M&A Interview Questions
M&A is where IB interviews get serious. Accretion/dilution, merger models, purchase price allocation—these questions test whether you can think about deals, not just memorize formulas.
The P/E Rule for Stock Deals
The Shortcut Every Banker Uses:
If acquirer's P/E > target's P/E → deal is accretive (buying earnings cheaply)
If acquirer's P/E < target's P/E → deal is dilutive (buying earnings expensively)
For cash deals, compare the earnings yield on the target to the after-tax cost of debt financing.
M&A Questions by Frequency
Is this deal accretive or dilutive?
Compare combined pro forma EPS to the acquirer's standalone EPS. Higher = accretive. For stock deals, use the P/E shortcut: if acquirer's P/E > target's P/E, it's accretive.
Walk me through a merger model.
Combine standalone financials, calculate PPA/goodwill, layer in financing (new debt, shares issued), add synergies, compute pro forma EPS vs. standalone.
What is goodwill?
The excess of purchase price over the fair market value of net identifiable assets. Not amortized under GAAP—tested for impairment annually.
Stock deal vs. cash deal—which is better?
Depends. Stock when shares are overvalued (using expensive currency). Cash when confident in returns and shares are undervalued. Cash is immediately taxable to sellers; stock deals can be tax-deferred.
What are synergies?
Cost synergies: eliminating redundancies (5-10% of smaller company's cost base). Revenue synergies: cross-selling, new markets. Cost synergies are more predictable and valued higher by the market.
Walk me through purchase price allocation.
Step up target's assets/liabilities to FMV, identify intangible assets (brand, customer lists, patents), remainder = goodwill. Stepped-up assets increase future depreciation.
What's a stock deal vs. an asset deal?
Stock deal: buy shares, assume all assets/liabilities. Asset deal: cherry-pick specific assets. Sellers prefer stock (capital gains). Buyers prefer asset (tax basis step-up on assets).
Why would an acquirer pay a premium?
Control premium (20-40%) reflects synergies, strategic value of control, and competitive bidding dynamics. Without a premium, target shareholders have no reason to sell above market price.
Master All 6 Technical Topics
M&A is Chapter 5 of 6 in the Finance Technical Interview Guide. Get the full picture—Accounting, EV, DCF, Comps, M&A, and LBOs—in 88 pages.