Breaking Down Case Interview Frameworks – M&A (Mergers and Acquisitions)


Welcome back to the last in our series on breaking down case interview frameworks. You’ve almost made it to the end of our series! By the end of this article, you’ll be well on your way to becoming an M&A case framework master.

Missed out on Parts 1-3? Have no fear! Check out our breakdowns on Profitability, Market Sizing, and Market Study to become a complete expert on any kind of framework you’ll need in your case interview.

Without further ado, here we go!

4 – Mergers and Acquisitions

These cases can be some of the scariest, because they test things like finance principles, but on the other hand, they’re really easy to recognize. The most important part of an M&A question is knowing what type of acquirer you are dealing with. All acquirers will want to increase cash flow, but the length of their investment in the company will differ, depending on the type.

– Financial Acquirer, like a PE firm

They will own 100%, usually in the hopes of selling the company for a significant return. They will often just want to rapidly decrease costs and increase top-line revenues and profits with cash injections.

– Financial Investor, like a hedge fund

They will own a non-majority share, in the hopes of positively affecting the value of the shares before selling them on at a higher price than they originally purchased them for.

– Corporate Acquirer, like a multinational firm

They will own 100% of the target company. They often plan to operate it for a period of time; many choose to integrate the target with their current operations.

How to use the Mergers and Acquisitions framework:

Remember, most interviews are going to be focused in on due diligence strategy as to whether or not one company should buy another. This comes down to 4 key areas:

– The Market

Is it growing? Flooded with competitors? Most investors do not want to buy a company that is in an unattractive market. The question you want to ask yourself is whether or not the market is big enough for your client’s ultimate goals.

– The Company

The client wants to make sure they’re picking the right company within the right market. Once again, it all comes down to finances. Does the company have strong profits? Are they well positioned against competitors? Is it a top performer with revenue growth, or does it have room for improvement with potential for a significant market share in its field?

– Post acquisition strategy

This ties the first two together, while also sending the message that once the company is bought, things are going to change. The market and the company valuation help you figure out how much you should pay, while the post acquisition strategy helps you figure out how much you can make over time.

Can you grow revenues/decrease costs? If your client wants to integrate the target, is there potential for synergy, either by piggybacking one company’s strong areas onto the others to increase sales or by reducing operating costs?

– Risks and benefits

The one thing that is really difficult to determine is how you value intangible assets, such as Intellectual Property or the strength of the management team. In consulting cases you often have to pick scenarios and use numbers to identify what the likely outcomes may be. If there are risks, what would the worst scenario be? What would the medium scenario be? What would the best case scenario be?

For example, how much of a risk is it to integrate two different sales departments, each of which with its own bonus structure? Will governmental regulations hinder the buying process? Risks and benefits is the way to quantify some of the intangible issues that go into purchasing a case.

Recommendations for M&A are also the easiest to put together because you’re either for it or against it. If you are for it, make sure you put together a mind blowing post-acquisition strategy. If you aren’t, make sure you lay out your reasons clearly, concisely and confidently.

Again, use structure to identify the 3-4 key issues you want to evaluate. Once you’ve created a structure both mentally and verbally, navigate through it step-by-step and support each bucket with data.

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