How to Move from Capital Markets to M&A at an Investment Bank
Can you ever be fully satisfied?
If you’re reading this site, the answer is probably “no.”
You go through a ridiculous amount of effort to get into investment banking, private equity, or even (gasp) management consulting, but then…
- You want to move to a more prestigious firm…
- You want to work in a team with better exit opportunities…
- Or you want to move to a better group.
You put up with it at first, but then you get bored and realize you want more technical work, or you want more interesting deals.
And that’s when you decide to make the move into M&A – or even a solid industry group that does a lot of M&A deals.
Here’s how to make the leap:
Capital Markets to Investment Banking: Sources and Uses of Tips
A number of coaching clients have moved from ECM or DCM into M&A recently, so this article is mostly based on what they encountered in the process.
First, note that this type of move is largely about perception.
M&A and industry groups are perceived to be “more technical” than capital markets since you spend so much time updating market slides and working on memos in ECM and DCM, rather than doing hardcore financial modeling.
Therefore, the argument goes, you gain a more valuable skill set and better exit opportunities.
But the truth is that M&A work is not necessarily more technical at all.
Yes, you also do some valuation work at the beginning and end of the process, but it’s not as if you’ll suddenly be creating 50-tab models in Excel all day long.
There is a higher potential for technical analysis, especially if you’re working on more unusual deal types, but it’s not a guaranteed night-and-day difference.
Still, the perception of “more technical and complex work” persists.
Even recruiters will view you differently if you’re in M&A rather than ECM/DCM.
So here’s the 6-step process you can follow to make the transition successfully:
Step 1: Understand What You’re Up Against, and What’s in Your Favor
Here’s why bankers – both in your group and in the group you want to join – might want you to stay put:
- “You Lack the Technical Skill Set” – M&A bankers like to believe the myth about super-advanced Excel/technical skills being a requirement for their group. So they will almost always ask about your technical skills, especially if you’ve mostly worked on IPOs and follow-on equity offerings.
- You Don’t Know Anything About M&A – This is slightly different from objection #1 because it’s more about the M&A process, not specific technical skills. This one could lead bankers to ask you questions about pitch books, CIMs, Definitive Agreements, etc.
- We Need You in Your Current Location! Don’t Move – If your current team is busy or is expected to be busy, it may be tough to move. This objection may also come up if you’re moving from a satellite office to a major financial center.
- Why the Sudden Interest in M&A? After all, if you went through the effort of breaking into banking in the first place, why didn’t you just start out in M&A? If you only got interested recently, how serious is your interest?
On the other hand, you do have one big factor in your favor: You’ve worked full-time at an investment bank, and you “get it.” So you’re not likely to join the M&A team and then quit after a week when you realize that 16-hour days are the norm.
You can overcome the four objections by:
- Mastering the technical questions. You have to do this while working full-time, so get used to studying after work and on weekends.
- Learning about the M&A process in advance, following deals, and reading through proxy filings. Sound boring? Then you’re going to hate working in M&A!
- Establishing an excellent reputation with your current team. They may want you to stay put, but if you have a good reputation, they’d rather have you transfer to another team than leave the firm altogether.
- Crafting a good story that explains how your interest in M&A is not “sudden,” but instead developed logically as a result of prior experiences and deals you worked on.
Before doing all of that, though, you need to do some reconnaissance work and figure out the best way to make this move.
In other words, should you stay at your current bank or move elsewhere?
Step 2: Decide Whether to Quit or Stick
If you’re making a dramatic move – the back office to the front office – then you’re often better off switching firms.
Capital markets to M&A, however, is a different story because they are both front-office roles and the work is not that much different.
In 90%+ of cases, it’s easier to make this move if you stay at your current firm.
As long as you’ve done reasonably well and you’ve worked in your current group for around a year or more, the senior bankers should support you.
If they do, great, you’re set. Ask the most senior banker – the MD or Group Head – if they know whether or not the M&A team (or another industry group) is hiring.
Say you’ve enjoyed your time in the group, but you’ve become more interested in M&A deals (or in a certain industry) over time, and you wanted to explore a transition to a different group.
If you can’t do this, then you’ll need to look to other firms.
Spread a wide net and do not focus on just one type of bank. In some career transitions it makes sense to focus on smaller firms, but that logic doesn’t hold up here.
Lateral hiring is very random, and you never know when hiring needs will pop up: people quit abruptly all the time.
Step 3: Lock Down Your Story and Your Technical Skills
While the basic outline of your story – Beginning, Spark, Growing Interest, and The Future / Why You’re Here Today – stays the same, there are a few differences:
- You don’t need to bring up “interesting” personal details in the same way university students do. Once you have full-time work experience, being competent trumps being interesting.
- You should cite 1-2 deals when explaining why you want to move into M&A, but you shouldn’t explain those deals too much upfront. Drop a few morsels, but leave them hungry for more.
- You can shorten the first few sections of your story and make your “spark” the deal that made you (more) interested in M&A.
- You don’t need to “sell” them on why you want to do banking / M&A quite as much as a university student or career-changing MBA does.
The biggest mistake I’ve seen in capital-markets-to-M&A stories is too much negativity:
- “I didn’t like the lack of technical analysis in ECM, so I want to move into M&A.”
- “In DCM you only get exposed to one deal type, and all debt deals seem the same after a while.”
- “It was a very stressful time in capital markets because there weren’t many ongoing transactions, so I spent most of my time on pitches.”
Those are all direct quotes I’ve heard from coaching clients in their initial stories.
Cut the negativity immediately.
Re-frame your story to:
- Focus on the parts you liked in capital markets – working closely with clients and driving deals forward;
- And explain the additional skills/experiences you want to gain in M&A – exposure to more complex deals and technical analysis, and a greater contribution to companies’ strategic plans.
A reasonable story outline might go like this:
- Point #1: You’re originally from [Location], attended [University], and majored in [Major], and then you joined the [ECM/DCM] team at [Bank Name] because you liked how it blended IB and S&T.
- Point #2: You enjoyed your time there, particularly on your book-run deals since you got to interact closely with clients and drive deals.
- Point #3: Over time, you became more interested in M&A because you wanted to work on more complex and strategic deals and do more valuation and analytical work.
- Point #4: You saw this firsthand on one deal you worked on, [Deal Name], because it took place right after an M&A deal, and you had to account for the company’s changed capital structure as a result of the deal. That affected the terms of the equity/debt issuance.
- Point #5: So now you want to combine the client-facing work from your current group with the valuation and analytical work you do in M&A deals, so M&A is the ideal group for you.
- Point #6: In short, you like the work, you’re eager to contribute to deals in this group, and your team is supportive of the move, so that’s why you’re here today.
I now think it’s better to use a shorter version of your story whenever possible; 60 seconds is much better than 2-3 minutes.
Establish your credibility, the buy-in from your team, and a clear reason why you want to make the move – but don’t go into every single accomplishment in your group, your ratings, etc.
Upgrading Your Technical Skills
I don’t have much to say on this point besides: “Read all our courses/guides and complete the exercises!”
On second thought, I will add something: you have very limited time to learn or review the technical side if you’re currently working full-time at a bank…
…and there’s a good chance your technical skills are rusty if you’ve been working on equity and debt deals and haven’t interviewed in a long time.
Ideally, you should take our entire Financial Modeling Fundamentals course and complete all 100-something hours of video… but you won’t have the time.
Here’s what I would recommend instead, depending on which courses, if any, you have:
- Case #1: Fundamentals Course – Take a look at the 1-week study plan in the quick reference guide. If you don’t even have time for that, follow the 8-hour study plan.
- Case #2: Interview Guide – Do the same thing there, and follow the study plan that most closely matches your available time.
- Case #3: No Courses – Watch our YouTube channel and use the free videos and Excel files/PDFs there to prepare. The playlists for accounting, valuation, and DCF analysis will be the most helpful ones, followed by the ones for M&A and LBO models.
Step 4: Start Pounding the Pavement
You should know how this works if you networked your way into investment banking the first time around.
If you’re moving to a different group at your current firm, start by asking the senior bankers on your team for referrals. No amount of networking will ever beat a good referral from a senior banker.
If that fails, or if you exhaust those leads, or if you’re moving to a different firm, get on LinkedIn and start searching for M&A bankers in your desired location.
Contact bankers via email because they’ll be more responsive that way; many professionals barely even check their LinkedIn messages.
In terms of timing, some will argue that you should wait until the middle of the year or the beginning of the year because people tend to quit at those times.
From previous interviews on lateral hiring, I’m skeptical of that advice. Start as early as you can, which usually means ~1 year on the job to establish your reputation and get substantial deal experience.
If you want to network but remain somewhat discreet, you can use the following template:
SUBJECT: Introduction – [Group Name] [Position Name] at [Firm Name]
I hope this email finds you well. I just wanted to reach out and briefly introduce myself – I am [Your Name] and I’m currently working in [Group Name] at [Firm Name].
I saw that you’re currently working in [Other Group Name], and I am very interested in learning more about your team and the work you do there.
Would you happen to have 5 minutes to grab coffee on [Propose Dates and Times]?
Thanks in advance, and I really appreciate your time.
Yes, your current group could find out you want to leave… but that is just a risk you have to take when you switch firms.
After making the initial contact, directly ask the person for tips on how to move into their group and if they know of any openings. And then follow this same process for everyone else you find.
Step 5: Prepare for Interviews
You should be well-prepared for interviews because you’ve already handled two big tasks: developing your story and learning/reviewing the technical questions.
But there are three other areas you’ll have to work on before interviews begin:
- Deal Discussions – You need to know your deals inside and out. Do this by focusing on fewer deals, but spending more time on each one. Instead of listing all 7 of your deals on your resume, list the 2 best ones; instead of describing your internships and your full-time role, reduce the internship experience.
- M&A Process Questions – They could ask you to walk through buy-side and sell-side M&A deals, how the process works, where and how bankers add value, and so on. So… read all our articles on doing the work, and make sure you’ve read through the proxy statement for at least one recent M&A deal so you can give specific examples.
- Standard “Fit” Questions – I don’t have much to add beyond what’s on this site already: you could still get questions on your teamwork/leadership skills, your strengths and weaknesses, and so on.
For your deal discussions, see the previous article on how to write “deal sheets,” and make sure you can discuss:
- The Company and its Financial Stats – What did it do? What was its approximate revenue and EBITDA?
- The Deal Rationale – Why did the company want to raise debt or equity? Expansion? Refinancing? Deal-related? Activist shareholder pressure? Tax evasion?
- Your Contributions – How did your work impact the valuation, the terms of the equity/debt, or the company’s capital structure?
- The Results of the Deal – Did it successfully raise equity/debt? Did it do so on better-than-expected terms, or with a broader-than-expected set of investors?
You may have to stretch the truth for your contributions, but here are a few ideas:
- ECM: Recommendations for co-managers and deal economics; an investor targeting analysis where you found other institutions that might want to invest; a due diligence discovery that changed everyone’s picture of the company; an analysis of the stake size that would be most appropriate to sell in a secondary offering.
- DCM: A debt capacity analysis where you determined the most appropriate interest rates and covenants based on debt comps; an analysis where you found conditions where the covenants might be violated; a trade-off analysis where you measured the impact of paying an early prepayment fee to refinance debt at a lower interest rate.
And then here are some ideas for the results:
- ECM: Client issued shares at a lower-than-expected discount to its current share price; investors exited at a favorable time; IPO drew more interest than expected or priced at a higher-than-expected level; the company attracted new, promising institutional investors.
- DCM: The company raised funding more quickly/easily than expected, or on better terms; it saved $XX in interest expense per year by refinancing at a favorable rate; it improved its leverage and coverage ratios via refinancing; it raised enough debt quickly enough to meet an upcoming cash crunch.
Interviews: Theory and Practice
In theory, interviewers should dig into why you want to move into M&A, how much you know about the process, and how your previous deal experience is relevant.
In practice, interviews can be quite random:
- Sometimes interviewers will skip your deal experience altogether and just ask technical questions.
- Sometimes they’ll dig into a specific issue, such as where the markets are heading or what you think of recent news, for half the interview.
- And sometimes they will probe you on your deal experience and ask how it’s relevant.
So… prepare all you can, but don’t be surprised if interviews are not quite what you’re expecting.
Step 6: Follow Up, Follow Up, Follow Up…
Once you’ve completed the interviews, it’s a game of waiting, following up, and hoping that you hear back.
In many lateral hiring processes, they might bring in anywhere from 5 to 15 candidates for a single spot.
So your odds aren’t great, but they’re also not terrible.
The lateral hiring process often turns into an extended affair, so don’t assume you’re “wait-listed” just because you don’t hear back immediately.
Hiring needs might change, the group might delay its decision, or they might just get busy with deals and clients.
All you can do is continue to follow up once a week until you hear something.
Capital Markets to M&A: Making the Leap
If you follow everything above and win that role in M&A, congrats!
As you’ll soon find out, there’s still a lot of administrative work, PowerPoint, and process tracking…
…so it may not live up to your expectations.
But hey, at least it’s a better group with more exit opportunities.
And one day, you might even be partially satisfied.
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