Here are a few questions taken out of our Investment Banking Technical Interview Guide:

What’s the difference between an acquisition and a merger?

• Basically an acquisition occurs when the buyer is significantly larger and a merger typically occurs when the companies are close to the same size.  Also, M&A may be private or public, depending on whether the acquirer or merging company is or isn’t listed in public markets.

Why might a company do M&A?

• The buyer feels that the target is undervalued
• The buyer’s growth has stalled and the company needs to grow in other ways to satisfy investors
• The buyer expects significant synergies

Would a strategic acquirer typically be willing to pay more of a premium for a company than a private equity firm would?

• Yes, because the strategic acquirer (usually competition) can realize cost and revenue synergies that the PE firm cannot.  Thus, the synergies boost the valuation for the target company.

When working through a merger model or M&A deal, how do you take into account NOLs?

• Allowable Merger NOLs = Equity Purchase Price * Highest of Past 3 Months Long Term Rates
• If your equity was $2 million and the highest long term rate was 4%, then you could use $80k of NOLs each year.

Screen-shot of an Accretion-Dilution Analysis taken from our Merger Model: