M&A Interview Questions: Accretion/Dilution & Deal Mechanics

Model answer

Preparation of financials, the CIM and a data room; buyer outreach with a teaser and NDA; first-round indications of interest; management presentations and due diligence for selected buyers; final bids with a marked-up purchase agreement; negotiation and signing; then regulatory approval and closing. The banker runs a competitive auction to maximize price and certainty.

Model answer

Cash, stock, or a mix. Cash gives sellers certainty and does not dilute the acquirer but uses balance-sheet capacity or debt. Stock shares risk and reward with the seller and preserves cash but dilutes and depends on the acquirer's share value. The mix reflects the acquirer's confidence, how richly its currency is valued, and the seller's tax preferences.

Model answer

The acquirer records acquired assets and liabilities at fair value, writing PP&E and intangibles up or down and recognizing new identifiable intangibles such as customer relationships, technology and trademarks. Goodwill is the residual: purchase price minus the fair value of identifiable net assets. The write-ups create incremental D&A and often a deferred tax liability.

Model answer

Cost synergies come from eliminating duplicate functions, facilities, procurement scale and headcount, and are more certain and faster to realize. Revenue synergies come from cross-selling, expanded distribution and pricing, and are larger in theory but far less certain and slower. Acquirers and the market credit cost synergies much more heavily.