M&A Case Study Factors to Consider
I have an interview coming up an IBD analyst position which will involve an M&A case study.
Typical situation - company X wants you to advise on which company it should acquire of 3 options.
Other than the financial aspects - value and profitability. What key elements should I consider?
Specificity, if one company has a large diverse shareholder base, would this be considered an easier target, than a private business with a small number of shareholders - for example a family owned business?
As well as ideas, can anyone point me to resources I should consider before the case study- I'm fairly knowledgeable on valuation etc. But the softer aspects I am less sure on.
Why Does One Company Acquire Another?
This is a key question to understand when approaching an M&A Case Study as the logic behind a deal will likely be more important than the quantitative components of a deal in an interview setting.
- Is the buyer a financial or strategic buyer?
- Why is A interested in acquiring X or Y or Z?
- What are the expected synergies of this transaction?
- How does the company offer diversification or scale to the buyer?
Understanding the Shareholder Base for M&A Case Studies
User @lui", an investment banking analyst, shared a detailed answer to this question:
In relation to the shareholder base, it matters when it comes to structuring the deal and defining the approach:
- Companies with a large diverse shareholder base will tend to be easier tagets, at least theoretically. If friendly approach doesn't work, you have a chance to appeal for a hostile bid
- Companies with a more concentrated shareholder base will almost force you to really engage the Board and top 5 shareholders in the deal, otherwise it will be almost impossible to get the deal done
- But at the end of the day, in a case study scenario, I don't think you can assume that "acquiring Co.A is more likely because it has a diverse shareholder base, etc".
As I said, it is not determinant to define if the deal is easier to get done or not. It will only define the way you approach and your deal strategy.
Valuation Component of Case Study for M&A Interview
You should also have a basic understand of how deals are priced from a multiples perspective. With this you should be able to ask for an industry EBITDA multiple or similar metric and multiply it by the company's internal metric.
You can also perform a valuation analysis based off of precedent transactions. Read more about that concept on Wall Street Oasis.
Learn more about case studies in the video below.
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Make sure you analyse synergies between the firms. Also is the company that you are advising a financial buyer or a strategic buyer? This matters because the 'softer' aspects (especially goodwill) are most valuable to strategic buyers.
Thanks, any ideas on the shareholder issue?
It will almost definitely be a strategic buyer. I've spoken to someone who did the case study before. And if it hasn't changed (which it likely hasn't) - it is around a tourism firm - coach tours etc, buying a similar foreign company.
you should understand the following to find a solution: 1) Why is A interested in X or Y or Z? 2) How much are X,Y and Z worth standalone? What will the value of A be inclusive of the projected synergies? Here you may want to use and compare a variety of valuation approaches (if you have time of course) 3) If there would be a bidding war, whom would they buy first? Its important to understand which company of X, Y, Z will give the maximum value in short term.
difficult to talk about shareholders' issue as we do not know the structure of the deal. At least you need to understand is it a hostile takeover or not; are there any anti-takeover things like greenmail, parachutes etc.
ok thanks for the help so far,
When considering valuations, say we know option A has a multiple of 11x EBITDA and B has a multiple of 17x EBITDA
In general, could this make us any more inclined to acquire A (because its cheaper). Or should the thinking be that the market clearly thinks option B has more growth potential, and so it is better target? [Or can you not infer a better/worst option from valuation multiples?]
in fact, according to Fama-French opinion this 11x Ebitda company is undervalued and you should buy it as it will soon cost like its competitors (i.e. B). It is real if A and B are of the same size, sales etc. So, you buy A, change its management, solve some operational problems and its value will be higher, maybe like B has A classical way of Fama-French approach is to look at P/E ratio. I would better analyze it instead of Ebitda
I thought E.V. multiples are better/more commonly used when considering acquisitions since in a full acquisition the debt is taken on along with the equity?
you are right, for deal purposes it is better to look at enterprise multiples (EBIT, EBITDA, REVENUE, etc), not PE, that values the equity part only.
Just note that there may be other qualitative aspects that justify one company being valued higher than the other. And most importantly, you gotta consider if company A will be able to unlock value and reach a 17x EBITDA multiple in the long term. There is also a chance that company B is overvalued.
In relation to the shareholder base, it matters when it comes to structuring the deal and defining the approach:
Companies with a large diverse shareholder base will tend to be easier tagets, at least theoretically. If friendly approach doesn't work, you have a chance to appeal for a hostile bid;
Companies with a more concentrated shareholder base will almost force you to really engage the Board and top 5 shareholders in the deal, otherwise it will be almost impossible to get the deal done;
But at the end of the day, in a case study scenario, I don't think you can assume that "acquiring Co.A is more likely because it has a diverse shareholder base, etc".
As I said, it is not determinant to define if the deal is easier to get done or not. It will only define the way you approach and your deal strategy.
Ok great, i understand your point.
Its just I believe the case involves one company which is family owned/run, and so I wonder how to take this into account? Maybe it would be ok to say that the family owned business may be preffered, but deal success would depend much more on negotiations with them.
Although I think I'm right in saying there haven't been many successful hostile takeovers recently. So does negotiating with a family owner differ that much from negotiating with a management board of a public company?
Yes, for sure... It's very very different.
Negotiating with a family is much harder, since it involves a lot of emotions. The business owners tend to be emotive when selling the business and lose the rationality, what can drive a deal to death depending on the banker's ability to conduct the deal.
I'm not saying that dealing with board and management is easy, but it tends to be less harder than dealing with families, where emotional things tend to play a factor and put more difficulty into the process.
What you need to take into account is that the buyers are less sofisticated (they generally do not know too much about finance and M&A itself), so you have to speak to them in a easy-to-understand language, otherwise you can discourage them to progress with conversations. So, at the end of the day, the difference is on the strategy and structuring of the deal, as I said earlier.
Hope that helps.
Lazard M&A Case Studies (Originally Posted: 10/29/2014)
I had a coffee chat a few days ago with an associate at Lazard. I was talking with him about a couple deals I had researched and he recommended I download some of their "case studies" to learn more. He told me that LZD publishes case studies for most M&A deals and that they are publicly accessible on the firm website. For the life of me I cannot find any on the website. Anyone know if they are in fact publicly available?
Thanks Kahuna
Anyone any updates about this? Or any other recommendation re case study prep? Have LAZ 1st round upcoming next week.
Definitely not a thing
M&A Workshop/Case Study Preparation (Originally Posted: 10/09/2012)
Hi guys,
I have been invited to the Investment Banking Workshop at my uni, next week. Any idea what could I expect and how I could prepare myself?
In the description they say that it will be a "live" investment banking situation.
I suspect that this will be a M&A case study. Actually, I am almost 100% sure. However, I have no experience with such case studies. Would using the preparation materials from Victor Cheng (consulting case preparation) help?
I would highly appreciate any advice on this!
PS. It is hosted by a top BB (GS, MS), and I will have another one soon, hosted by another BB, however, lower ranked (Citi, DB, BAML) and also one by an elite boutique
No point in being anonymous, these are the hosts:
1) Morgan Stanley Investment Banking Workshop 2) Citi M&A Case Study 3) Lazard M&A Case Study
I have read a bit on WSO, some guy explained a Lazard Case, but I was additionally wondering if there is anything that I could do to really impress the person observing my group?
JPM has an M&A case stdy too
i suppose almost every bank does (depending on location tho)
did you attend the JPM one?
anyone?
bump
Detailed M&A Case Studies (Originally Posted: 01/02/2015)
Do you know where I could find detailed M&A case studies similar to this one?
I also would love to know how to get my hands on one of these, it would be very helpful
Interested in this as well. For PE too, analyzing performance/exits.
I don't think they disclose detail of transactions. The Houlihan's case is only a fictive one as they put.
M&A Case studies books/websites? (Originally Posted: 02/07/2007)
Hey All,
Could you guys please suggest some good M&A case studies books/websites?
Thanks, Monk
Robert Bruner's Deals from Hell.
"Big Deal" by "bid-em-up" Bruce Wasserstein, the $300 million dollar man.
Boutique M&A Case Study (Originally Posted: 01/03/2013)
I have an upcoming interview for an internship with an M&A Boutique. The bank is industry focused and specializes in sell-side advisory.
I was told to be prepared to discuss a case that was provided to me. The case is a short deal memo with no financials or specific questions. I am given background information on the acquirer and target company in terms of business lines and geographic location. How should I approach preparing this case with such little information? What discussion points should I be expected to have opinions on?
Any suggestions you provide are appreciated.
Well in any deal scenario we are concerned how the deal will affect the current shareholders (accretion/dilution). Essentially you are going to be looking for at how revenue & cost synergies, deal structure (cash/stock/debt) and tax adjustments will affect the bottom line. Since you are not given financials I am sure that they are interested in knowing how you would evaluate cost and revenue synergies.
Do you need 2 CEOs? 2 marketing departments? Can you use revenue channels from one company to cross sell products?
I would imagine these types of questions would be what they were looking for. I really did not focus on case interviews, but if they were looking for you to ask questions then you could go into more details surrounding the deal structure. Good luck.
Thanks, that's really helpful.
M&A Case Studies (Originally Posted: 10/12/2011)
Hello,
Can anyone share IBD (M&A) case studies that are generally asked on Superdays/Assessment centres?
Any other information that could be useful, please feel free to share
anyone?
M&A Cases (Originally Posted: 11/16/2007)
Folks,
Can you please suggest me a site where there a list of M&A cases. I am trying to find M&A cases to practise developing models..
An ideal site that may have:
M&A Case.. Financials... and all the data Ineed to construct models Answers: When I am done making the model and I can compare my answers to it.. for self improvement..
Thanks
In case you cant get leads from the board, use your imagination. Pick an M&A transaction from the past year, get the data on the target and acquirer's financials, and give it a shot.
Damodaran has managed to do some valuations (albeit they are just firm, enterprise, equity, not M&A, using publicly available data i think - you can check his site), so that might be a starting point for you for the firm valuation portions, and then you can use the spreadsheets there as a base to build your M&A analysis.
Just a thought, others may have better ideas
http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=66030
http://faculty.darden.edu/brunerb/MandA-links.htm
serious help neede on cracking a case for an M&A team (Originally Posted: 06/14/2011)
Hey there!!
Serious help is needed!!!!
I have round 2 of interviews coming up with the M&A team of a Bulge bracket firm. I know I will have another set of interviews and the whole process will end with some sort of case to crack. Thing is, i have no idea what the case could be about so wanted your professional input on what kind of case they could give a recent grad.......
i should mention that i have no finance background whatsoever (just read the Vault guide prior to my first interviews)..so really need your kind help on this....what kind of questions will i get, will i need to calculate cash flows and value a company or should i just give strategic insights to what synergies there might be in an acquisition etc...
how would you tackle a case given to you???
i just graduated with an engineering degree and the position is as analyst for an M&A team.
appreciate this people!!!!! :)
cheers
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