"Walk me through a deal" for consultants
Hi WSO,
Though the "Walk me through a deal" question has been covered extensively for bankers, **how should consultants prepare to answer these questions? **
At my firm (MBB), we typically do not have access to much of the financial information (e.g., multiples, expected IRR, etc.) nor focus on many of the financial line items (gross margin, EBITDA margin) explicitly in our work. Often, we are focusing on some variation of three questions:
Is the market big, growing, and insulated from competition?
What is the target's competitive position, and what do customers think about them?
What are the potential growth opportunities (organic or M&A) and how big might they be?
As such, I am often comfortable talking about the business from an strategic and operational perspective but am struggling with which insights are helpful to share and which are less important. I would appreciate any insights or feedback on:
Initial structure of the answer (i.e., talk about these 5 things in order)
What are the most common questions or follow-ups the interviewer might ask
Any pointers or watch-outs from monkeys that have recruited in the past
Thanks in advance.
You want to focus on two main things, (1) industry and (2) competitive positioning. 1. Is the industry (a) rising or falling (growth or contraction of market size); (b) large or small (absolute market size) 2. Does the competitor have a sizeable market share (absolute % of market) and how are they positioned to win or lose (market share growth over time, projected growth, and WHY)
Other things you can talk about as they were contracted in the scope of your diligence: (1) revenue forecasting (2) contract diligence (3) customer experience questions
Things to be careful of: making sure you know all the financials of the company as presented in the CIM. You can back into many of the things that you mentioned you don't know.
Lets assume its a growth equity investment (often the best fit for consulting background anyways).
Assuming entry and exit at the same multiple and little/no financial leverage, the rough idea is to double the EBITDA in 3 years or triple it in 5 to get you to ~25% IRR.
Focus the question on how the business will grow, as that is your comfort zone.
Additionally, practice cap tables and if my growth equity assumption is incorrect get comfortable with LBO models.
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