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Top 55 Merger and Acquisition Analyst Interview Questions And Answer


Q1- Walk me through about basic merger model?

Suggested Answer: A merger is a combination of two or more companies into a single entity. There are several different types of mergers, including horizontal, vertical, and conglomerate, but the basic process for completing a merger is generally the same. Here is a brief overview of the steps involved in a basic merger:

  1. Identify potential merger partners: The first step in a merger is to identify potential partners that would be a good fit for the company. This might involve looking at companies in the same industry, companies with complementary products or services, or companies with a strong market presence.

  2. Negotiate terms: Once potential partners have been identified, the companies will begin negotiations to determine the terms of the merger. This might include discussions around the exchange ratio (how much each company's stock will be worth in the new entity), management structure, and any other issues that need to be addressed.

  3. Perform due diligence: Before the merger is finalized, both companies will conduct due diligence to ensure that the other company is financially sound and has no hidden liabilities that could impact the new entity. This may involve reviewing financial statements, contracts, and other documents.

  4. Obtain shareholder and regulatory approval: In order for the merger to be completed, it must be approved by the shareholders of both companies, as well as any regulatory bodies that have jurisdiction over the transaction.

  5. Finalize the merger: Once all approvals have been obtained and any necessary documents have been signed, the merger can be finalized and the two companies will become one.

It's important to note that the process of completing a merger can be complex and time-consuming, and it's often advisable to seek the assistance of legal and financial advisors to ensure that the transaction is completed smoothly and successfully.


Q2- Tell me the difference between asset beta and equity beta?

Suggested Answer: Asset beta and equity beta are both measures of risk that are used in financial analysis to evaluate the volatility of an investment. However, they differ in the types of assets that they are used to analyze.

Asset beta is a measure of the risk of a particular asset or portfolio of assets. It is calculated by dividing the asset's or portfolio's volatility (as measured by its standard deviation) by the volatility of the overall market. A beta of 1 indicates that the asset or portfolio is expected to move in line with the market, while a beta greater than 1 indicates that it is more volatile than the market, and a beta less than 1 indicates that it is less volatile than the market.

Equity beta, on the other hand, is a measure of the risk of a company's stock or equity. It is calculated in a similar way to asset beta, by dividing the stock's volatility by the volatility of the overall market. Equity beta is often used to evaluate the risk of a company's stock relative to the broader market, and it is an important input in the capital asset pricing model (CAPM), which is used to estimate the required rate of return for an investment.

In summary, asset beta measures the risk of a particular asset or portfolio, while equity beta measures the risk of a company's stock or equity.Top of Form


Q3- What are key difference between a merger and an acquisition?

Suggested Answer: A merger is a combination of two or more companies into a single entity, while an acquisition is the purchase of one company by another. There are several key differences between these two types of corporate transactions:

  1. Ownership: In a merger, the combining companies become one entity, with the shareholders of both companies becoming shareholders in the new entity. In an acquisition, one company purchases the assets and liabilities of another company, and the acquiring company becomes the owner of the acquired company.

  2. Structure: Mergers can take various forms, such as a merger of equals, where both companies are roughly the same size, or a reverse merger, where a smaller company is merged into a larger one. Acquisitions, on the other hand, typically involve one company buying another, with the acquiring company being the dominant party in the transaction.

  3. Motivation: Companies may pursue a merger for a variety of reasons, including to achieve economies of scale, to expand into new markets, or to eliminate competition. Acquisitions, on the other hand, are often motivated by the desire to acquire new technology, intellectual property, or other assets that will help the acquiring company to grow or improve its competitive position.

  4. Approval: Both mergers and acquisitions typically require shareholder approval and may also need to be reviewed and approved by regulatory bodies. However, acquisitions may face additional hurdles, such as antitrust reviews, if the transaction is seen as potentially reducing competition in a particular market.

Overall, while both mergers and acquisitions involve the combination of two or more companies, they differ in terms of ownership, structure, motivation, and the approval process required to complete the transaction.

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Q4- Why a company want to acquire another company? What is main reason behind it?

Suggested Answer: There are several reasons why a company might want to acquire another company, including:

  1. To gain access to new markets: By acquiring a company that operates in a different market, the acquiring company can expand its reach and potentially access new customers or distribution channels.

  2. To acquire new technology or intellectual property: Companies may acquire other companies to gain access to valuable technology or intellectual property, such as patents, trademarks, or proprietary processes.

  3. To eliminate competition: In some cases, a company may acquire a rival in order to eliminate competition and increase its market share.

  4. To achieve economies of scale: By acquiring another company, a company may be able to achieve cost savings through the consolidation of operations, such as by eliminating duplicate functions or taking advantage of economies of scale in production and distribution.

  5. To enhance shareholder value: In some cases, acquisitions can be a way for a company to grow and increase its profitability, which can lead to an increase in shareholder value.

Overall, the main reason behind a company wanting to acquire another company is typically to improve its competitive position and achieve growth through the acquisition of new assets or capabilities.


Q5- What do you mean conglomerate merger?

Suggested Answer: A conglomerate merger is a type of merger that involves the combination of two or more companies that operate in unrelated industries. Conglomerate mergers are often motivated by the desire to diversify the combined company's operations and reduce the impact of economic downturns in any one particular industry.

For example, a company that manufactures automotive parts might merge with a company that provides healthcare services. In this case, the resulting conglomerate would operate in both the automotive and healthcare industries, providing a degree of diversification that might make it less vulnerable to economic fluctuations in any one particular market.

There are several benefits to conglomerate mergers, including the opportunity to access new markets, the ability to leverage synergies and economies of scale across the combined company's operations, and the potential to increase shareholder value through growth and diversification. However, conglomerate mergers can also be complex and may require significant integration efforts to ensure that the combined company is able to effectively operate in multiple unrelated industries.


Q6- What do you mean by congeneric merger?

Suggested Answer: A congeneric merger is a type of merger that involves the combination of two or more companies that operate in related, but not identical, industries. Congeneric mergers are often motivated by the desire to diversify the combined company's operations and access new markets or customer segments.

For example, a company that manufactures computer hardware might merge with a company that provides software development services. In this case, the resulting company would operate in both the computer hardware and software industries, allowing it to offer a more complete range of products and services to customers.

Like conglomerate mergers, congeneric mergers offer the opportunity to access new markets, leverage synergies and economies of scale across the combined company's operations, and potentially increase shareholder value through growth and diversification. However, congeneric mergers may be less complex than conglomerate mergers, as the companies being combined are operating in related industries and may have more in common in terms of their operations and business models.


Q7- What is reverse merger can you give me the example of reverse merger?

Suggested Answer: A reverse merger is a type of merger in which a private company acquires a publicly traded company and becomes a publicly traded company itself, without having to go through the process of a traditional initial public offering (IPO). Reverse mergers are also sometimes referred to as "backdoor listings" or "reverse IPOs."

Here's an example of a reverse merger:

  • Company A is a private company that manufactures and sells consumer electronics. It has been growing rapidly and is looking to raise capital to fund its expansion.

  • Company B is a publicly traded company that operates in a completely unrelated industry. Its stock price has been declining, and it is struggling to generate profits.

  • Company A and Company B enter into a reverse merger agreement, in which Company A acquires Company B and becomes a publicly traded company itself. As part of the deal, Company A's shareholders become the majority owners of the new, publicly traded entity, while Company B's shareholders retain a minority stake.

  • After the reverse merger is completed, the newly merged company begins trading on the stock exchange under the ticker symbol of Company B. However, the company is now primarily focused on the consumer electronics industry, and it is led by the management team of Company A.

Reverse mergers can be an attractive option for private companies that want to go public without having to go through the time-consuming and expensive process of a traditional IPO. However, reverse mergers can also be complex and may involve significant legal and financial considerations. In addition, some investors may be wary of companies that have gone public through a reverse merger, as there may be less information available about their financials and operations.


Q8- Why would an acquisition be dilutive?

Suggested Answer: An acquisition can be dilutive if it results in the acquiring company's earnings per share (EPS) decreasing. This can occur if the acquisition is funded with new shares of the acquiring company's stock, or if the acquisition involves the payment of a large amount of cash or other assets that reduce the acquiring company's earnings.

For example, consider the following scenario:

  • Company A has 1 million shares outstanding and earns $5 million in net income for the year, resulting in an EPS of $5 per share.

  • Company A acquires Company B for $100 million, which is funded with the issuance of 10 million new shares of Company A's stock.

  • After the acquisition, Company A has 11 million shares outstanding and earns $6 million in net income for the year. However, because the number of shares outstanding has increased, the EPS is now $0.55 per share ($6 million in net income divided by 11 million shares outstanding).

In this example, the acquisition of Company B has been dilutive because it has resulted in a decrease in the company's EPS. Dilutive acquisitions can be a concern for shareholders, as they may result in a decrease in the value of their investment.

It's important to note that not all acquisitions are dilutive, and some may actually be accretive, meaning that they result in an increase in the acquiring company's EPS. Factors that can impact the dilutive or accretive nature of an acquisition include the financial performance of the acquired company, the terms of the acquisition, and the financing used to fund the deal.Top of Form


Q9- A company with a higher P/E acquires one with a lower P/E – is this accretive or dilutive and why?

Suggested Answer: It is generally considered accretive when a company with a higher price-to-earnings ratio (P/E ratio) acquires a company with a lower P/E ratio. The P/E ratio is a measure of a company's valuation, calculated by dividing the company's stock price by its earnings per share (EPS). A higher P/E ratio generally indicates that a company is considered more expensive by the market and may be overvalued, while a lower P/E ratio indicates that the company is considered less expensive and may be undervalued.

When a company with a higher P/E ratio acquires a company with a lower P/E ratio, the acquisition is typically accretive because it results in an increase in the acquiring company's EPS. This is because the acquiring company's earnings are being divided among a smaller number of shares, due to the reduction in the number of shares outstanding resulting from the acquisition. As a result, the EPS of the acquiring company increases, which can lead to an increase in the value of the company's stock.

For example, consider the following scenario:

  • Company A has a P/E ratio of 20 and earns $5 million in net income for the year, resulting in an EPS of $0.50 per share.

  • Company B has a P/E ratio of 10 and earns $10 million in net income for the year, resulting in an EPS of $1.00 per share.

  • Company A acquires Company B and pays $100 million in cash for the acquisition.

  • After the acquisition, Company A has 10 million shares outstanding and earns $15 million in net income for the year. The EPS is now $1.50 per share ($15 million in net income divided by 10 million shares outstanding).

In this example, the acquisition of Company B has been accretive because it has resulted in an increase in the EPS of the acquiring company.


Q10- Why a strategic acquirer typically be willing to pay more for a company than a private equity firm?

Suggested Answer: A strategic acquirer is a company that acquires another company in order to expand its operations, access new markets, or acquire new technology or intellectual property. A private equity firm, on the other hand, is a financial institution that invests in companies with the goal of improving their performance and eventually selling them for a profit.

There are several reasons why a strategic acquirer might be willing to pay more for a company than a private equity firm:

  1. Synergies: A strategic acquirer is often willing to pay more for a company because it expects to realize cost savings and other synergies by integrating the acquired company's operations into its own. For example, a strategic acquirer might be able to achieve economies of scale by combining production facilities or eliminate duplicate functions to reduce costs.

  2. Strategic fit: A strategic acquirer may be willing to pay a premium for a company that fits well with its existing operations and can help it to achieve its strategic goals. For example, a company that specializes in software development might be willing to pay more for a company that provides complementary software solutions.

  3. Long-term focus: A strategic acquirer is typically focused on the long-term success of the company and may be willing to pay more for a company that it sees as having strong growth potential. Private equity firms, on the other hand, are typically more focused on maximizing short-term returns and may be less willing to pay a premium for a company.

Overall, strategic acquirers are often willing to pay more for a company because they see the acquisition as an opportunity to achieve long-term growth and value creation, while private equity firms may be more focused on maximizing short-term returns.


Q11- Why goodwill & other intangibles get created in an acquisition?

Suggested Answer: Goodwill and other intangible assets are often created in an acquisition when the acquirer pays more for the acquired company than the fair market value of its tangible assets (such as buildings, equipment, and inventory). The difference between the purchase price and the fair market value of the tangible assets is recorded as goodwill on the acquirer's balance sheet.

Goodwill and other intangible assets can be created in an acquisition for a variety of reasons, including:

  1. Synergies: The acquirer may expect to achieve cost savings or other synergies by integrating the acquired company's operations into its own. These synergies may not be reflected in the fair market value of the acquired company's tangible assets, but they can be included in the purchase price paid by the acquirer.

  2. Strategic fit: The acquired company may have strong brand recognition, valuable customer relationships, or other intangible assets that make it a good fit with the acquirer's operations and strategic goals. These intangible assets may not be reflected in the fair market value of the company's tangible assets, but they can be included in the purchase price paid by the acquirer.

  3. Growth potential: The acquirer may believe that the acquired company has strong growth potential and is willing to pay a premium for the company based on this expectation. This premium may not be reflected in the fair market value of the company's tangible assets, but it can be recorded as goodwill on the acquirer's balance sheet.

Overall, goodwill and other intangible assets are created in an acquisition when the acquirer pays more for the acquired company than the fair market value of its tangible assets. These intangible assets may represent value that is not reflected in the company's tangible assets, but that the acquirer believes will contribute to the long-term success of the combined company.


Q12- Tell me the difference between goodwill and other intangible assets?

Suggested Answer: Goodwill and other intangible assets are both non-physical assets that can be created in an acquisition when a company pays more for another company than the fair market value of its tangible assets (such as buildings, equipment, and inventory). However, there are some key differences between these two types of assets:

  1. Definition: Goodwill is an intangible asset that represents the excess of the purchase price paid for a company over the fair market value of its tangible assets. Other intangible assets are intangible assets that are separate from goodwill and are recorded on the acquirer's balance sheet at their fair market value. Examples of other intangible assets include patents, trademarks, customer relationships, and intellectual property.

  2. Treatment: Goodwill is recorded on the acquirer's balance sheet as an asset, and it is not amortized (or written off) over time. Instead, goodwill is tested for impairment on an annual basis, and any impairment is recorded as a charge to the income statement. Other intangible assets, on the other hand, are amortized over their useful lives, with the amortization being recorded as a charge to the income statement.

  3. Impairment: Goodwill is subject to impairment testing, which involves comparing the carrying value of goodwill to its fair value. If the carrying value exceeds the fair value, an impairment charge is recorded on the income statement. Other intangible assets are also subject to impairment testing, but the test is typically performed on a asset-by-asset basis, rather than on an aggregate basis like goodwill.

Overall, while both goodwill and other intangible assets are non-physical assets that can be created in an acquisition, they differ in terms of their definition, treatment, and impairment testing.


Q13- What do you mean by synergies, and can you give me a few examples?

Suggested Answer: Synergies refer to the benefits that a company can achieve by combining the operations of two or more businesses. Synergies can occur in a variety of forms, including cost savings, revenue enhancements, and other operational improvements.

Here are a few examples of synergies that can be achieved through a merger or acquisition:

  1. Cost savings: By combining the operations of two companies, it may be possible to eliminate duplicate functions or achieve economies of scale in production and distribution, resulting in cost savings. For example, a company that acquires a rival may be able to close one of the acquired company's manufacturing plants and consolidate production at its own facility, resulting in cost savings.

  2. Revenue enhancements: A merger or acquisition can also result in revenue enhancements by allowing the combined company to access new markets or customer segments. For example, a company that acquires a company that operates in a different country may be able to tap into the acquired company's existing customer base and expand its global reach.

  3. Operational improvements: A merger or acquisition can also result in operational improvements by allowing the combined company to leverage the strengths of both companies. For example, a company that acquires a company with complementary technology or intellectual property may be able to improve its products or services by incorporating the acquired company's assets into its own operations.

Overall, synergies are benefits that a company can achieve by combining the operations of two or more businesses, and they can take many forms, including cost savings, revenue enhancements, and operational improvements.


Q14- How are synergies used in merger models?

Suggested Answer: Synergies are often an important consideration in merger models, as they can have a significant impact on the expected value of the merger for the acquiring company. In a merger model, synergies are typically included as a separate line item in the pro forma income statement, along with the revenues and expenses of the combined company.

There are several ways in which synergies can be incorporated into a merger model, including:

  1. Cost savings: Synergies that are expected to result in cost savings, such as the elimination of duplicate functions or the consolidation of production facilities, can be included in the pro forma income statement as a reduction in operating expenses.

  2. Revenue enhancements: Synergies that are expected to result in revenue enhancements, such as the ability to access new markets or customer segments, can be included in the pro forma income statement as an increase in revenues.

  3. Operational improvements: Synergies that are expected to result in operational improvements, such as the ability to leverage complementary technology or intellectual property, can be included in the pro forma income statement as an increase in operating income or a reduction in operating expenses.

Overall, synergies are an important consideration in merger models, as they can have a significant impact on the expected value of the merger for the acquiring company. By including synergies in the pro forma income statement, it is possible to get a more accurate picture of the expected

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Q15- What do you mean by vertical merger?

Suggested Answer: A vertical merger is a type of merger that involves the combination of two companies that operate at different stages in the production or distribution of a product or service. In a vertical merger, the acquiring company is typically a supplier or customer of the acquired company.

For example, consider the following scenario:

  • Company A is a manufacturer of automotive parts, and Company B is a distributor of automotive parts.

  • Company A acquires Company B in a vertical merger.

  • As a result of the merger, Company A becomes both a manufacturer and distributor of automotive parts, and it is able to vertically integrate its operations to control more of the value chain.

Vertical mergers can offer several benefits to the combined company, including increased control over the production and distribution of its products, the ability to reduce costs by eliminating intermediaries, and the opportunity to better coordinate its operations. However, vertical mergers can also raise antitrust concerns, as they may increase the combined company's market power and potentially lead to higher prices for consumers.

Overall, a vertical merger is a type of merger that involves the combination of two companies that operate at different stages in the production or distribution of a product or service, with the acquiring company typically being a supplier or customer of the acquired company.



Q16- What do you mean by horizontal merger?

Suggested Answer: A horizontal merger is a type of merger that involves the combination of two companies that operate in the same industry and at the same stage in the production or distribution of a product or service. In a horizontal merger, the acquiring company and the acquired company are typically competitors in the same market.

For example, consider the following scenario:

  • Company A and Company B are both manufacturers of automotive parts.

  • Company A acquires Company B in a horizontal merger.

  • As a result of the merger, the combined company becomes a larger competitor in the automotive parts industry, with a greater market share and potentially more bargaining power with suppliers and customers.

Horizontal mergers can offer several benefits to the combined company, including increased economies of scale, the ability to eliminate duplicate functions and reduce costs, and the opportunity to expand the company's market presence. However, horizontal mergers can also raise antitrust concerns, as they may increase the combined company's market power and potentially lead to higher prices for consumers.

Overall, a horizontal merger is a type of merger that involves the combination of two companies that operate in the same industry and at the same stage in the production or distribution of a product or service, with the acquiring company and the acquired company typically being competitors in the same market.


Q17- What do you mean by target valuation?

Suggested Answer: Target valuation is the process of determining the value of a company that is being considered for acquisition. Target valuation is typically performed by the acquiring company or its financial advisors, and it involves analyzing the financial performance and prospects of the target company, as well as the market conditions and industry trends that may impact its value.

There are several methods that can be used to perform target valuation, including:

  1. Comparable company analysis: This method involves comparing the financial performance and valuation of the target company to that of similar companies in the same industry. By comparing the target company's financial metrics, such as revenue, earnings, and valuation ratios, to those of comparable companies, it is possible to estimate the target company's intrinsic value.

  2. Discounted cash flow analysis: This method involves estimating the target company's future cash flows and discounting them back to present value using a discount rate. The present value of the company's future cash flows is then used to estimate its intrinsic value.

  3. Asset-based valuation: This method involves valuing the target company based on the value of its tangible assets, such as buildings, equipment, and inventory. The value of the company's intangible assets, such as goodwill and other intangible assets, is then added to the value of its tangible assets to arrive at the company's total value.

Overall, target valuation is the process of determining the value of a company that is being considered for acquisition, and it involves analyzing the company's financial performance, market conditions, and industry trends to estimate its intrinsic value. There are several methods that can be used to perform target valuation, including comparable company analysis, discounted cash flow analysis, and asset-based valuation.


Q18- Can you give me some examples of why a company would want to take over another company?

Suggested Answer: There are several reasons why a company might want to take over another company, including:

  1. Expand market presence: A company may acquire another company in order to expand its market presence and access new customers or geographic regions. For example, a company that operates in a single country might acquire a company that operates in several countries in order to expand its global reach.

  2. Diversify product or service offerings: A company may acquire another company in order to diversify its product or service offerings and reduce its dependence on a single product or market. For example, a company that specializes in software development might acquire a company that provides cloud-based storage services in order to diversify its revenue streams.

  3. Gain access to new technology or intellectual property: A company may acquire another company in order to gain access to new technology or intellectual property that can help it to improve its products or services. For example, a company that makes consumer electronics might acquire a company that develops software for mobile devices in order to improve its products and gain a competitive advantage.

  4. Eliminate a competitor: A company may acquire another company in order to eliminate a competitor and increase its market share. This can be a strategic move that allows the acquiring company to increase its bargaining power with suppliers and customers and potentially increase its profitability.

  5. Achieve cost savings: A company may acquire another company in order to achieve cost savings by eliminating duplicate functions or achieving economies of scale in production and distribution.

Overall, there are many reasons why a company might want to take over another company, including expanding its market presence, diversifying its product or service offerings, gaining access to new technology or intellectual property, eliminating a competitor, and achieving cost savings.



Q19- Why does mergers or acquisitions happen? Did you think it is good?

Suggested Answer: Mergers and acquisitions (M&A) happen for a variety of reasons, and the decision to pursue an M&A transaction is typically driven by the strategic goals and financial objectives of the companies involved. Some common reasons for M&A include:

  1. Expanding market presence: A company may acquire another company in order to expand its market presence and access new customers or geographic regions.

  2. Diversifying product or service offerings: A company may acquire another company in order to diversify its product or service offerings and reduce its dependence on a single product or market.

  3. Gaining access to new technology or intellectual property: A company may acquire another company in order to gain access to new technology or intellectual property that can help it to improve its products or services.

  4. Eliminating a competitor: A company may acquire another company in order to eliminate a competitor and increase its market share.

  5. Achieving cost savings: A company may acquire another company in order to achieve cost savings by eliminating duplicate functions or achieving economies of scale in production and distribution.

It is not possible to say whether M&A is generally good or bad, as the outcome of an M&A transaction can depend on a variety of factors, including the specific circumstances of the companies involved, the terms of the deal, and the broader market conditions. Some M&A transactions can be successful and create value for the companies involved and their shareholders, while others may not achieve the expected benefits and may result in value destruction.

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Q20- How do you determine the purchase price for the target company in an acquisition and which method you use?

Suggested Answer: The purchase price for a target company in an acquisition is typically determined through negotiations between the acquiring company and the target company. There are several methods that can be used to determine the purchase price, including:

  1. Asset-based valuation: This method involves valuing the target company based on the value of its tangible assets, such as buildings, equipment, and inventory. The value of the company's intangible assets, such as goodwill and other intangible assets, is then added to the value of its tangible assets to arrive at the purchase price.

  2. Comparable company analysis: This method involves comparing the financial performance and valuation of the target company to that of similar companies in the same industry. By comparing the target company's financial metrics, such as revenue, earnings, and valuation ratios, to those of comparable companies, it is possible to estimate the target company's intrinsic value and use this as a starting point for negotiations.

  3. Discounted cash flow analysis: This method involves estimating the target company's future cash flows and discounting them back to present value using a discount rate. The present value of the company's future cash flows is then used to estimate its intrinsic value and serve as a basis for negotiations.

  4. Earnouts: An earnout is a provision in the acquisition agreement that allows the seller to receive additional payment based on the performance of the company after the acquisition. Earnouts can be used to bridge the gap between the seller's expectations for the company's future performance and the buyer's willingness to pay for the company.

Ultimately, the method used to determine the purchase price for a target company in an acquisition will depend on the specific circumstances of the deal and the preferences of the parties involved. It is common for multiple valuation methods to be used in the process of determining the purchase price.


Q21- Imagine a company overpays for another company? What typically happens afterwards and can you give any recent examples?