MTM? In the same example, you will then have to justify to the company why it can issue a bond at Y rate, determine who the investors will be, etc. Lots of moving parts, and it seems like no matter what a company does, debt is typically an important consideration (vs. on the ECM side, an equity or convert issuance are not always a component of a transaction). ECM is also a bit more cyclical than I can I handle, so I'm a little boring in the that respect.
What is so bad about DCM? (Originally Posted: 10/20/2010)
First off, I wanted to say thank you to everyone on this forum as I have recieved a MM offer for next year from a non-target and I def. owe some credit to everyone here.
Secondly, I started to think why is the idea of working in DCM/ECM so bad to most users of the forum? Also, in terms of compensation, do product guys (any level) get compensated less than coverage groups?
I think most of the "problem" comes from the perceived lack of exit ops, due to the concept that DCM is more of a markets-based, pricing support team that works on internal credit memos, market updates for pitches, etc, rather than a traditional coverage group.
However, it is a more complex situation as oftentimes DCM is an umbrella term for different products that are further split into different groups, like inv-grade, muni/gov't, and HY/LevFin. Depending on bank, the sought-after modeling experience can be done in lev fin or in the industry groups. Obviously modelling within lev fin makes it a more valuable experience, arguably on M&A level in terms of exit ops and experience. It also depends on what product you focus on if your bank is split into the aforementioned structure.
Comp is, again, dependent on bank/activity. Base will be the same, at least in the first few years, and bonuses should be pretty similar, if not streamlined over that same time period.
I guess the key takeaway is that it really depends on bank and deal flow, but that DCM does not fit the traditional banking role in terms of M&A and modelling and all that good stuff. However, it can be a good gateway into trading/HFs, and you can always switch into an industry group.
People go into banking to eventually get out because the job sucks balls.
People go into DCM and generally stay. Exit ops are limited because you are more specialized and doing something which doesn't always transfer to PE/HF/VC shops.
I think people spend too much time planning their lives out 10-15 years. Best plans are 2 year plans, anything outside that is just a guess.
I have heard that LevFin/HY experience is specifically sought after by some PE funds.
True, but this is not always included in DCM. Depends on the bank. If you are going to be in these specialized groups within DCM that is one thing. Outside of those you are a little more limited.
dcm is not LevFin u dolt.
again, like everything else it depends on the bank....
There are exit ops for those on HY desks. I know a guys from both BofA and JPM that now work at extremely prestigious Credit Funds. Read a Howard Marks memo ... it will be extremely enlightening.
HY Research or Lev Fin is a good background for hedge funds, but for DCM isn't it more of a marketing/sales oriented role? I know that DCM/LevFin are sometimes merged at shops
Citi and Goldman both have Lev Fin sitting with DCM I believe
wrong.
Did a case study on on DCM case. Seems monotonous. We use DCM / Lev Fin at the big banks all the time. Would not love that job. LBO principal job is my recommendation.
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