M&A - Bankers vs. Lawyers
Very curious: who pulls more weight in M&A transactions, the bankers or the lawyers?
Who originates the deal? Who drives the process forward? Who is the trusted advisor to the client? Who structures the transaction? Who is stuck doing bitch work?
I mean a lawyer probably doesn't originate a deal just to answer your second questions...
Bankers by a wide margin. I left law for IB, largely because of this.
This is less true at more senior levels. You compare an MD to an M&A partner at a top law firm, the gap isn’t as big because a respected advisor is a respected advisor. You read Barbarians at the Gate for example, the top lawyers on all sides got a ton of respect.
But at the junior level it’s night and day. I can’t overstate how much more banking associates, and even analysts, understand the transaction vs. a junior lawyer. And at the mid level (banking VP vs 4-5 year lawyer) the gap is even wider.
IB does a much better job of developing a broad understanding of how and why everything is happening; the economics of the deal, the assets being bought, why certain things are in the diligence checklist vs not, what’s relevant and not, what buyers will ask about etc etc.
It’s impossible to understand the process without understanding the bigger picture, and law firms don’t have an incentive to teach younger lawyers the big picture. Maybe when they get off the billable system they’ll get more creative about developing talent, but I don’t see it happening any time soon.
I know I’m sounding harsh on the lawyers, but ask any lawyer who transitioned to IB if he wants to go back.
To answer your more specific questions. Both involve a lot of bitch work but the lawyers do the more boring bitch work. Would rather make a same-store-sales schedule and update a CIM than read through 100 almost-identical employment contracts and list out which ones have termination clause A and which ones have clause B that’s worded a bit differently.
More trusted advisor: again at the most senior levels the gap narrows because after spending enough time as a lawyer I guess you eventually pick up some broader skills. But the banker is always ahead IMHO. CEO wants to know whether to bet his company on a deal, he’s calling bankers first and lawyers later.
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Glad someone is getting a kick out of it. Some other folks find it offensive and report me to WSO. To be fair, they are mad about my opinions too and not just the name. But I aim to deal with everyone in a respectful way and just tell the truth.
aren't you the guy that said covid19 was an overshoot?
Love this. Amzing how much life experience you get sharing a bottle of wine with a lawyer / banker / any professional desperate to talk about the frustrating nuances of their day with a neutral third party. I became a paralegal many times over at Ara Wine Bar (RIP), Pegu Club (RIP), and Turks & Frogs.
CEO originates the deal. Rarely bankers convinced a CEO to do a deal. More often he has an idea and he finds the best executioner
Bankers get mandated because they maintain good relationship with CEOs (countless pitches and market updates)
Lawyers pull a lot of weight but bankers probably not realize. The legal DD and all sorts of indemnity or clauses. Find me a deal without legal advisor and I can find you countless number of deals without financial advisor.
Bankers are valued for their negotiation tactics, not the BS pitchbook and valuation deck the juniors made. You think the CEO doesn't know how much he is willing to pay max? Your MD will try to decrypt the mind of all parties and come up with a valuation that makes his client happy. This is a sales business not a price discovery business.
Disclaimer: do not work in M&A but work in IB currently and was formerly at one of the very best global law firms. Bankers focus primarily on questions of valuation and strategic angle. Lawyers focus primarily on questions of documentation and risk mitigation. Both are essential components in a transaction, but very different from one another from a practitioner's perspective.
Both are professions that are similarly lucrative. Both will allow you to potentially work on front page transactions. I migrated from law to finance for the following reasons:
I disliked pushing punctuation and grammar around on a page all day to produce transaction documents that most people wold never read.
I felt that the partnership model of big law lacked meritocracy, and I saw myself as exceptional, and so that was a turn off because I felt it was not the right structure to reward me commensurately. Some law firms (generally the better ones) have gravitated away from the egalitarian model that used to dominate, but the latter is still entrenched at most places.
Being a lawyer is even more of a pigeonhole than being a banker, and I felt that the exit option to in-house GC wasn't interesting to me.
I think many law firms are in for a reckoning in the coming decades as a lot of legal work is pretty commoditized and there's not a tremendous moat around it. Same can be said of parts of finance, but I felt the situation was more noticeable in law.
Both when I was at a law firm and after I left for finance, I felt that many lawyers lack a deep understanding of what it is they're working on. They know the ins-and-outs of indeminities, R&W's, etc. like the back of their hand, but ask them to explain the rationale for a transaction and they flounder. I didn't want to be so far removed from the "action" that I was reduced to a highly sophisticated/compensated document administrator. This has been much better in finance. Finance gets their best junior professionals involved in meaningful client interaction and strategic thought at a very early stage. In law, I rarely if ever saw lawyers interfacing with clients in a meaningful way. Most of the time, if at all, they were just interfacing with their clients' legal department, which is itself removed from the core of the action in a transaction and has been delegated some administrative subset of the work to do.
I think a lot of what is taught in law school is grossly masturbatory and bears little on the practice of law in the 21st century. I also loathe the idea that your grades, and therefore professional success, hinges upon the whims of out-of-touch law professors (i.e. people who don't even practice law) and whether you agree with their subjective interpretation of some meaningless obscure point of legal curiosity. Don't feel that the money is worth what you're being taught. If I was going to go to school for three years and blow a fraction of a million, I'd much rather learn something useful or interesting and not what some aged boomer thinks about some legal statute that couldn't matter less for our lives.
I could go on, but will stop here for now. TL; DR:
Bankers originate the deal with the help of senior finance, strategy, and c-suite people at the client
Bankers drive the process forward, up to and including the point where they instruct their client to hire a law firm and then instruct that law firm to continue running the documentation part of the process/research some facet of the deal/etc.
Both are trusted advisors but for different facets of the process and the legal side is very strictly confined to what I consider to be the mundane, impractical, and boring; and
Both sides will do mundane work but you will do far more of it as a lawyer. In an abstract and somewhat childish sense, most legal work is "bitch work" as you are essentially just papering a deal that the bankers, the buyers, and the client negotiated the terms of prior to your involvement. You come in to put it in a contract, dot the I's and cross the T's.
Transactional lawyer by trade and have lots of friends in IB. Have also worked with tons of bankers on transactions. My thoughts:
Bankers are moreso in the driver’s seat, and get paid more.
Lawyers can be incredibly valuable in terms of structuring and risk mitigation. As another poster mentioned, a good lawyer is worth their weight in gold and is seen as a trusted advisor.
Bankers work longer hours than lawyers. During some transactions, hours will be similar, but on average, my banking friends are expected to work much longer hours than myself and my lawyer friends.
The choice of career will depend largely on your interests. If you don’t like what you’re doing most of the time, you’re gonna be in for a bad time. I absolutely love reading and writing, and could easily read thousands of pages a day, but put me in front of an Excel sheet and my innate first reaction is for my eyes to glaze over. I don’t mind the finance side but my strength and interest lies primarily on the reading and writing side.
Clients tend to push back on their lawyers less as they know much less about the law than they (think they) do about the business side.
Law has a lower ceiling but less risk. It’s a career for risk averse people. As someone mentioned, if the deal blows up they still get paid. Most firms have a structured advancement program where you get lockstep yearly raises and there’s a defined path to partnership if you’re willing to put the hours in.
Whether you’re a successful banker or a successful lawyer, you’re going to make more money than the vast majority of people.