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...
Actually, not to overstate the depth of the "origination", but it is commonplace for lawyers to recommend bankers to their clients and bankers to recommend lawyers to their clients
Short answer, bankers (biased, but this is WSO).
Bankers originate deal. Bankers structure the deal in theory, lawyers handle the execution of the structure (registering/formation of an SPAV for example). Trusted advisor is both. Bankers are the more strategic advisor, lawyers are there to make sure the client doesn’t screwed. Bitch work...lmao both. Bankers get boned putting together data rooms/CIMs. Lawyers have to draw out multiple hundred+ legal docs. IMO, the lawyer work is worse. One of my good friends is in big law and we’ve been on vacation before where he’s had to head up to the hotel room to type out an asset definition for a specific transaction that was multiple pages long...f that lol
TL;DR: Bankers get more fees from deals for a reason.
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.
Depends on business cycle if lawyer or banker is getting the first phone call from the CEO
Haha true. I was being general because I was already embarrassed by the long post and didn’t want to add even more detail.
Overall, a successful 50 year old lawyer is going to have a pretty similar life to a successful 50 year old banker. And similar respect/standing. In fact I think Rob Kindler was about 50 when he switched from Cravath to Morgan Stanley, proving that someone around that age is a similar asset in either seat.
But from age 22-50, I think the banking work is more interesting and builds a more thorough set of skills.
dude I can’t fucking get over your name. when I first saw it a while back I thought you were some sort of esteemed Indian doctor that was middle aged. I thought wow what a name , definitely real , worth a google. then I actually looked at your name AHAAHAHAHHAHAHAHAHAHAHAHAHAHAHA I’m going to laugh every time.
It's a Bond villain...
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.
dude i swear youve done ib pe law hf quant oil cfa cpa ... ?
I've done too many things, it's true. Law, IB, quant and now at a family office which is half PE and half L/S.
Never did oil or RE formally but when you move around as much as I do, you pick up a little of everything. For example the quant shop made me do a long RE project where I had to figure out where certain RE KPI's (P/FFO, cap rates) are capturing true economics and where the ratios are off from reality.
So yeah, being a generalist will just make you more of a generalist over time. For better or worse.
Lawyers are extremely, extremely important to the deal process. You literally can't and shouldn't even try to do any size transaction without legal help. A good lawyer is worth every penny.
However, banking work is just so much more interesting and strategic to the deal. The "who, what, when, why, where, and how" is done by a banker, and some incredibly important "how" is done by the lawyers.
All I know is that someone I know did a JD/MBA, interned both in Law at a top Firm and an EB and decided to return to the EB.
I wouldn't want to be a transactional M&A lawyer from what i've heard. Pay is good (starting base at 190k plus substantial bonus) but the big firms are just as sweaty as IB. The exit ops are very different in that most people want to escape to being an inhouse counsel at a F500 where you work 40 hr weeks and get paid like 300-500k. At the partner level at the big firms it's very similar to IB in that you either bring in clients or you're out. The absolute rainmakers in that area make $10mil and equity partners make like 3mil. The actually really interesting types of law (and potentially more lucrative) however are certain types of litigation. There's also like the whole academic and public service sides to law. You can't get exposed to any of those in finance.
After going on dates with a few lawyers, I heard that the base is around 180k-190k for almost all big law firms, but the bonus is non-existent. This one lawyer told me her bonus is only 10k, and that it was a normal bonus for most lawyers in the field as a result of the high base salary that they're getting paid.
I agree with what most are writing here, and wanted to add that it also depends on the industry and the amount of legal risk that is involved in a transaction. For an aircraft transaction I was working on, senior law people from the law firms were extremely helpful and necessary to understand many nuances such as what happens if a lessee defaults in a certain jurisdiction, and how repossession would work. Without them, modeling out the risks in the deal would be impossible.
The more legal risk there is, the more valuable the lawyers will be. However, it will take you decades of experience to gain this knowledge and as a result only the senior people are the go to for such questions, especially since the reputation of law firms are on the line each time a legal question is answered.
That's for the first years, bonus scales up as you climb the ladder:
https://www.biglawinvestor.com/biglaw-salary-scale/
Select "2019" to see total comp.
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.
Posting this here so everyone on this site can rub one out
I love Suits but this scene incredibly cringe worthy. The banker has an exceptionally punchable face.
Such a cringe-inducing scene. Script reads like what some amateur pornographer would think the banker and they lawyer would say to each other.
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.
I wonder if a law forum as opposed to one geared towards finance would have a different opinion. Otherwise, shall we assume everyone in law school on the transactional track was not able to land a banking role?
No, being a lawyer is way more popular in society than an Investment banker. Poor kids growing up know that a lawyer or doctor has prestige and is usually paid a high salary but they won't know what a banker does.
It sort of depends on the type of law you're practicing too. If you're a generic MM PE lawyer, then you are a commodity and the associate for the PE firm will be telling partners what to do. There's no real value add because the work for a plain vanilla LBO isn't complex and anyone can do it.
On the other hand, if you're dealing with complex antitrust issues or something like that, the lawyer adds a lot more value and will likely be driving the transaction vs. the financial advisors.
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.
While it's correct that most of the work being done by lawyers is pure documentation, one thing that posters have not pointed out is that transactional lawyers (particularly transactional tax lawyers) oftentimes drive the structuring of the actual transaction, such as choice of entity being used to make the acquisition, the level at which debt will be held, the level at which the sellers will rollover their equity, etc. Considerations here are not just legal/regulatory issues but also the economics, e.g. how the acquisition/sale can be structured in the most efficient manner. Public company mergers also involve some thinking on whether the merger can be done tax-free, etc. This is an area that the bankers generally can't advise on.
Good and valid point, however I glossed over it because for most people on this forum, the minutiae of tax structuring will fall under the rubric of administrative detail. Further, bankers will frequently be conversant in the tax/regulatory issues their clients face. You still need a lawyer to bless a particular course of action, but a banker worth their salt can typically explain what the right course of action is and why if need be, and they'll also be able to recommend counsel that is competent to face the issues.
The overall objective of Mergers and Acquisitions is typically financial/economic incentive. The bankers run point on the finance side of things and are thereby more instrumental to achieving the objective. Lawyers are needed to legally cement the features of the deal, but aren't in the drivers seat.
IBs win on fees but lawyers still get paid when the deal blows up.
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.
What makes you say that law has a lower ceiling but less risk? In some ways the career path can be more risky due to niche skillset, tuition costs, chance of getting job, etc.
UOT law is prestigious af, I know Muskoka is filled with lawyers who went there and made a killing. Given your title I was wondering if you have any advice for how to study for the LSAT and guides that you would recommend.
Stick to the Powerscore and Manhattan guides. I read the PowerScore logical reasoning and logic games bibles before I did any practice tests. Manhattan is also very good. Kaplan’s not worth it.
Do as many practice tests as you can, and do blind review (google it) to really sharpen your logic skills and get good quickly. Don’t look at the answers before you’ve done a blind review of every question. Think of the answers as a reward for doing a blind review.
The LSAT is a learnable test. I went from low 160s on my first practice test to high 170s on the actual LSAT.
I wouldn't be able to answer clearly without knowing all the conditions of the deal, so the work of the banker and the lawyer is synchronous.
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