IB Interview Questions: M&A : Level 1 M&A Questions
1. Why do companies merge?
While are many reasons that companies merge the underlying driver of most M&A deals to expedite growth and/or generate cost savings to create value for the owners of the business.
When people say that M&A is an ‘art’ and a ‘science’, what does that mean?
The science refers to the mechanical valuation methods (Comps, DCF, etc.), but the art is in making a judgment call on valuation based on the outputs of the various valuation methodologies.
2. Who can pay more when buying a company: a Financial buyer or Strategic buyer? Why?
Strategic (i.e. corporate) buyers can typically pay more than Financial (i.e. Private Equity) buyers because strategic buyers typically have overlapping operations that can be removed post-merger to generate cost savings (i.e. Synergies).
3. When are sponsors and corporate buyers on equal footing?
When a Financial buyer already owns a competing asset, they can generate synergies (which justifies a higher price) and thus are on more equal footing with Strategic buyers.
A common example of this is a ‘roll-up’ strategy where a PE firm buys a series of businesses, and each additional acquisition creates cost savings (i.e. synergies).
4. What is Accretion/Dilution?
Accretion Dilution in the context of M&A simply describes whether Earnings Per Share for the Acquiring company increase (Accretion) or decrease (Dilution) following the acquisition of a target business.
5. What is the difference between a ‘Sell-Side’ and a ‘Buy-Side’ M&A deal?
In a sell-side M&A deal, an Investment Bank is hired by a client to sell the client’s business.
In a buy-side M&A deal, an Investment Bank is hired by a client to help them find and execute the purchase of a business.
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