Advisory vs transactional
In the months leading up to my training contract, thoughts turned to comparing transactional and advisory seats, something which has continued to be a hot topic. Students often ask about the transactional / advisory divide in practice groups – working style, work-life balance and necessary skill sets, but if I’m honest, before starting my LPC, I hadn’t really heard of or appreciated the distinction. One year into my TC, here’s my take on the differences between transactional and advisory work…
1. Transactional: Deal/Matter-based work
Transactional seats tend to be deal-based, they aim to make something happen - an acquisition, a restructuring, debt financing...
I previously sat in private equity (corporate), derivatives and structured products (capital markets), and now am in antitrust and foreign investment, each of which has elements of transactional work.
M&A transactions are rollercoasters of deadlines, documents, calls and checklists. As a trainee, you'll wrap your hands around a matter as much as possible, keep an eye on what’s happening to be able to report back to your team members on status and to roll up your sleeves and get stuck in wherever possible – drafting documents, discrete research, trackers, correspondence, billing…
Keeping on top of things is a must, when documents are being turned quickly, goalposts are shifting and deadlines may be minutes, or hours ahead. Take a step back and think about a big M&A transaction – a whole host of people may be involved:
Lawyers – this may include lawyers who work in-house at the client, as well as lawyers at a firm. The Bidder and Target will often each have instructed separate counsel (i.e. legal teams). Then there will be different lawyers involved who specialise in corporate, tax, intellectual property, employment, banking, litigation, competition and many other types of law. Think about which jurisdictions are involved, there could be teams from all over the world working on a matter.
Accountants – how will the Bidder be paying for the Target and what are the tax implications? How is the Bidder managing any risk?
Auditors – are the Target’s financials up-to-date and valid?
Shareholders – if a public company is involved, an M&A process is likely to be longer and include certain very specific procedural steps. Are shareholders supportive of the transaction? What equity will be offered to them if more shares are to be issued? Will any bonds convert upon an M&A and if so, are lenders who hold those convertible bonds (i) intending to convert their bonds to shares; and (ii) supportive of the M&A?
Governments – if there is a link to a government body, the process could be different, and require different steps, and/or authorisations. Would a government body (e.g. the CMA) ever step in to investigate, or even block, the proposed M&A?
Corporate service providers – there may be companies set up in certain jurisdictions as part of an M&A and a corporate service provider can help set up and establish the company, and provide key services such as directors and a head office.
Underwriters – sometimes, new shares are issued as part of an M&A. Bidders will then “subscribe” to these shares (i.e. say that they want to buy them). But what happens if the Target is too optimistic and issues a whole bunch of shares and no-one buys them? To stop this from happening, there may be an agreement with an underwriter, who agrees that in the even that shares are “undersubscribed” (i.e. there are leftovers once everyone who’s interested has indicated how many shares they want to buy), the underwriter will buy them for a set price.
Teams could be working across different jurisdictions (meaning different time zones, languages, laws, and processes need to be considered). Co-ordinating a deal with all of these actors, on a large, global deal, requires lots of being on top of things! What are the key deadlines? Where are we at? Who are we waiting for? What’s next on the agenda? A trainee in a transactional seat will be all over these questions. It’s a dynamic, exciting environment to be in and key milestones are causes for celebration.
Transactional antitrust work usually fits within the scope of an M&A, looking at the transaction through a different lens. Do the purchacher(s) and target engage in similar businesses? Are they likely to overlap at all? Will their combined turnover attract the attention of regulators, or is there anything else which a regulator may be interested to investigate? Purchasers and targets may have global footprints, which require this analyses across a wide range of jurisdictions – antitrust lawyers assess these questions, engage with regulators and make filings where necessary.
DSP fits less closely within the M&A framework (though for certain due diligence, specialists like DSP lawyers may be involved). It’s another transactional seat but with very different timelines and actors and generally a different scale, but which requires the same key principles. Let’s say you’re working on a repackaging (a kind of financial structuring in which a form of “underlying” – a source of value, for arguments sake, let’s say it’s a bond – is plugged into a structure, which spits out another form of value, again, for arguments sake, let’s say the end product is another bond). These deals may last only 2-3 weeks. Still, deadlines and keeping on top of things are essential. If the underlying is a bond, has it already issued? If not, are there safety precautions in place in case there are any hold-ups when it issues? Has the underlying already been acquired? If not, how will funding happen to make sure that the underlying is bought (and at what price will it be bought), and plugged into the structure? How will the underling be “plugged into the structure” – is it being sold in, or transferred in through some other kind of agreement? Will the price paid by bondholders cover the acquisition of the underlying?
Repackagings may also be international in nature, and other teams may be involved in the transaction. For example, does the issuer need any jurisdiction-specific documentation based on either their country of incorporation, or the country where the underlying is located?
The parties in a repackaging will be very different to an M&A transaction, but is likely to include lawyers, investment banks, corporate service providers, listing agents, and/or registrars.
Team-based – although deal teams on some transactions (e.g. a repackaging) may be small
Rollercoaster-like pattern of peaks and troughs as busyness increases ahead of key milestones, and dips in between these milestones, or when documents are with other parties
Task-based – drafting, tracking, calling people for their inputs and to check the team are moving at a good pace, in the right direction, and that any key information is passed on quickly and efficiently
Fast-paced – clients are incentivised to act quickly, whether to reduce the risk of confidential information leaking, to protect market value, reduce the costs of legal and other advisors, or to align with other deadlines (e.g. regulatory deadlines, funding / hedging alongside an M&A transaction, which teams will have to co-ordinate to ensure everything comes together in time, and at the same time)
2. Advisory – research-based recommendations and support
Advisory work tends to be less deal-based and more research-based specialist work, responding to a client query, rather than establishing a stable framework for a deal.
Let’s take two examples:
1. Corporate Governance – this is a broad term and can encompass everything from voting rights, to how much boards need to consider issues like ESG, to helping a company engage with activist shareholders. Voting rights will crop up on most deals, but sometimes become so complex that in and of themselves, they require some advisory work to untangle exactly who has what rights in relation to managing a company. To get a flavor of this, shares are issued by companies in different classes, each class having its own rights. In addition, some bonds (a form of debt) may be convertible to shares (a form of equity) in some circumstances. Shares may be issued with “put” and “call” options, “drag”, “tag” and pre-emption rights – each of which influences the way in which a shareholder may sell their shares or gain new shares, and their rights if more shares are issued, sold or acquired. If several of the above are switched on, it’s not hard to see that unless the paperwork is very clear as to what happens, when, and who has what rights at any given time, corporate governance soon becomes a complicated affair, and lawyers may be asked to review and revert to clients.
2. Fintech platforms – “fintech” encompasses everything from challenger banks to cryptoassets, to payment processing platforms. One of the biggest considerations around fintech right now is its regulation, meaning fintechs often need to consider whether their platform needs to be regulated (e.g. authorized, or have a certain license) in a certain jurisdiction in order to operate. Lawyers may be asked to review these queries and in order to do so will consider the regulations, risks, the way a platform operates, any assets, participants, payments and jurisdictions before reaching a conclusion.
Research – advisory seats typically focus on the micro detail of regulations and clients’ queries, and this often requires a substantial amount of research
Drafting – typically memorandums (i.e. an overview of advice to the client) rather than drafting documents, or parts of documents, for a specific transaction
Clear communication – to ascertain exactly what the client’s query is, the context in which the client finds themselves, and respond to the client in a clear manner.
Independent – whilst you will still be working in a team of lawyers, there is likely to be less interaction with lawyers in other practice groups, or wider parties which may play a role in transactions. More time will also likely be spent researching and wrapping your head around a subject than keeping on top of moving parts, as is the case on a transaction.
(Generally!) Steadier/more predictable hours – not a universal truth by any means, but generally advisory work operates to longer deadlines, with fewer iterations of documents (consider all of the parties in an M&A who will want to review and edit transactions documents – there are far fewer parties contributing to an advisory memo). Working outside of the remit of transactions may also reduce the peaks and troughs which can come with transactional work
3. Mutually exclusive?
Transactional and advisory work almost always overlap and co-exist to a greater or lesser extent; practice groups which are typically considered advisory, for example tax, will be pivotal to every transaction, and seats like antitrust involve a detailed understanding of regulations, jurisprudence and markets, alongside and within transactional work, whist DSP encompasses advisory work around LIBOR rate reform and fintech as well as structured products work.
4. Personal preference
If you’re coming into a vacation scheme, or TC, try to find something you’re interested in and a working style which suits you – be open to both ways of working, and if possible, dip your toe into both types of practice.