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Targeted Case Prep Question

Anonymous A asked on Sep 05, 2018 - 3 answers

Hi,

I received a referral from a friend who works at PwC for an experienced hire role in their consumer market group specializing in "delivering deal value". The group focuses on the operational aspects of transaction pre and post completion. This is basically around M&A and divestitures. Is it advisable to focus my prep only on M&A cases? Any and all suggestions will be highly appreciated.

Thanks,

W

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Vlad replied on Sep 05, 2018
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Hi,

My candidates had both M&A and conventional cases for these roles (Market sizings, Market Entry, etc)

M&A cases are much more technical and detailed in the financial part. Usually, they give you much more time to prepare and do the valuation on paper / excel. 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 multiples
  • 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!

Guennael
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replied on Sep 05, 2018
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Looks like you do need to prep M&A specifically, if only to know the most common scenarios like the back of your hand.

Having said that however, case skills are generally very portable. I wouldn't be concerned too much about practicing M&A 'only' vs. M&A 'mostly'. If you can ace a case, you can ace a case.

PS: Strictly speaking, a divestiture isn't M&A (neither merger nor acquisition). You had your answer right there.

Francesco replied on Sep 05, 2018
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Hi Anonymous,

it would be risky to prepare on M&A cases only, as you may get different types of cases. It's pretty sure you will get an M&A case, but you could also get profitability, market entry or market sizing cases, to name a few of the most common ones. I would thus recommend general case prep including also other types of cases.

Best,

Francesco