What "industry knowledge" should I know when applying to an M&A firm?

Be able to talk about a couple recent M&A deals: rationale, financials, etc.

What do you mean rationale? Do i need to know what is an LBO etc?

1. Stock sales vs. asset purchases-know the difference in accounting for these in terms of asset write ups to FMV, deferred taxes, NOLs, why a company may prefer asset purchases (can choose assets and exclude liabilities like pensions/lawsuits and amortization of goodwill and the accompanying tax benefit where as in a stock purchase agreement you step in the targets shoes). Know the differences and how they affect the balance sheet. Asset purchases allow for sales of specific business units such as an oilfield for example, but can be entire companies.

2. Financing- a) assumption vs refinancing of debt (paying down target debt vs taking on additional debt load). B) consideration-issuing equity, especially if considered over valued, can keep the leverage ratios smaller, but can be dilutive. Cash payment is the least dilutive. Borrowing is tricky because it raises leverage ratios, making further borrowing more costly, but can amplify returns but losses as well. It would depend on finding the right mix to keep the newco's capital structure optimal.

3) deal motivation- synergies should mainly be cost related due to economies of scale and minimizing redundancies, much easier to realize and more likely than revenue synergies. The run rate is important in the accretion dilution model because of the run rate is low early on, it may take longer for the deal to become accretive. If target p/e > acquirer p/e, deal is generally dilutive and vice versa. Inverse for eps. Strategies have a higher control premium in most cases than financial buyers. Financial buyers are more focused on hitting an IRR and that's why an LBO can be a floor valuation.

If you can get all that done and know basics like sources and uses you should be fine. Wouldn't expect any detailed LBO questions, but in those cases cf available for debt service is more important and likewise focuses on being able to maintain covenants. A recap in an LBO is essentially leveraging up the company and paying yourself a large dividend to improve IRR.