2 Quick Interview Questions

Yeah that's what I meant about BS'ing the analysts/associates. I have about 2 minor things that I can mention but if it's the Superday and an MD asks a follow-up question, I will need to double down. I guess there isn't really much else to do besides answering with conviction but wanted to see what else people do in these situations.

What is a "lean deal team"?

Yes this is the right answer here. If you have done informationals you should directly just tell the MD that person A, B, C talked about X, Y, Z and that really sparked/piqued/solidified my interest...

Very helpful :)

Thanks. What if you are in the middle of the interview process already, approaching the superday, but haven't networked at all with that specific bank. Apart from not being able to answer this question well enough, are your chances lower than those who have networked?

1) I agree. The broader machinations are unlikely to have any impact on your life, and everyone who already works there knows that. It is vastly more useful to be able to cite information you've gathered firsthand from conversations with the people who work there. (Different situation for corporate roles, but that's not relevant here.)

The catch-22 is in this kind of situation you need to have had touchpoints with the banking team to have a compelling answer. If you have no choice but to be generic, I guess for the lower MM your clients are often financial sponsors or entrepreneurs, so you get exposure to the perspectives of both sophisticated investors and business founders who are highly invested in transaction outcomes. I don't know how to put this nicely, but the process on MM deals is bit more raw. The benefit of that (and the frustration, frankly) is you get to see more of the inner workings of the business functions without it all being filtered through an internal M&A team. Because you are on a lean team, you do also realistically get more responsibility and client exposure.

2) See below for an example of a good M&A deal explanation (well I think it is good, but note you don't really need this much detail)

Earlier today US Steel announced they are acquiring a $700mm (49.9%) stake in Big River Steel, which is owned by a consortium of private equity investors (led by TPG and Koch Industries, I believe). US Steel largely operates high fixed cost integrated steel mills that use iron and coke to produce steel. They are a higher cost producer with significant legacy costs (unionized workforce, pension obligations, located in region with greater tax and regulatory burden, a lot of capital equipment originally built many decades ago). They have eschewed certain planned capex to upgrade existing plants and are messaging to the market this is a faster way to achieve their modernization objectives to compete effectively in the years ahead. Big River Steel is a new plant in Arkansas that has a flexible, highly variable cost structure (EAF steel production using scrap metal, very low headcount and labor cost). BRS has built 1.6 million tons per annum of capacity so far and have financing lined up to double that within the next few years. BRS is a low cost producer and is likely to perform reasonably well through the economic cycle (whereas US Steel generally loses money when steel prices are low because other producers have lower costs). 2019 has been a tough year for the steel industry and Wall Street analysts (e.g., BAML) have projected low prices due to oversupply brought on by the wave of new capacity created following the introduction of tariffs in 2018, which had temporarily caused steel prices to rocket upwards. US Steel is betting that Big River can perform serviceably in that environment. Moreover, they are betting they can integrate a more nimble competitor and leverage their existing commercial capabilities and technology to add value. In the past, they have struggled to integrate acquisitions, as they are a relatively bureaucratic company that has been around for well over a century. USS borrowed money under its asset based lending facility to finance the deal, but USS is not guaranteeing Big River's debt (nor will USS consolidate BRS for GAAP accounting purposes). This is to keep the credit rating agencies and bond market from perceiving USS as too risky. However, they sent a clear signal to the street they intend to acquire the rest of the BRS when possible. The SEC disclosures indicate US Steel has the right to buy the remaining equity interest in BRS within four years at a price calculated based on certain financial and operational metrics, specifics of which have not yet been disclosed. The upfront $700mm acquisition of closing in October provides an off ramp for sponsors in the consortium that are eager to divest. Steel company valuations have been declining amid a tough market, so the investors are probably pleased to have a reasonably clear pathway to exit. BRS has also been on the market for a long time (cf., their website news section). The sponsors would likely have preferred to remove the overhang of uncertainty and exit fully today, but the value should continue to increase, ceteris paribus, as construction progress nears completion and the existing operations generate cashflows. As for the market's perception, USS's stock price rose over 3% today after pre-market jitters when the price was down ~7%. This seems to indicate the consensus is cautiously optimistic about the new capital allocation strategy, but there is probably a wide variation in views and a lot of uncertainty about whether this bet will pay off.

US Steel has all this information in a press release and presentation on their website. A call transcript from today's investor call is available on Seeking Alpha or NASDAQ.