REA Reinsurance

You never want to use a pre-thought out framework in a case, so I would throw out any notions of having anything ready. What you'll find is the case will be laid out in a way which means that you don't have to ask questions about certain areas, but which will invite you to dig into more.

In terms of M&A, it's generally useful to think about:
The market - Is it the same, is it different? Customers/ geographies? Is it an attractive market? (large, profitable, growing?)
The target company - Is it successful? (Growing, profitable, strong positions, unique capabilities, etc.)
The purchasing company - Should they be making acquisitions right now? Can they afford them? Is this the right market to be making an acquisition is? Is this the best company?
Synergies - What is the increase in value from the merger? Cost synergies (HQs, procurement, etc.) revenue synergies (customers, marketing, etc.) and what about from how the company is currently being run?

It's very unlikely you'll ever get a case which asks you to cover all of the above, as it's simply too much and won't allow you to get into the detail. More likely it will be a deep dive into one area - for example, answering the question of whether the market is attractive in more detail.

Hi,

What company are you targeting? Consulting or private equity?

In consulting interviews you may have two types of due diligence cases:

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

1. For commercial DD 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 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!

Hi,

I would start with either market sizing or with profitability cases since they are much easier:

1) In market sizing cases I would try to understand the basic approach:

• How to structure market sizing case
• Key tools (Assumptions, Households, using personal experience, adjustments, age groups, Income split via 80/20, peak / off-peak calculations, replacement rate, using size of the area to calculate markets, calculating adjacent markets, sanity checks, etc).
• How to do math in the case interview

2) In Profitability cases, I would learn

• How to ask clarifying questions
• How to structure profitability cases
• How to work with data (Comparing with competitors, segmentation, historical data)
• How to answer the questions on creativity
• How to provide recommendations

3) Then I will switch to Market context cases (Market Entry, New product, Acquisition, etc). In addition, I would learn how:

• Structure market context questions
• How to analyze graphs and tables

4) After that I would look at other case types: Operational math problem (e.g. Should we increase the speed of an elevator or just buy a second one? How should we reduce the queues? Etc.), Cost Cutting, Valuation, Private equity due diligence, Synergies, etc.

Also, I would try to focus on the most common industries in the following priority(sorted by probability of getting a case): 1-retail and CPG; 2-airlines; 3-Telecom; 4-banking; 5-natural resources; 6-tech

Best!

Hi Moji,

it seems your issue is not the math computation, but rather how to structure the math part once you receive a question (that is, the logic behind that you should apply). This means you should not work on your computation skills only, as this is not the reason for the problem. Based on my experience, there might be two reasons for struggling on the math approach, besides lack of computation skills:

1. You cannot structure the approach due to excessive pressure. Some people can easily find the solution of a math problem when doing that quietly on their own, but are unable to do so once they receive time pressure (eg You have 5 seconds to give me the solution of this – what is 83% of 83?). In this case, I would suggest to cover the problem doing math exercises with a timer, so that you can test yourself with a specific time deadline.
2. You lack business knowledge of what is the right way to perform math. For example, you don’t know what’s the formula for discount cash flow, price elasticity, etc. In this case, I would suggest to solve the problem reading a good amount of cases, which involves math. You can identify them taking some of the several consulting MBA handbooks online, skim them and stop and read the case when you see some math present. You can then review online the topic you found for further reference. This should give you quickly and for free the right knowledge you need for cases.

Hope this helps,

Francesco

Hi Anonymous,

here is a rough high-level description of how I coach my coachees on M&A cases:

1. Clarify the underlying reasons objectives of the potential acquisition.

Reasons could be:

• General strategic reasons? (like consolidation pressure, access to new markets, diversification, preventing competitor moves,...)
• Tax advantages?
• Synergies (Revenue / Cost / Financial)

The objective will most likely be economic value creation.

2. If economic value creation is indeed the objective, you can build your framework on the following structure.

Condition for the acquisition to make economic sense:

[ (A) Initial value of the target] - [ (B) Excpected price for the acquisition] + [ (C) Value increase after acquisition] >> 0

where

• (A) is essentially an analysis of current profits projected over the target investment horizon (to be clarified with interviewer)
• (B) is, well, the price
• (C) encompasses expected profit increase due to better management, Synergies, but also the negative effects of integration costs and financing costs (if appliccable)

So you can build a framework consisting of these 3 blocks, and further enrich it with a 4th lens, i.e., risks and barriers (cultural, legal).

So there is an array of different analyses that need to be conducted for an exhaustive assessment. Within the frame of a case interview, informed hypothesizing and/or interviewer guidance will determine the focus areas.

Cheers, Sidi