Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Jacopo

100% Recommendation Rate

36 Meetings

265 Q&A Upvotes

USD 219 / Coaching

3

M&A framework

M&A

Hello,

I'm currently in the early process of preparing for my consulting interview, I'm wondering for the M&A case: Client wants to acuqire A, ask you if it's a good idea.

I will look at company A to see what value they will bring to the client, their market share, competitions and synergies. Do I need to look at the client? Or this whole case is about investing the aquisition target?

Appriciate fo ryour reply as I'm not MBA background and very new to cases.

Hello,

I'm currently in the early process of preparing for my consulting interview, I'm wondering for the M&A case: Client wants to acuqire A, ask you if it's a good idea.

I will look at company A to see what value they will bring to the client, their market share, competitions and synergies. Do I need to look at the client? Or this whole case is about investing the aquisition target?

Appriciate fo ryour reply as I'm not MBA background and very new to cases.

3 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Jacopo

100% Recommendation Rate

36 Meetings

265 Q&A Upvotes

USD 219 / Coaching

Hi,

Yes, if the potential acquirer is a Strategic Buyer (e.g. multinational companies) and not a Financial Buyer (e.g. funds) yes, you should look at potential synergies in terms of Cost synergies and Revenue synergies.

I am including a standard due diligence framework…

  1. Is the industry sufficiently attractive?
    • Financial
      • Market size
      • Market growth
      • Market profitability
      • Market segments (size/growth/profit)
    • Non-financial
      • Lifecycle of industry
      • Regulatory risks
      • Other trends
  2. Is the target company/asset attractive?
    • Financial
      • Size (revenue)
      • Market share
      • Growth
      • Profitability/Cost position
      • Segments where present
      • Assets & Liabilities
    • Non-financial
      • Company management
      • Intagible assets (e.g. brand loyalty)
      • Is product differentiated?
  3. Are the competitive situation and competitive threats acceptable?
    • Existing competition
      • Existing competitors (size, growth, profitability, cost positions, segments)
      • Nature of competition (e,g, local vs. national)
    • New threats
      • Barriers to entry (e.g. startup costs, expertise, regulatory, customer loyalty)
      • Threats of new competitors
      • Threats of substitutes
  4. Is the company a good fit for us?
    • Does it fit our investment strategy? (e.g. long term vs. short term)
    • Exit strategies
      • Financial buyers (e.g. other funds)
      • Strategic buyers (e.g. MNCs)
    • (if a strategic buyer) What are the potential synergies?
      • Revenue synergies
      • Cost synergies

I hope it helps,
Best,
Jacopo

Hi,

Yes, if the potential acquirer is a Strategic Buyer (e.g. multinational companies) and not a Financial Buyer (e.g. funds) yes, you should look at potential synergies in terms of Cost synergies and Revenue synergies.

I am including a standard due diligence framework…

  1. Is the industry sufficiently attractive?
    • Financial
      • Market size
      • Market growth
      • Market profitability
      • Market segments (size/growth/profit)
    • Non-financial
      • Lifecycle of industry
      • Regulatory risks
      • Other trends
  2. Is the target company/asset attractive?
    • Financial
      • Size (revenue)
      • Market share
      • Growth
      • Profitability/Cost position
      • Segments where present
      • Assets & Liabilities
    • Non-financial
      • Company management
      • Intagible assets (e.g. brand loyalty)
      • Is product differentiated?
  3. Are the competitive situation and competitive threats acceptable?
    • Existing competition
      • Existing competitors (size, growth, profitability, cost positions, segments)
      • Nature of competition (e,g, local vs. national)
    • New threats
      • Barriers to entry (e.g. startup costs, expertise, regulatory, customer loyalty)
      • Threats of new competitors
      • Threats of substitutes
  4. Is the company a good fit for us?
    • Does it fit our investment strategy? (e.g. long term vs. short term)
    • Exit strategies
      • Financial buyers (e.g. other funds)
      • Strategic buyers (e.g. MNCs)
    • (if a strategic buyer) What are the potential synergies?
      • Revenue synergies
      • Cost synergies

I hope it helps,
Best,
Jacopo

Book a coaching with Vlad

97% Recommendation Rate

410 Meetings

11,435 Q&A Upvotes

USD 239 / Coaching

Hi,

You need to ask in the clarifying questions:

  • What are the reasons for the deal and what are the client's objectives
  • Ask if there are any synergies

For consulting interviews, there are two types of frameworks you may use:

  1. Commercial due-diligence of the target company
  2. Synergies calculation of two merging companies

Note also that it can be a mix of both.

1. For Due Diligence 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

  • Revenues and growth rates
  • Profit
  • Unit economics (Margins, costs) in current or target markets
  • Brand
  • Product mix
  • Key capabilities

Feasibility of exit (in case of a PE company):

  • Exit valuation
  • Exit time
  • Existence of buyers
  • Risks

2. For Synergies Calculation 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. Financial synergies - working capital, capital structure, tax
  4. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
  5. Total synergies potential in $, adjusted by risk (probability of failure)

Good luck!

Hi,

You need to ask in the clarifying questions:

  • What are the reasons for the deal and what are the client's objectives
  • Ask if there are any synergies

For consulting interviews, there are two types of frameworks you may use:

  1. Commercial due-diligence of the target company
  2. Synergies calculation of two merging companies

Note also that it can be a mix of both.

1. For Due Diligence 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

  • Revenues and growth rates
  • Profit
  • Unit economics (Margins, costs) in current or target markets
  • Brand
  • Product mix
  • Key capabilities

Feasibility of exit (in case of a PE company):

  • Exit valuation
  • Exit time
  • Existence of buyers
  • Risks

2. For Synergies Calculation 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. Financial synergies - working capital, capital structure, tax
  4. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
  5. Total synergies potential in $, adjusted by risk (probability of failure)

Good luck!

Hi Vlad, I like our framework, however I haven't noticed Deal Economics here, i.e. comparison of value (stand alone DCF, synergies) vs prices. Also there might be a point of whether our Client has enough funds to finance the deal or its BS is strong enough to attract debt. Could you guide whether its somewhere in your framework (I just failed to notice) or it's not so importatant for the case? — Anonymous B on Feb 17, 2020 (edited)

As you mentioned, identifying potential synergies is an important aspect of this kind of case and obviously requires discussing the client and his position. However, the depth to which the client needs to be discussed varies depending on the scenario and on what the client is hoping to achieve.

As you mentioned that you're new to cases, I would also like to point you towards the Bootcamp, which has some very good articles. For instance, here is the one dealing with M&A cases: https://www.preplounge.com/en/bootcamp.php/case-cracking-toolbox/identify-your-case-type/mergers-and-acquisitions

As you mentioned, identifying potential synergies is an important aspect of this kind of case and obviously requires discussing the client and his position. However, the depth to which the client needs to be discussed varies depending on the scenario and on what the client is hoping to achieve.

As you mentioned that you're new to cases, I would also like to point you towards the Bootcamp, which has some very good articles. For instance, here is the one dealing with M&A cases: https://www.preplounge.com/en/bootcamp.php/case-cracking-toolbox/identify-your-case-type/mergers-and-acquisitions

Related case(s)

General Holding

Solved 45.0k times
General Holding Our client is a French holding company with annual revenues of about €1 billion.      Their portfolio consists of different companies that are mostly in manufacturing industries such as the oil & gas industry and the automotive industry.They do not have a specific investment focus. They prefer to buy the best companies available that are also related to their existing businesses. They are thinking about acquiring an auto parts dealer, OTOpart, and want to know whether you think it is a good idea.
4.3 5 1548
| Rating: (4.3 / 5.0) |

Our client is a French holding company with annual revenues of about €1 billion. Their portfolio consists of different companies that are mostly in manufacturing industries such as the oil & gas industry and the automotive industry.They do not have a specific investment focus. They prefer to ... Open whole case

Chip equity

Solved 37.5k times
Chip equity Our client is an electronics holding called Chip’n’Chip. They want to invest in a Printed Circuit Board (PCB) manufacturer called OnBoard, and asked you whether it’s going to be a good investment. How would you help them?
4.5 5 1310
| Rating: (4.5 / 5.0) |

Our client is an electronics holding called Chip’n’Chip. They want to invest in a Printed Circuit Board (PCB) manufacturer called OnBoard, and asked you whether it’s going to be a good investment. How would you help them? Open whole case

Paper Print

Solved 16.1k times
Paper Print A printing company is planning to take over another printing company with similar technology and printing machines. The candidate is supposed to evaluate the acquisition by answering a line of questions that are presented in the “suggested approach” section.
4.2 5 356
| Rating: (4.2 / 5.0) |

A printing company is planning to take over another printing company with similar technology and printing machines. The candidate is supposed to evaluate the acquisition by answering a line of questions that are presented in the “suggested approach” section. Open whole case

SuperBurger

Solved 14.5k times
SuperBurger Our client is SuperBurger, a fast food chain that operates in the same class as McDonalds, Wendy's, Burger King and so on. They're the fourth largest fast food chain worldwide in terms of number of stores in operations. SuperBurger owns some of its stores, but 85% of its stores are owned by franchisees. As part of its growth strategy, the company has analyzed some potential acquisition targets including Tasty Donuts which is a growing doughnut producer active in the US and internationally.  The client asked us to help him decide whether he should acquire the company or not. 
4.0 5 1215
| Rating: (4.0 / 5.0)

Our client is SuperBurger, a fast food chain that operates in the same class as McDonalds, Wendy's, Burger King and so on. They're the fourth largest fast food chain worldwide in terms of number of stores in operations. SuperBurger owns some of its stores, but 85% of its stores are owned by franchis ... Open whole case

REA Reinsurance

Solved 11.9k times
REA Reinsurance Your client, REA, is a reinsurance company. REA recently acquired another reinsurance company (approximatively same size): the choice of this company was notably based on its product portfolio as well as its market presence which appeared complement with REA. However, the acquisition is not well received by the market. The acquisition price is considered too high and the transaction has not been well graded. REA management asks you to evaluate the transaction.
4.1 5 960
| Rating: (4.1 / 5.0)

Your client, REA, is a reinsurance company. REA recently acquired another reinsurance company (approximatively same size): the choice of this company was notably based on its product portfolio as well as its market presence which appeared complement with REA. However, the acquisition is not well r ... Open whole case