Do you think it would be acceptable to pitch an LBO where there are possible synergies between the target company and another portfolio company of the specific sponsor?
Then I could talk about why an LBO makes sense, then talk about how (if you're advising the sponsor) you can secure a lower purchase price for the sponsor because most lbo models don't account for synergies between portfolio companies.
Pitch Me A Merger Interview Question
A popular interview question in investment banking interviews is for the interviewer to ask "if you were a banker - what companies would you pitch for an acquisition" (IE what company would you have buy another company). You should prepare for this interview question by doing research into two companies that would make sense working as one company.
Here are a few factors to consider when looking for a take-out target:
- Company with strong IP
- Company with geographical advantage in industry
- Company with key management team
- Company in an industry in which scale is necessary (newspapers, television, railroads)
You can then think about acquirers that would make sense for the target company - perhaps a larger and more experienced industry operator.
Alternatively, you can think of a company that has a weakness that could be solved through acquisition. IE a company that lacks exposure to a certain market or doesn't have exposure in a key product line within the industry could purchase that exposure through a smart acquisition.
Sample Acquisition Pitch
For example: Amazon acquirers Lionsgate
When pitching this idea, you need to walk through the logic in a succinct manner. For example:
Recently I have been following the consolidation in the film studio industry and I find that Lionsgate is a ripe acquisition target for a company such as Amazon that is looking to build out its Amazon Prime Streaming platform and create more original content to create a more sustainable affordable content platform. That being said, Amazon which is under-levered at around 2.5x EBITDA, would be able to take on debt to acquire Lionsgate which would offer them a film and tv studio for new productions, a back catalogue of content for their platform, and the Starz premium cable channel that could help entice new users / act as an incentive for Prime Users.
This is a solid walk through of the qualitative side of pitch. You should start with the qualitative analysis and then have some quantitative analysis prepared for further questioning. If they like your pitch they will likely follow up with more questions such as what multiple the acquisition would make sense at. You should look at some precedent transactions to see what similar companies have been acquired at.
You should also consider the financing of the transaction. As mentioned in the above quote - Amazon could acquirer this company with debt as they are relatively under-levered. You should also look at the cash position and debt position of the target company to determine what might make sense.
Should I Pitch an LBO in an Interview?
When asked for an acquisition - you should pitch a M&A scenario. You should NOT make the interview more complicated than it needs to be. This will not make you look smart as you are more likely to make a mistake if you make your pitch more complicated.
The M&A pitch will be similar in structure to the stock pitch in IB interviews. Check out a video about IB stock pitches below.
Check out more investment banking interview questions with our FREE finance interview guide.
Check out a guide to how to pitch a stock for an investment banking interview.
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