M&A framework

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!

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