M&A Interview Questions and Correct
Answers
What are some reasons that two companies would want to merge? ✅- Synergies
- New market presence
- Consolidate operations
- Gain brand recognition
- Grow in size (market share, economies of scale, economies of scope)
- Vertical or horizontal integration
- Taxation (a company can obtain a non-profitable company's tax asset by purchasing it)
- Diversification of product offerings
- Gain patents, plant, equipment, and intellectual property
The main two reasons two companies would want to merge would be the synergies the
companies should create by combining their operations. However, some other reasons
indulge gaining a new market presence, an effort to consolidate their operations,
gaining brand recognition, growing in size, or gaining the rights to property that they
couldn't gain as quickly be creating or building it on their own.
What are some reasons two companies would not want to merge? ✅- The synergies
they are looking to gain through the merger simply will not occur
- Maine times, mergers are more about boosting management team's ego and growing
the business in order to gain the marketability and media attention of a merger.
- Investment banking fees associated with going through a merger
What do bankers do during a sell side M&A deal? ✅In a sell-side M&A deal, the bank
will market a company to potential buyers and then help both sides negotiate and
complete the sale process. There are four main steps.
1) The bank will meet with the company and put together informational documents such
as an offering memorandum, which will help market the company for sale to potential
buyers.
2) The bank ill create a list of potential buyers and send out an executive summary to
measure interest in the deal, following up with additional information if requested.
3) The bank will set a deadline for prospective buyers to submit acceptable indications
of interest, and continue to send them additional information
4) The bank will work with the company to maximize the purchase price, select the
winning bidder, and help to negotiate the terms, finalize documents, and then announce
the deal.
, What are synergies? ✅The concept of synergies is that the combination of two
companies results in a company that is more valuable than the sum of the values of the
two individual companies coming together. The reasons for synergies can be either
cost-saving synergies like cutting employees, reduction in office size, etc, or it can
include revenue-generating synergies such as higher prices and economies of scale.
What is the difference between a strategic buyer and a financial buyer? ✅Strategic
buyers and financial buyers are very different. A strategic buyer is usually a company
looking to buy another company in order to enhance the business strategically, though
cost cutting, synergies, gaining PP&E, etc. A financial buyer is traditionally a group of
investors, such as a private equity firm, buying a company purely as an investment,
looking to generate a return for their investors and carry for the fund.
Which will normally pay a higher price for a company, a strategic buyer or a financial
buyer? ✅A strategic buyer will normally pay a higher price due to their willingness to
pay a premium for the synergies of lowering costs, improving the existing business,
and/or revenue synergies. The financial buyer typically looks at the company purely in
terms of returns on a standalone basis unless they have other companies int heir
portfolio that could significantly improve operations of the target.
What is a fairness opinion? ✅A fairness opinion is a report evaluating the facts of an
M&A transition. The report is typically prepared by a qualified investment bank to
examine the "fairness" of a given transaction.
What is a stock swap? ✅A stock swap is when a company purchases another
company by issuing new stock of the combined company to the former owners fo the
company being acquired, rather than paying in cash.
What is the difference between shares outstanding and fully diluted shares? ✅Shares
outstanding represents the actual number of shares of common stock that have been
issued as of the current date/ Fully diluted shares are the number of shares that would
be outstanding if all "in the money" options were exercised.
How do you calculate the number of fully diluted shares? ✅The most common way of
deterring the number of fully diluted shares is the treasury stock method.
What is a cash offer? ✅A cash offer is payment for ownership of a corporation in cash.
Would I be able to purchase a company at its current stock price? ✅Due to the fact
that purchasing a majority stake in a company will require paying a control premium,
most of the time a buyer would not be able to simply purchase a company at its current
stock price.
Why pay in stock versus cash? ✅If a company pays in cash, those receiving it will
have to pay taxes on it. Additionally, if the owners of the company begin acquired want
Answers
What are some reasons that two companies would want to merge? ✅- Synergies
- New market presence
- Consolidate operations
- Gain brand recognition
- Grow in size (market share, economies of scale, economies of scope)
- Vertical or horizontal integration
- Taxation (a company can obtain a non-profitable company's tax asset by purchasing it)
- Diversification of product offerings
- Gain patents, plant, equipment, and intellectual property
The main two reasons two companies would want to merge would be the synergies the
companies should create by combining their operations. However, some other reasons
indulge gaining a new market presence, an effort to consolidate their operations,
gaining brand recognition, growing in size, or gaining the rights to property that they
couldn't gain as quickly be creating or building it on their own.
What are some reasons two companies would not want to merge? ✅- The synergies
they are looking to gain through the merger simply will not occur
- Maine times, mergers are more about boosting management team's ego and growing
the business in order to gain the marketability and media attention of a merger.
- Investment banking fees associated with going through a merger
What do bankers do during a sell side M&A deal? ✅In a sell-side M&A deal, the bank
will market a company to potential buyers and then help both sides negotiate and
complete the sale process. There are four main steps.
1) The bank will meet with the company and put together informational documents such
as an offering memorandum, which will help market the company for sale to potential
buyers.
2) The bank ill create a list of potential buyers and send out an executive summary to
measure interest in the deal, following up with additional information if requested.
3) The bank will set a deadline for prospective buyers to submit acceptable indications
of interest, and continue to send them additional information
4) The bank will work with the company to maximize the purchase price, select the
winning bidder, and help to negotiate the terms, finalize documents, and then announce
the deal.
, What are synergies? ✅The concept of synergies is that the combination of two
companies results in a company that is more valuable than the sum of the values of the
two individual companies coming together. The reasons for synergies can be either
cost-saving synergies like cutting employees, reduction in office size, etc, or it can
include revenue-generating synergies such as higher prices and economies of scale.
What is the difference between a strategic buyer and a financial buyer? ✅Strategic
buyers and financial buyers are very different. A strategic buyer is usually a company
looking to buy another company in order to enhance the business strategically, though
cost cutting, synergies, gaining PP&E, etc. A financial buyer is traditionally a group of
investors, such as a private equity firm, buying a company purely as an investment,
looking to generate a return for their investors and carry for the fund.
Which will normally pay a higher price for a company, a strategic buyer or a financial
buyer? ✅A strategic buyer will normally pay a higher price due to their willingness to
pay a premium for the synergies of lowering costs, improving the existing business,
and/or revenue synergies. The financial buyer typically looks at the company purely in
terms of returns on a standalone basis unless they have other companies int heir
portfolio that could significantly improve operations of the target.
What is a fairness opinion? ✅A fairness opinion is a report evaluating the facts of an
M&A transition. The report is typically prepared by a qualified investment bank to
examine the "fairness" of a given transaction.
What is a stock swap? ✅A stock swap is when a company purchases another
company by issuing new stock of the combined company to the former owners fo the
company being acquired, rather than paying in cash.
What is the difference between shares outstanding and fully diluted shares? ✅Shares
outstanding represents the actual number of shares of common stock that have been
issued as of the current date/ Fully diluted shares are the number of shares that would
be outstanding if all "in the money" options were exercised.
How do you calculate the number of fully diluted shares? ✅The most common way of
deterring the number of fully diluted shares is the treasury stock method.
What is a cash offer? ✅A cash offer is payment for ownership of a corporation in cash.
Would I be able to purchase a company at its current stock price? ✅Due to the fact
that purchasing a majority stake in a company will require paying a control premium,
most of the time a buyer would not be able to simply purchase a company at its current
stock price.
Why pay in stock versus cash? ✅If a company pays in cash, those receiving it will
have to pay taxes on it. Additionally, if the owners of the company begin acquired want
