Merger and acquisition (M&A) analyst positions are highly sought after roles in investment banking. As an M&A analyst you will work on large complex deals, evaluating potential targets, conducting due diligence, building financial models, preparing pitchbooks, and negotiating deals.
To land a job as an M&A analyst, you must ace the interview. Interviewers will ask technical questions to assess your financial modeling and valuation skills as well as your M&A knowledge. They will also ask behavioral questions to gauge your communication skills, work ethic, and fit with the firm’s culture.
To help you prepare for M&A analyst interviews, here are the top 10 most common technical and behavioral questions with example answers:
Technical Questions
1. Walk me through how you would build an accretion/dilution model for a merger.
An accretion/dilution model evaluates the impact of a merger transaction on the acquirer’s earnings per share (EPS). Here are the key steps:
- Calculate the purchase consideration – the amount the acquirer is paying for the target, often a mix of cash, debt, and stock
- Determine the new share count by adding the acquirer’s existing shares outstanding with any new shares issued to finance the deal
- Estimate revenue synergies and cost savings from the merger
- Conduct purchase price allocation to record the value of the target’s assets and goodwill
- Calculate the combined company’s pro forma net income including any incremental costs from the deal
- Divide by the new share count to determine the pro forma EPS
- Compare to the acquirer’s standalone EPS to assess if the deal is accretive (EPS increases) or dilutive (EPS decreases)
2 How would you determine if an acquisition is accretive or dilutive to EPS?
I would calculate the pro forma EPS of the combined company after the acquisition and compare it to the acquirer’s EPS before the deal. If the pro forma EPS is higher, the deal is accretive. If it is lower, the deal is dilutive.
The formula is:
Accretion/Dilution = (Pro Forma EPS / Standalone EPS) – 1
For example, if the acquirer’s standalone EPS is $2.00 and the pro forma EPS is $2.10, the deal is accretive because $2.10 / $2.00 – 1 = 0.05 or 5% accretion.
3 How do you value a target company in an M&A deal?
There are several valuation methodologies:
- Comparable companies analysis looks at trading multiples like P/E, EV/EBITDA of similar public companies
- Precedent transactions analysis examines multiples paid in prior deals in the industry
- Discounted cash flow values the company based on projected future cash flows
- Leveraged buyout model values it as a financial sponsor would using debt and equity financing
I would build a football field chart comparing these methodologies to determine a reasonable value range. The offer price is ultimately based on synergies, deal dynamics, and negotiating leverage.
4. What is the difference between a merger and an acquisition?
In a merger, similarly sized companies combine together to create a new entity. It is typically a stock transaction with combined governance.
In an acquisition, one company purchases another where the buyer is much larger. The target may operate as a subsidiary of the acquirer or be fully integrated. Acquisitions may use cash, stock, or debt financing.
The key difference is the relative size of the companies and the ownership structure after the deal.
5. What are some common reasons companies pursue M&A deals?
There are several strategic rationales for M&A:
- Consolidate to increase market share and pricing power
- Expand into new geographies by acquiring local players
- Acquire technologies, patents, brands to improve innovation
- Integrate vertically to control supply or distribution channels
- Diversify into new business lines and revenue streams
- Achieve cost synergies by removing redundancies
- Acquire talent and capabilities quickly
The overall goal is to accelerate growth more rapidly and efficiently than through organic means alone.
Behavioral Questions
6. Why are you interested in investment banking and M&A specifically?
I am interested in investment banking because I enjoy complex financial analysis and strategic deal making. M&A appeals to me because it involves evaluating companies, structuring transactions, and negotiating deals. I like the mix of quantitative analysis through modeling merged with qualitative assessment of synergies and fit. M&A also offers great exposure to senior executives across industries.
7. How would your background make you a strong M&A analyst?
My degree in finance provided solid grounding in valuation and accounting. My internship experience modeling LBOs and market comps strengthened my financial modeling skills. I also developed strong research, analysis, and communication skills from my roles on case competitions and projects. I’m excited to apply this diverse experience as an M&A analyst.
8. Why do you want to work at this bank specifically?
Your bank’s M&A franchise is excellent, ranking top 5 for deal volume. I’m impressed by your focus on technology and healthcare, sectors I’m quite interested in. The firm also has a great training program and promotes extensively from within, which aligns with my career goals. The culture here also appeals to me given the collaborative, meritocratic approach.
9. Where do you see your career in 5 years?
In 5 years, I hope to be promoted from a junior M&A analyst to a mid-level associate. I aim to be leading parts of deals and managing teams of analysts. Longer-term, I’m aspiring to become an M&A VP and eventually transition to the buyside at a private equity or strategic corporate development group. This role is an excellent step in that path.
10. Do you have any questions for me?
- What skills make top performers successful in your M&A group?
- How are analyst classes onboarded and trained?
- Does the group foster mentorship and professional development?
- What types of deals and clients have you personally worked on?
- How would you describe the culture of the team and bank overall?
These M&A analyst interview questions require blending technical finance knowledge with strong communication skills. Use these examples to craft your own concise, compelling responses that convey your experience and enthusiasm. With thorough preparation, you will ace the interview and land your dream job in investment banking M&A.
Q. Which type of synergies are most likely to be realized: revenue synergies or cost synergies?
Cost synergies are far more likely to be realized than revenue synergies.
Revenue synergies may seem possible at first, but they don’t always happen because the financial benefits are based on assumptions that are affected by factors that are hard to predict.
A lot of different things can affect when a new product or service comes out and how customers will react to it.
Even if realized, revenue synergies usually require more time to achieve than cost synergies, i. e. The process can take years to fully take effect, and many people never see the benefits they were hoping for.
Cost synergies are more likely to be true than revenue synergies because they can be applied to real problems.
As an example, if an acquirer says it will close a useless office after a merger, it is easy to figure out how much money it will save and take action on that information.
Q. What is purchase price allocation (PPA)?
Once an M
As a general rule, some parts of the balance sheet, like the working capital line items, can be easily merged.
But there is one important change that is made to the pro forma combined balance sheet that is probably the most important part of purchase price accounting: “goodwill,” or more specifically, the extra goodwill that was created by the deal.
Assumptions are made about the fair value of assets as part of PPA. If deemed appropriate, the target’s assets are written up to reflect their real fair value, which creates deferred taxes.
The goal of purchase price allocation (PPA) is to divide the amount of money that was paid to buy something among its assets and debts so that their true values are reflected.
Merger and Acquisition Interview Questions and Answers by Vskills
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