2017 M&A Associate Outlook and Year in Review

Laterally, the nation’s leading hiring platform for top attorneys, has transformed the lateral recruitment process through radical transparency and efficiency. In our Year in Review series, we share some of the data and insights that we’ve used to help lawyers plot career moves. Much of this data can be tracked in real time on our website, Laterally.com.

The M&A lateral market saw significant declines this year, after a banner year in 2015. Driving the strong demand for M&A associates in 2015 was a booming M&A market in the United States, as well as a shortage of mid-level associates – a result of firms hiring smaller class sizes during the recession. But in 2016, M&A activity slowed and the shortage of mid-level associates eased as more recent M&A classes came of age.

Despite this decline, mid-level M&A associates remained some of the most in-demand attorneys in the country in 2016.  And we expect the same to be true in 2017.  In our 2017 M&A outlook, below, we go inside the data on both the demand side (jobs) and the supply side (lawyers) to explain the reasons for our optimism.

A declining market – but not everywhere

The number of opportunities for M&A associates declined overall in major US markets in 2016 (12%, from 501 jobs to 442 jobs). Large declines in M&A jobs were seen in Atlanta (54%), Boston (44%), the Bay Area (23%) and DC (19%), with smaller declines in Chicago (10%), Dallas (8%), and LA (5%).

But Houston held even and New York was up 2%. Seattle was up 47% and Denver, the hottest market in the country in 2016, actually doubled its demand for M&A associates. The chart below shows the percentage of declines and gains in major markets, as well as the relative sizes of those markets:

Perhaps more worryingly, a closer look inside the numbers indicates the market declined steadily in each quarter of 2016. This chart tracks the number of jobs available in each quarter of 2015 and 2016:

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What to expect in 2017

Three factors will determine the type of market associates will face in 2017:

1.     Deal flow and expectations of future deal flow.

US merger deal value was down 23% compared to 2015, while the outlook for 2017 remains uncertain in the current political climate. Even though M&A lawyers at most firms remain extremely busy, this uncertainty will have an impact on hiring.

2.   Supply of associates.

For the last few years, firms have been hampered by a yawning gap in the number of mid-level M&A associates, caused by thin hiring from law schools during the recession. Now, those gaps are nearly closed, as this chart shows:

M&A associates at Am Law 100 law firms by class year (in NY, DC, Bay Area, LA)

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Undersized classes from 2009 to 2011 gave way to larger classes in 2012 and 2013. There are now more mid-level M&A associates at firms than at any point in the last few years. (Note that 2015’s class appears undersized right now, but many lawyers in that class currently listed as corporate generalists will turn out to be M&A-focused lawyers.)

3.   Law firm structure and attrition

Hiring will also depend on associate attrition at firms and those firms’ ability to absorb the losses. Given uncertainty in the market, associates may stay longer at their current firms, so this factor could further slow hiring. When associates do leave, some firms will prefer to use existing resources without turning to the lateral market – while others will seek to bring in talent from outside the firm (which may be better trained and more partner-ready).

For NY firms with large, silo’d M&A practices, hiring increases when attrition rises – as associates leave the law, go in-house, or join other firms. In the Bay Area, dictated by the tech sector, hiring goes up when more companies are luring associates in-house. But these firms also have more generalist corporate associates who can be shifted to do more M&A work on short notice. In DC, too, M&A lawyers take on a more eclectic mix of corporate matters than their peers in NY, so hiring is not only dictated by the number of deals and deal value, but the larger balance of associates in corporate groups

Top M&A associates can still move without much trouble

Despite structural factors reducing the gap in number of mid-levels this year and despite potentially more lawyers staying put, there are still plenty of jobs for those seeking to move. Candidates with top backgrounds and a few years of M&A experience have been receiving multiple offers in almost all the markets they approach. New York lawyers are especially in high demand in most parts of the country.

One just has to examine the data to see why: the ratio of M&A opportunities available (demand) to the number of qualified M&A associates available (supply) is still extremely high. In fact, comparing firms’ demand for laterals to the actual supply yields some pretty astonishing results.

For example, in NY, which had 121 lateral M&A jobs (almost every job geared primarily to mid-levels), there are 1,550 M&A associates and 600 mid-level M&A associates at the 200 largest firms. At the top 50 firms by profits per partner, there were only 475 mid-level associates. That’s a ratio of 1 job for every 5 mid-level associates or every 3.9 mid-level associates a top-50 firms.  

That was not even the most lopsided ratio, either. Washington, D.C. had around 2 jobs for every mid-level associate, and 1 job for every mid-level associate at a top-50 firm, while LA and the Bay Area had similar numbers. Given that only 10% of associates leave for other firms every year, it’s easy to see why firms can be desperate for talent, and why M&A associates are still being courted.

This chart shows the supply and demand of associates in the largest M&A markets:

It also takes firms more time to fill positions in M&A than other areas, on average (4 months, versus 3 months for the larger market). We’ve observed that firms tend to spend a lot of time at the outset chasing unicorns (mid-levels from top firms and schools), only to later realize the need to broaden their searches.

So we advise associates to play the numbers and trust in the basic supply and demand in the market. When representing a candidate, we advocate for them by educating firms on these numbers so that they can grasp the need for properly broad hiring criteria.

Timing your move

As we’ve mentioned, mid-level associates are the most marketable, and this fact changes little from year to year. Mid-levels have received sufficient training to oversee deals, yet still have many profitable billing years ahead of them. 4th year associates were in greatest demand this year, followed by 5th years and 3rd years. In fact, 98% of jobs on the market sought mid-levels, at least in part. Firms will often seek a mid-level but then extend their searches to more junior or senior candidates given the difficulty of attracting qualified mid-levels.

The chart shows the number of M&A opportunities in 2016 available to associates given the years of experience under their belts. The curve is typical not just in M&A lateral hiring, but in all lateral hiring. 

Where M&A lawyers move

In 2016, 142 firms sought to hire M&A associates: 73 AmLaw 100 firms, 37 AmLaw 200 firms, and 33 mid-sized, regional, and boutique firms. If you lateralled from a top-20 firm (by profits per partner), only about 1 in 7 associates lateralled to a peer (top-20) firm. A third went to near peer firms, another third went to technology/emerging-company focused firms, and the remaining associates chose smaller regional, national, and boutique firms.  

This movement of associates out of elite firms to the mid-market occurs for several reasons: enhanced partnership prospects at firms with lower lower partner-associate leverage ratios and the chance to compete as a bigger fish in a smaller pond; lower hours compared to the most prestigious M&A shops; and a chance to improve their in-house prospects. In fact, while a name brand on the resume brings a lot of value to an in-house job search, in-house recruiters want to see a level of experience and comfort engaging directly with clients and deals more than they care about the brand of an associate’s firm. If associates are not leading deals, an in-house employer will see that as lacking the necessary experience.

As you go down to the next tier of firms (top 20-50), also large and prestigious employers, the goals of associates are often similar and many associates lateral into mid-market and smaller firms. However, a larger proportion, about 30% decide to move to top top-tier M&A practices. These associates want the enhanced prestige of working at these name-brand firms and the chance to work with a larger or more diverse roster of clients that can help their prospects for moving in-house.

About one quarter of moves also involve a geographic switch. Often it is for family/lifestyle reasons, but these moves also take place when associates want  a more generalist corporate experience, or want their practice to be more industry-focused (for example, tech and entertainment in California or regulated industries in DC).

Tailored Research and Support

This report provides a broad picture of market trends, but every associate’s search is unique. We’d love to offer you our data and thoughts on the market specific to your goals. You can email us with your general questions or comments at consulting@laterally.com, or sign up on Laterally.com to start tracking the market in real time.  If you are interested in conducting a confidential search for a law firm lateral move, please reach out to our Managing Director of Attorney Consulting, Derek Mize, at dmize@laterally.com.