IB Interview Guide: Technical Questions – M&A Deals and Merger Models

Hello, and welcome to our next technical guide in this investment banking interview guide.

This file is quite long. It's around 134 pages, and it covers M&A deals, mergers and acquisitions,
and merger models.

In addition to the written guide, we also have a number of Excel files here ranging from basic to
more complicated, and some of which cover very specific aspects of deals and are very
specialized.

So, before going into this, the first question you probably want to know is, "Is this guide
important at all?" So, if you have interviews coming up, how important is this relative to
other topics covered here? And the short answer is that you need to know something about
this if you're interviewing for any type of investment banking or private equity role, but if
you're going for internships or entry-level positions, I would stay focused on the first two
sections here, "Why Buy Another Company?" and then the "Mechanics of EPS Accretion/
Dilution." These correspond to the first two sections of interview questions as well.

Maybe go beyond that into Key Rule #3 as well if you have time. And, of course, there is
another section of interview questions on that topic.

[01:07]

These first few sections are the most important because if you get questions on these topics in
entry-level interviews, they're probably going to be about the more basic aspects of these
models. They're unlikely to go and ask you something like one of the more advanced merger
model features if you're in that position. So, focus on the first two to three key sections here.

In terms of the Excel files here, you should know the fairly simple files pretty well. So, this one
about the illustrative mechanics between a buyer and seller and how to calculate
accretion/dilution, how to predict whether a deal is accretive or dilutive, that's all fair game for
interviews, so you need to know that.

And same with some of these other files about, for example, how you might actually calculate
the purchase price and the amount of cash, debt, and stock that is used in a deal. So, this kind
of material is very important.

[01:56]

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When you get to the more advanced or more complex files here, like the 60-minute merger
model and then the 3-hour merger model, these are definitely less important. So, I would not
spend much time, if any, on these.

If you have more work experience or you're interviewing for lateral roles, then the full version
of these models, the 60-minute and the 3-hour version, become more important. So, you
should know them in that case.

And also in that case, something like Key Rule #6: The Full Merger Model (60-Minute Version
and 3-Hour Version) also becomes more important.

So, the importance of this guide really depends on how much experience you already have
and the types of roles you're interviewing for, but at the bare minimum, the first two to three
sections are important for investment banking and private equity roles.

If you want to go beyond that, it's mostly relevant if you have some more experience and
you're going for lateral roles or other full-time roles, and you already have deals on your
resume, for example.

This last section on More Advanced Merger Model Features you can almost always skip. This
gets into pretty obscure material, and I don't think it's useful in probably 95% of cases. We just
have it here because it does correspond to more of what you do on the job.

[03:03]

But again, I'd say this is not important at all for entry-level interviews. And even for lateral and
full-time interviews, I don't think it's terrible important.

Now, in terms of how to approach the guide, I would actually recommend skipping right to
the Interview Questions here. And I would recommend starting by going through these and
just testing yourself and seeing how well you can answer these questions and how much you
know.

And then based on your results here . . . you can also go to the interactive quiz questions if
you want, but based on your results here and in the quiz questions, you can then go through
this and read through these key rules.

So, for example, the M&A Concepts and Overview one right here corresponds mostly to Key
Rules #1 and #2. Accretion/Dilution Calculations also corresponds to these key rules as well. So,

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if you find that you can't answer these questions that well, then you should go back and look at
these first two key rules.

Now, if you find you can answer them pretty well, then maybe you can move onto the next
section, Equity Value, Enterprise Value, and Multiples in M&A Deals.

[04:01]

And if you run into trouble with those, then maybe look at Key Rule #5, How Equity Value and
Enterprise Value Change in M&A Deals.

So, go through it like that and use the interview questions and the interactive quiz questions to
figure out what you know and what you don't know, and then return to the corresponding
section.

Now, when you start going through one of these key rules . . . let's take number three here, for
example, The Purchase Price and the Cash, Debt, and Stock Mix. You want to pull up the
corresponding Excel file. So, that would be the purchase price debt equity file here. And as you
go through, you'll see that we include screenshots that are directly based on this file. So, you'll
be able to understand this a whole lot more easily if you pull up the file as we go through it in
the guide. Then you can enter the numbers in Excel and see what's going on, follow along, and
trace all the formulas like that.

Now, this is not a one-to-one match. For example, we don't have all of the files here for Key
Rules #3 and #4. There are some variations here. We do provide one file for part of this, but we
don't give you the full thing here because it's not terribly important. So, it's not a one-to-one
match, but you'll be able to figure out the correspondence between the Excel files and the key
rules in most cases.

[05:11]

If you're wondering about the 60-minute vs. 3-hour version of the merger model, they're pretty
similar in terms of the basic mechanics. Really, the main difference is that the 3-hour version
has some additional analyses, like the value creation analysis, more detailed synergy
calculations. It has a contribution analysis and it also has a valuation of the company, a DCF, a
set of M&A comps, and a set of public comps. So, they're pretty similar overall. The main
difference is that the 3-hour version just has some additional analyses at the end.

You can get through most of this section just by looking at the 60-minute version, and in a few
cases, we go into some additional points in the 3-hour version. But really, this Key Rule #7 here,

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M&A Valuation, Value Creation, and the Contribution Analysis, this is the one that corresponds
to that 3-hour version.

[06:00]

So, once you've gone through this and you've read through each section, I would recommend
then going back to the sections of the interview questions and testing yourself, or go to the
interactive quiz questions, or even do both if you have the time. And after you've gone through
them and looked at the Excel files, test yourself like this.

One question we sometimes get is, "Is it worthwhile to look at, say, the 60-minute merger
model or the 3-hour merger model and try to complete it yourself from scratch?" And the
answer is you could do it if you want, but I don't think it's necessarily the best use of time
because full merger models tend not to be likely case study or modeling test topics.

If anything, they are more likely to ask you something very simple, like the very simple
accretion/dilution calculations here in this type of exercise. This is far more likely as a 20-
minute or 30-minute or 45-minute exercise or something like that than a full merger model,
which requires you to combine the full financial statements of the buyer and seller.

[06:57]

So, if you want to do Excel work from scratch at all here, I would definitely recommend focusing
on the simpler files and examples.

That's about it for my walkthrough here. I just wanted to explain some of the key points and
how you can use this guide most efficiently. If you have any questions or you want to know
what's relevant or what to focus on and what to skip, just leave a comment below this or email
us and we can give you some further guidance on that.

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