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M&A Advisory - Operations & IT group -2nd round interview and asked to focus on Private Equity

Anonymous A asked on Jan 28, 2019 - 2 answers

Hi Community,

I have a second round interview at a big 4 in London to join the M&A Advisory - OPS & IT group. This is for an experienced hire (I have 15 years working experience) and been asked to focus on Private Equity in the context of M&A... any pointers would be greatly appreciated.

Thanks

(edited)

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Vlad
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replied on Jan 28, 2019
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School
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Hi,

M&A Advisory interviews are different from consulting and are usually much more technical and detailed in the financial part. Usually, they give you much more time to prepare and do the valuation on paper. Depending on the company you'll need to:

  • Find the relevant information in P&L, Balance sheet, CF statement
  • 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
  • Do the valuation of the synergies
  • Play with different scenarios (e.g. how the stock-price will change if the deal terms leak into media, or how should the companies behave in a bidding process)

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

  • 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!

Sidi
Expert
replied on Jan 29, 2019
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 100+ candidates secure MBB offers
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Hi! Vlad is right - you should focus more on the technical aspect, such as valuation, as well as operational PMI success factors. Compared to MBB interviews, you should expect less conceptual and more nitty-gritty-technical discussions.

Best of success!

Sidi

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