expert
Experte mit der besten Antwort

Sidi

99% Empfehlungsrate

335 Meetings

1.804 Q&A Upvotes

319 USD / Coaching

Best way to approach M&A cases?

Anonym A fragte am 25. Apr 2019 - 3 Antworten

Hi! I recently came across an M&A case, and I really struggled to find a convincing approach. I am especially unsure how to do a valuation of the acquisition target - are we expected to do a DCF analysis during the interview? Any advice welcome! :)

3 Antworten

  • Upvotes
  • Datum aufsteigend
  • Datum absteigend
Beste Antwort
Sidi
Experte
bearbeitete seine Antwort am 25. Apr 2019
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 100+ candidates secure MBB offers
Coaching mit Sidi vereinbaren

99% Empfehlungsrate

335 Meetings

1.804 Q&A Upvotes

319 USD / Coaching

Hi there!

In essence, the fair price of a company (assuming that you keep running the company) is its stand alone value (current operational profits) PLUS synergies & optimization that can be expected over a certain investment horizon. Discounting is almost always disregarded in case interviews (however you should mention it).

The interesting thing is that this principle thinking frame is not only true for M&A situations, but for 90% of all strategic decision cases that you will ever encounter (market entry, new product, capacity expansion, licence purchase, etc. etc.). It is always about value creation! If you learn to rigorously start your thinking from the principles of value creation, the typical case frameworks from well-known books like Case in Point etc. become practically obsolete, while at the same time your thinking becomes way more rigorous and mature.

Then for the structuring, there are a couple of simple notions that you need to adhere to in order to effectively set up and navigate strategic cases (for example, contrary to what is taught in the popular books, NEVER start with qualitative questions like "first I would like to understand the market context..." - this is exactly how you should NOT work as a consultan! This would be the definition of "boiling the ocean" ;-))

Cheers, Sidi

(editiert)

Anonym antwortete am 26. Apr 2019

Hi there,

Both frameworks in Case in Point and Secrets of Case Interview for M&A cases can be good starting points.

Sometimes you may need to do DCF calculation but in a very simple way. E.g. applying perpetuity formula (FCF)/(r-g) or using valuation multiples. Most of the times you will not need more than that.

Best
Serhat

Vlad
Experte
antwortete am 26. Apr 2019
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School
Coaching mit Vlad vereinbaren

97% Empfehlungsrate

364 Meetings

5.236 Q&A Upvotes

229 USD / Coaching

Hi,

Here is how to approach M&A and synergies cases:

1. For due diligence M&A cases you can use the following structure:

Market

  • Size
  • Growth rates
  • Profitability
  • Segments
  • Distribution channels

Competition

  • Market shares of competitors and their segments (see the next point)
  • Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
  • Unit economics of the players (Margins, relative cost position)
  • Key capabilities of the players (e.g. suppliers, assets, IP, etc)

Company

  • Unit economics (Margins, costs) in current or target markets
  • Brand
  • Product mix
  • Key capabilities

Feasibility of exit:

  • Exit multiples
  • Exit time
  • Existence of buyers

2. For Synergies Calculation cases you can use the following structure:

  1. Revenue synergies - here you calculate the synergies in price and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
  2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
  3. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
  4. Total synergies potential in $, adjusted by risk (probability of failure)

In private equity interviews, the cases will be much more detailed in financial part. Depending on the company you'll need to:

  • Find the relevant information in P&L and Balance sheet
  • Do the simplified valuation using NPV: calculate cash flows and make assumptions about growth rate and discount rate
  • Do the valuation using comps - you'll have to explain which comps you will use and why

Good luck!

Verwandte BootCamp-Artikel

Cost-Benefit Analysis

Investments or single business cases need to be evaluated based on a certain set of criteria. Since financial performance is the key criterion in most cases you need to have an idea about future financial impacts. A key tool to asses this impact is the cost-benefit analysis which is used to determine the net effect of potential revenues and costs.

1 Q&A

Opportunity Costs

Opportunity costs are an economic concept to quantify benefits of (discarded) alternatives. They measure the lost benefits that occur if you choose the best alternative instead of the second best one.

Quiz

Competitive Response

In a competitive response case study, your job is either to analyze what your client should do in response to a move performed by a major competitor or to anticipate what competitors will do in response to a move performed by the client

Mergers and Acquisitions

Mergers & Acquisitions are often the answer to broader problems introduced in your Case interviews. Analyze feasibility, assets, target and industry to crack the Merger & Acquisition case

Verwandte Cases

General Holding

36,3 Tsd. mal gelöst
4.3 5 1246
| Bewertung: (4.3 / 5.0) |

Der Klient ist eine französische Holding, welche einen jährlichen Umsatz von €1 Milliarde hat. Sie halten fast alle Arten von Unternehmen, die meisten in der „Low tech Herstellung“, darunter unter anderem auch „Öl & Gas“ und „Automobil“ Firmenteile. Es gibt keinen bestimmten Bereich auf den sie ihr ... Ganzen Case öffnen

Chip equity

29,2 Tsd. mal gelöst
4.5 5 1034
| Bewertung: (4.5 / 5.0) |

Unser Klient ist Chip’n‘Chip, eine Holding für Unternehmen aus dem Elektronikbereich. Sie möchten in OnBoard, ein Platinen Hersteller, investieren und fragen, ob es eine gute Investition ist. Wie würdest du ihnen helfen? Ganzen Case öffnen