Capital Markets: Practicing U.S. Law in London

Kyle McEntee:

We're joined today by Andrea Tompkins, partner in the Public Markets Group at the London office of Simmons + Simmons, a global law firm with nearly 700 attorneys. Before we get into your practice, which can get pretty complex, let's talk about where you work. Although you work in London, you did get your JD in the U.S. at Georgetown. How did the possibility of working overseas first cross your path?

Andrea Tompkins:

So it really started during on-campus recruiting at Georgetown. I was looking for opportunities outside of DC. I didn't necessarily want to move back to Boston. I had had my fill of New England winters, had been potentially slightly infected with the Boston-New York rivalry. So I wasn't super keen on New York. And then the opportunity came to interview with firms in London, both English firms and there were a couple of US firms that were also interviewing for their London offices. I'd spent time abroad in Ireland and Northern Ireland when I was at uni, had a lot of British friends, did some studying at Oxford as well. And really, it just seemed like a great opportunity to see the world, practice overseas, and that's how it all came about.

Kyle McEntee:

And I see you've picked up uni from the Brits.

Andrea Tompkins:

The longer I live here, the worse my code-switching between American and the King's English…my skills are atrophying is the way I'll describe it.

Kyle McEntee:

Was there anything different about the OCI process when interviewing with these British firms versus the U.S. firms?

Andrea Tompkins:

Sometimes when you're interviewing for an office outside the U.S., firms will bring you to that office. I think that is rarer and rarer these days. Most times you'll have a video call just because of the expense. I ended up interviewing with the four big English firms that are four out of the five Magic Circle firms, and all of them had us go up to New York to do our callbacks rather than come to London. So you don't necessarily get to see the office that you'll be spending your summer in before you go.

Kyle McEntee:

So you mentioned something called a Magic Circle firm. What is that?

Andrea Tompkins:

The Magic Circle is the top five firms in the U.K. Slaughter and May, they only have an office in the U.K.. Freshfields, Linklaters, Clifford Chance, and Allen & Overy, which just merged with Shearman and Sterling. I have presented them in no particular order. Below that, you have the Silver Circle, and don't ask me to name them because I don't know. And it's kind of the equivalent to the AMLAW 100 or the AMLAW 20, is the way I would describe it.

Kyle McEntee:

So you actually began your career at one of those Magic Circle firms, Linklaters. What was the licensing process for you like? Did you have to do anything special to practice law in the U.K.?

Andrea Tompkins:

No, I just needed to go through the usual U.S. process, taking a state bar exam and becoming qualified in a state in the U.S. New York tends to be the most common, but I've known people who were qualified in California and other places. It really depends on what each firm requires.

That is if you are practicing as an associate under a partner. Now, as a partner, the process was slightly different. I needed to register as a registered foreign lawyer with the Solicitors Regulation Authority, given that I was a member of the partnership at Simmons + Simmons. That process was relatively straightforward. It's a small processing fee, a background check, and some paperwork, which the firm completed on my behalf. It took about 48 hours. It was fairly painless.

Kyle McEntee:

So just generally, the education and licensing system is different in the U.K. How did that impact your experience as a young associate, given that some of your peers went through that U.K. process?

Andrea Tompkins:

So it's very different in the U.K. Here, lawyers will go through three years of college, plus potentially a legal conversion course if they didn't study law. And then they will apply for what's called a traineeship, which is a two-year apprenticeship to a certain extent where you have four six-month seats in different departments at a particular firm, and then you qualify at the end of that.

Whereas in the U.S., you graduate from law school, you take the bar, and then you start as a qualified associate. There were sometimes tensions between junior U.S. associates, the more senior trainees, and the junior U.K. associates because of that experience differential. A fourth-seat trainee is coming up on two full years of experience, whereas a first-year U.S. associate, depending on if you catch them in September, they only have a couple weeks.

And added to that, there is a difference in pay scales. Here, the starting salaries can be much lower. When I was a first year, I think I came in on the New York scale at Linklaters as a first-year associate and was paid nearly as much or potentially more than a sixth-year managing associate who had eight years of experience under their belt, which can cause some tension sometimes.

Kyle McEntee:

At what point do the salaries converge?

Andrea Tompkins:

More so at the partner level, and it depends on each firm. U.S. firms will be more aligned to the New York pay scale even for English-qualified associates, whereas English firms, historically, there has tended to be a bigger difference.

Kyle McEntee:

It seems like it'd be pretty intimidating to practice in a country where you weren't educated, even if you're focused on US laws. Do you ever feel like an outsider?

Andrea Tompkins:

I mean, I think to the extent anyone who's an immigrant and lives in a country not of their birth, I think you'll always have moments where you feel like an outsider. Has that come in my career or in my day-to-day? I don't think so.

There can be times where potentially the US team and the English team, if you're working together on a transaction, may not be the most joined up, and that can obviously cause issues. But for the most part, I don't think I've felt like an outsider in my career.

Kyle McEntee:

So now I wanna dig a little bit more deeply into your practice area. How do you describe what you do?

Andrea Tompkins:

While I work in London, I do practice U.S. law. So I advise large companies and international investment banks on how to comply with U.S. federal securities laws when they're raising capital from investors. So breaking that down slightly into more detail.

Kyle McEntee:

Yeah, let's go part by part.

Andrea Tompkins:

It will probably come as no surprise that the U.S. rules around securities offerings are applied outside the US borders because the U.S. is the deepest and biggest liquidity pool in the world. For companies that want to IPO in London and list those securities on the London Stock Exchange, for example, they will want to include big U.S. institutional investors in their capital raising because it can help them get a better price. It can help them raise more money. And there's a little bit of a, there's a cachet to being able to say, “oh, I've done a deal that included the U.S.” both for the investment banks and the issuer themselves.

Kyle McEntee:

So I wanna make this even simpler for the listeners. So basically some company, they need money. They need to go get that money from somewhere. When you say that the U.S. is the deepest liquidity pool, you mean that's where the most money is. And so there's a few different types of capital you can raise. We've got equity on one hand and we've got debt on the other. Can you walk us through the differences?

Andrea Tompkins:

Equity is where a company issues shares – and I'm keeping this very simple. They issue shares to investors. So, for example, I will sell 100 shares in my company for say $10 a share. In the end, I end up with $1,000. So companies raise money through equity because it tends to be somewhat cheaper and you don't have to pay it back. So if you buy shares in a company, you are part owner. You own whatever percentage, the amount of shares you hold represents of the entire amount of shares that are outstanding.

Kyle McEntee:

And then you make money because dividends are paid so you get a cut of any money that's being released back to the owners. Or hopefully the shares are appreciating and then you can sell those shares in the open market, recoup some or all of the investment and make some money.

Andrea Tompkins:

Exactly. So you make money either way. Whether the company pays out a dividend based on the amount of profits they've made or the share price rises from $10 to, if you're super lucky, $20. Or if you're really super lucky, $600.

Kyle McEntee:

Or if you're super unlucky, it goes down to zero.

Andrea Tompkins:

Exactly. The challenge with equity is while you are a part owner, if the company gets into trouble, you are essentially last in the priority of payment. So if the company goes bankrupt, you get zero. Whereas debt, and there's a couple different types of debt and I'm going to briefly talk about unlisted debt or bank debt, which is similar to you or I. If we go out into a bank and we go get a loan, companies can do that. They can also go out and, similar to equity raisings, they can go out, get big institutional investors to loan them money.

That type of debt is called listed debt and those can be, again, listed on a stock exchange so they are freely traded. With that type of debt, there is multiple different types of maturities, interest rates, this, that, and the other thing. The way people make money on listed debt is you get a set coupon, a set interest rate that is paid usually quarterly and you know that's coming in regardless. And at the end of the term of the debt, so two, three, five, 10, 15, I think there was a 100-year one a while ago, you get repayment of your principle. So the amount you loaned to the company, the entire thing is repaid – and usually by issuing new debt. The interest rate, you know, they're usually set at the time of the offering and they're set through the underwriting banks, the investment banks, speaking to investors and understanding, okay, well, this person will pay the base rate, which is, you know, in the U.S., the federal reserve rate or here in the UK, the Bank of England base rate plus a margin. And depending on the company's credit profile, that margin will be higher or lower.

Kyle McEntee:

Which basically means more risk, higher price. Compensated more, but there's also a chance that that doesn't get repaid and so it's that risk and that spread is what you're buying basically.

Andrea Tompkins:

Exactly, exactly. And when people talk about like junk bonds or high yield, those companies tend to be companies that are very highly levered. So they have a lot of debt already outstanding and the interest rates they pay can be quite high even in a zero or low-interest rate environment versus where we are currently with somewhat higher rates.

Kyle McEntee:

All right, so we've got this company, they need some money, right? They're the issuer, whether they're issuing equity or issuing debt. There's also an underwriter. What does the underwriter do?

Andrea Tompkins:

An underwriter is an investment bank who helps advise the issuer or the company on the structuring of the capital raising, whether it's equity, whether it's debt, what type of debt, which investors to approach, how to structure it.

Kyle McEntee:

Your clients, are they predominantly the issuers? Are they predominantly the investment bankers?

Andrea Tompkins:

Well, over the last few years, my practice has largely focused on investment banks, big U.S. investment banks, also big U.K. investment banks. They will be names that everyone is familiar with. I also do on occasion issuer-side work, which can be more fun because you do get to know the company a lot better. You get to know their business model, you get to know the team, and it tends to be you're with them for their journey for a longer period of time. Whereas when you're advising the investment banks on a transaction, it is a transaction-by-transaction basis. Not to say you don't have long-term relationships with those investment banks, but it does tend to be more transaction based.

Kyle McEntee:

So you work with a lot of investment banks and sometimes it's with debt, sometimes it's with equity. Let's focus in on an equity example and more specifically an IPO or initial public offering. So the investment bank comes to you, what happens next?

Andrea Tompkins:

The issuer may or may not have long-term counsel that has been advising them on private capital raisings. You'll often see that series A, series B, that's what people are talking about. For very promising issuers is the way I will describe it, they will have been courted by a variety of different investment banks over the course of the life of that company.

Kyle McEntee:

Because everyone wants to bring someone public.

Andrea Tompkins:

Everybody wants to bring someone public. Because there are league tables, where banks get credit for who they've brought public. There's still a bit of cachet about being a public company versus being a private company.

Kyle McEntee:

And that's the exit people want when they're raising that money, their series A, series B, or even as early as a seed round.

Andrea Tompkins:

Yeah, exactly. Once you've done your initial public offering, what it means is that your shares are more freely tradable. And so for those founders, they are able to actually sell those shares that they've been holding onto that have paper value and convert it into actual value.

So what happens is the company will have been courted by investment banks, they will choose one or two or potentially three to help lead on the process. And then the banks will help the issuer choose both their counsel, unless they've had longstanding counsel, and they will also lead on hiring or engaging their own counsel. The banks will largely focus on advising on timetable, what investors to speak to, where to list, that seems to be a new debatable topic following Brexit. New York, London, Dublin, Amsterdam, there's a lot of options out there. So the U.S. lawyers on a transaction, particularly overseas, I will focus on that. We will work closely with English lawyers if it's an English deal, or if it is a listing in another country, the lawyers who are qualified in that jurisdiction, to help the company with the general corporate requirements for a public company in that jurisdiction.

The U.S. lawyers will largely focus on getting the disclosure right, which isn't that different to what U.S. lawyers do for an initial public offering in the U.S. You will have a disclosure document that sets out all the material information that an investor needs to have to make their investment decision.

Kyle McEntee:

How do you decide what's material?

Andrea Tompkins:

You know it when you see it. So how you decide what goes into the disclosure comes out of a diligence process. So it's a documentary diligence process where you ask the company to send you anything that's material, contracts that are above a certain value, or a litigation that is above a certain value or otherwise material. There is always a catch-all because not all materiality can be defined by reference to a monetary amount.

Kyle McEntee:

But basically it's like, would this make me more or less likely to invest?

Andrea Tompkins:

Would it change your mind if you knew that?

Kyle McEntee:

Okay, that's an even higher threshold then.

Andrea Tompkins:

Yeah, so would it change your view of this company? Would it impact your investment decision?

Kyle McEntee:

Is that like using a reasonable person standard? Is that using a … like what standards are you using for that?

Andrea Tompkins:

So it is using a reasonable person standard. Generally, you know, it comes down to common sense. If a company is having problems with licensing, for example, and it requires those licenses to operate, you know, that's a pretty big deal.

Kyle McEntee:

Or if a factory was gonna maybe shut down and they need to produce the widgets.

Andrea Tompkins:

Yeah, exactly. It's things like that. But it also, on the flip side of things, and this is a story I tell juniors all the time, it depends on your industry and it depends on what is unusual for your industry.

I once had a junior associate come up to me. We were doing a mining or natural resources deal. And, you know, they were in the data room reviewing all the documents. And they were like, we don't say anything in the disclosure, but, you know, two people were killed at the mine last year. And this sounds cruel and heartless, and I get it. My first question was, well, who were they? And how often has this happened? And it turned out that they were trespassers and it was a one-time thing. And when you're talking at a multi-billion dollar mining company, things happen. Now, if they had had repeated safety violations, that would be a different story. But it comes down to making calls like that. What is unusual? What is going on in the business that an investor needs to know?

Kyle McEntee:

And at this point in your career as a partner, you're running the deals. You are actually the one to make that call now.

Andrea Tompkins:

Exactly, yes. Which is a lot of pressure sometimes. And oftentimes where you're advising the investment banks, it's having a conversation with your clients about what is important to say, what is material. If it is material, then what do you say? And how do you say it? How do you draft that disclosure to make sure that it is clear in plain English and isn't hidden away somewhere in the back of the document? My role involves having those conversations with the investment banks and the issuer and their counsel to agree on how do we say this? What do we say? Is there even anything to say? Because sometimes things come up and at first blush, they look material and important, and then they're not.

Kyle McEntee:

And so while the documents for issuing debt might be different than this, fundamentally it's the same thing. You're doing due diligence, you're identifying risk. Because that's what this is all about. It's about some company wants some money, some people want to give it. You need to understand the risk, manage the risk, spread the risk around. And when there is that risk, you don't want people to get taken advantage of, which is where these consumer protection laws come in to play.

Andrea Tompkins:

Yeah, and that's exactly it. I mean, the whole concept of what we do, whether advising investment banks or issuers themselves is managing the risk. So it's ensuring that disclosure is accurate, you are comfortable with the disclosure, material information is included. You've made sure that any marketing speak or that sales story isn't full of hyperbole. You work on things like that. You look at the publicity that's going to go out about the transaction, press releases, making sure that everything is consistent to manage that risk. And then it is the same between debt and equity in terms of what you're really focused on.

But you mentioned consumer protection, and that's primarily where all of this comes from. The U.S. federal securities laws have all come out of laws and regulations that were passed in response to the 1929 stock market crash. So most of the legislation that I am dealing with is from the 1930s, 1940s, wasn't necessarily drafted to take into account a globalized international world, but ultimately the basic premise that all these rules are built on is protecting retail investors, which is why there is a scaling level of more hurdles and more regulation depending on the type of investors that you want to approach. If you are approaching the big international institutional investors that have over a hundred million US dollars in assets, there is much less regulation in terms of what you can do to approach them and raise money from them.

But if you are looking to raise money from, in U.S. parlance, it's orphans and widows, you need to do a lot more homework and you need to ensure that the SEC is okay with that and you will often need to file a registration statement.

Kyle McEntee:

And the idea being that that hundred-million dollar investor has some level of sophistication themselves, but also access to lawyers and other advisors.

Andrea Tompkins:

Whether through third party advisors or internally, they are knowledgeable and sophisticated and the SEC has sort of taken the view that they don't need to protect those investors as much as they need to in terms of retail. So everyday people.

Kyle McEntee:

So is this where you saw your career going?

Andrea Tompkins:

Absolutely not. I was late to the going to law school game, is the way I will describe it. I had never envisioned going to law school. I studied international affairs and political science in undergrad. I had grand dreams of going and working for the foreign service. Ultimately, I ended up working for a nonprofit in real estate in Boston, ended up getting to know the internal legal team there quite well, and some outside lawyers that we had hired and realized, oh, this law thing, this is a thing I can do.

Because I had misconceptions about it. I don't come from a family where we have a lot of lawyers that we knew growing up. I mean, there was one family friend who had like a sole practitioner office in Montana. I didn't know anything about it. Ultimately, through my experience at the nonprofit with outside counsel and in-house counsel, realized this is something I could do. And then I had the great idea that I was going to go to law school, get a master's in public policy and a JD, and the JD was going to pay for the master's in public policy. I would go to big law, I would pay off my debts in a couple years, and then I would go back into the public sector in some way.

Kyle McEntee:

You're not in the public sector, even though you're in the public markets group.

Andrea Tompkins:

It's been 15 years and I have not actually done that. I have paid off my loans, but I have not actually done that.

Kyle McEntee:

What kept you in private practice?

Andrea Tompkins:

So again, I've been really fortunate in my career. I really enjoyed my first three years here in London with Linklaters. And then an opportunity came up to go to Singapore for three years, still with Linklaters, still doing public markets. That was amazing. It was a really great opportunity. I mean, if it's not clear yet, I really like to travel. There was work travel, there was personal travel. It was just an amazing opportunity. And then I came back to London.

I think I've kind of kept moving is the way I would describe it. I mean, even though I was at Linklaters for almost 10 years, it was sort of three years and then three years, and then three and a half years. And I've always been able to change it up. And it's also … capital markets, you do get... There are some people who are industry-focused. I'm not saying that you can't be industry-focused as a capital markets lawyer. I have some friends who are. But for me, it's that broad breadth of different industries and different types of companies and different types of products or structures. It's the constant learning, I think, that really appeals to me.

Kyle McEntee:

So one of the risks for a lawyer in capital markets work is that the work really does move with the market. Does the larger exposure you have to various industries help insulate you a little from that? Or are those market forces just too strong to avoid?

Andrea Tompkins:

It depends. I mean, capital markets is feast or famine. Either you have too much work or you don't have enough. There is never a happy medium because the markets are either up or they're very quiet. We are currently in a period where it is very quiet, particularly here in London. But globally, it's been a lot quieter, both on the equity and the debt front. Although it does seem to be that there is more movement on the debt front and everyone keeps talking about green shoots in terms of the equity market.

Kyle McEntee:

What does that mean?

Andrea Tompkins:

It is a particularly English phrase, which means that we're seeing, starting to see signs of improvement. Green shoots like spring.

Kyle McEntee:

Oh, like spring, okay. I was thinking about what would be in my ramen bowl, but that is what would be in my ramen bowl, things that are shooting out of the ground.

Andrea Tompkins:

Exactly, exactly.

Kyle McEntee:

All right, so given the volatility of your group and the work you're doing, the junior associates who don't have a decade plus in their career and the firm's investment over many years, what can those junior associates do to ensure that they don't find themselves laid off when the markets are struggling to produce deals that can make your firm money?

Andrea Tompkins:

So most firms that have a capital markets practice that they really focus on understand that it is feast or famine. And oftentimes when the equity deals are down, the debt deals will be up and there's some balance there. But for junior associates, obviously they don't have any control over that. But what you can do is ensure that if you're in a capital markets group, there will be other things to do that have to be done regardless. So turning your hand to annual reports or general corporate-type work, because that all has to be done even if the company isn't going to raise money. Or looking into getting some M&A experience because that is always really helpful, I think, for junior associates to have that because M&A drives a fair amount of business to the public markets.

Looking into other areas that are complimentary to capital markets, but always being the person who puts your hand up when there's a request for assistance that will put you in good stead. Whether you're in capital markets or in another team, it is the being willing to pitch in and help out as a junior, even if you're somewhat uncomfortable and you don't know what you're doing, the willingness to put your hand up and pitch in, that goes a really long way.