Answers / M&A Advisory
M&A Interview Questions
Accretion/dilution, deal process, synergies, and merger models — investment banking's bread and butter.
79 questions · model answers · common mistakes
Valuation & Modelling
- Walk me through a DCF.
- What is the difference between Enterprise Value and Equity Value?
- Why might you use EV/Revenue instead of EV/EBITDA?
- How do you calculate WACC?
- A company trades at 8x EV/EBITDA versus a peer at 12x. Why the gap, and what would you check?
- What is a football field chart and how is it used?
- How does a control premium work, and why are precedent-transaction multiples higher than trading multiples?
- How do you normalize EBITDA for an M&A transaction?
- What's the difference between trailing and forward multiples?
- Walk me through the accretion/dilution analysis step-by-step for a stock-for-stock acquisition. How do you calculate whether the deal is accretive or dilutive to the acquirer's EPS?
- A company is considering acquiring a target with a P/E of 20x while the acquirer trades at 15x P/E. The deal is all-stock. Is it accretive or dilutive? Assume no synergies and no change in earnings growth.
- What are the key differences between revenue synergies and cost synergies in M&A, and how do you typically value each?
- How do you determine the appropriate control premium to offer in an acquisition? What factors influence the premium size?
- Walk me through the full accretion/dilution analysis for a cash-and-stock deal. How do you calculate the pro forma EPS if the acquirer uses 50% cash (debt financed) and 50% stock?
- A client is considering an all-cash acquisition funded with debt. The target has a P/E of 18x, the acquirer has a P/E of 15x, and the interest rate on new debt is 5%. The tax rate is 25%. Is the deal accretive or dilutive? Assume no synergies.
- How would you value cost synergies in an M&A deal, and what risks do you build in?
- A client is acquiring a target with significant cost synergies expected to phase in over three years. How do you value these synergies in a merger model, and what discount rate do you use?
- What is the difference between a fixed and a floating exchange ratio in a stock-for-stock deal, and who bears the price risk?
- How is contingent consideration (an earn-out) accounted for after close under IFRS 3, and why can it create earnings volatility?
- Why is an accretive deal not necessarily value-creating, and what's the trap with EPS accretion?
Deal Process & Structuring
- What is the difference between locked-box and completion-accounts pricing?
- When would you recommend an earn-out, and what are the risks?
- What is a reverse break fee (reverse termination fee)?
- What is staple(d) financing and why is it used?
- How do non-compete clauses work in German M&A?
- Explain the locked-box interest (equity ticker) mechanism.
- A client is considering acquiring a private company with an earnout. What are the key structuring considerations and risks associated with earnouts?
- What is a control premium, and how do you estimate the appropriate premium for a target company?
- When would you recommend an all-stock deal versus an all-cash deal, and what are the implications for the acquirer's shareholders?
- What are the key considerations when evaluating the trade-offs between a locked-box mechanism and a completion accounts mechanism in an M&A transaction, and how would you advise a client to choose between the two?
- What are the key considerations when evaluating the use of a reverse termination fee in an M&A transaction, and how would you advise a client to negotiate this provision?
- What are the key considerations when evaluating the use of a staple financing in an M&A transaction, and how would you advise a client to negotiate this provision?
- What are the key considerations when structuring a CVR (Contingent Value Right) in an M&A transaction, and how do you advise a client to negotiate the terms of the CVR?
- What are the key differences in structuring a carve-out vs. a whole-company sale from a seller's perspective, and how do these differences affect the sale process and valuation?
- How do you negotiate a collar structure in a stock-for-stock deal, and what are the implications for both parties if the stock price moves outside the collar?
- What is the difference between a CVR and an earn-out in terms of structuring, risk allocation, and accounting treatment?
- What is a toehold stake, and what are the advantages and risks of acquiring one before launching a bid?
- What is the difference between a one-step merger and a two-step tender offer, and when is each preferred?
- Explain no-shop, go-shop, and fiduciary-out provisions, and the tension they manage.
- What is 'certain funds', and how do bridge financing and commitment papers provide it in a public bid?
- What is a bear hug letter, and how should a target board respond to one?
Due Diligence & Risk
- How do you convert due-diligence findings into price chips and protections?
- What is vendor due diligence (VDD)?
- What is a data room and how is it used in a deal?
- How do you approach due diligence in a competitive auction?
- How would you advise a client to manage the integration risk of a carve-out acquisition, considering the complexities of separating the target business from the seller's remaining operations?
- How would you approach the analysis of a target company's customer concentration, considering the potential risks and opportunities associated with a high concentration of revenue from a single customer or a small group of customers?
- How would you analyze a target's supply chain and vendor relationships in due diligence, and what risks and opportunities would you flag?
- How would you analyze a target's workforce and labor relations in due diligence, and what risks and opportunities would you flag?
- How do you assess the risk of a MAC clause being triggered, and what are the key factors that courts consider when determining whether a MAC has occurred?
Legal & Regulatory
- What is §613a BGB and why does it matter in German M&A?
- When is German merger control (Bundeskartellamt) approval needed, and what is the process?
- What is a Sozialplan and when is it required?
- Explain squeeze-out under German law.
- What is the French foreign-investment screening (IEF), and how does it work?
- What happens if works-council consultation is skipped in a German transaction?
- How does warranty (W&I) liability-cap negotiation work in an SPA?
- What is a German foreign-investment (AWG/AWV) review?
- Explain the German merger-by-absorption (Verschmelzung) process under the UmwG.
- What are the most common antitrust/regulatory issues in cross-border M&A, and how do you assess the likelihood of a deal being blocked?
- What are the key deal protections in an M&A agreement, and how do they affect the likelihood of a successful closing?
- What are the key differences between a share deal and an asset deal in the context of German M&A, and how would you advise a client to choose between the two?
- What are the key considerations when drafting a reverse termination fee provision in an M&A agreement, and how do you advise a client on the appropriate fee amount?
- What is a Beherrschungs- und Gewinnabführungsvertrag (domination and profit-transfer agreement) in German M&A, and why would an acquirer want one?
- When antitrust authorities have concerns, what remedies can clear a deal, and how do they affect deal certainty and timing?
- What are tag-along and drag-along rights in a private company shareholders' agreement, and whom do they protect?
- Why has foreign direct investment (national-security) screening become a major M&A consideration, and how do you manage it?
Commercial Judgment & Strategy
- A client wants to buy at 12x EBITDA for a business with 5% growth and 15% margins. What's your advice?
- How do you value synergies?
- When would you use an earn-out versus an escrow?
- What's the most important clause in an SPA?
- What are the most common reasons why M&A deals fail to create value, and how would you advise a client to mitigate these risks?
- How do you value cost synergies in an M&A model, and what are common pitfalls?
- Why do most M&A deals fail to create value, and what can an acquirer do to improve the odds?
- What is the winner's curse in M&A auctions, and how would you advise a client to avoid overpaying?
- How would you set up integration governance and synergy tracking so the deal actually delivers the value underwritten?
- When should a company divest via a spin-off versus a sale, and what drives the choice?
- What are the main takeover defenses available to a target board, and how effective are they?
- What does the choice between cash and stock consideration signal to the market, and why might an all-stock deal be read negatively?
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