M&A Interview Questions for Investment Banking

M&A questions test three things at once: technical mechanics (can you build a merger model under pressure), commercial intuition (can you defend why a buyer would pay this price), and judgment (do you know when to push back on a CEO who is over-paying). Even product-group analysts in DCM or ECM are expected to have a working M&A vocabulary, because most deal teams cross product lines.

Expect a layered question structure: walk-through, then accretion/dilution math, then a what-if. The interviewer rarely cares about the exact number — they care about whether your model output is directionally right and whether you can explain why it moves when an assumption changes.

The model is mechanical, but each step has its own follow-up trap. Memorize the sequence and the why behind each adjustment.

• 1. Standalone projections. Three years of acquirer and target P&L, taken from public filings or management projections. Match accounting standard, fiscal year-ends, and currency before combining anything.
• 2. Deal structure. Purchase price (equity value + assumed debt = enterprise value), consideration mix, transaction fees (1–3% of equity value), refinanced debt and breakup costs. State whether goodwill or step-up applies.
• 3. Pro forma adjustments. New interest on acquisition debt, foregone interest on cash used (after-tax), new shares issued, intangibles amortization from PPA, synergies (phased in years 1–3), one-time deal/integration costs.
• 4. Combine and tax. Sum operating lines, then apply pro forma tax rate. Synergies and integration costs are after-tax. Watch for jurisdictional mix if the deal crosses borders.
• 5. EPS calculation. Pro forma net income / pro forma diluted shares (basic + new shares issued + treasury method on options). Compare to standalone acquirer EPS for accretion/dilution.

The single most-asked technical in M&A. The quick framework: a deal is accretive when the after-tax earnings yield of what you buy exceeds the after-tax cost of how you finance it.

For a cash-financed deal: accretive if target after-tax earnings yield (target NI / equity purchase price) > acquirer after-tax cost of cash or new debt. For a stock-financed deal: accretive if acquirer P/E > target P/E (equivalently, the target's earnings yield exceeds the acquirer's earnings yield).

Cash deal:
  Accretive if  Target EPS / Cash-Per-Share Paid  >  After-Tax Cost of Cash

Stock deal:
  Accretive if  Acquirer P/E  >  Target P/E

Mixed deal:
  Weighted average of the two thresholds, by funding share.

Synergies are how acquirers justify premiums. There are two flavors. Cost synergies — headcount overlap, facility consolidation, procurement scale, IT and back-office — are higher confidence and tend to materialize within 12–24 months. Revenue synergies — cross-sell, distribution access, bundling, pricing — are lower confidence and capture rates rarely exceed 50% of management estimates.

Quantify cost synergies as a percentage of combined opex (typical: 3–8% in same-industry deals, less in conglomerate deals). Tax-affect them, discount as a perpetuity at the combined WACC, and net out one-time integration costs (typically 1–2x annual run-rate synergies, taken as a charge in years one and two).

The mix of cash, stock, and assumed debt is a strategic choice, not just a financing one. Cash signals confidence and avoids dilution but consumes liquidity and may require new debt. Stock shares deal risk with target shareholders (they get acquirer shares, so synergies have to materialize for them too), but dilutes the acquirer and locks in an exchange ratio that floats with share price between signing and closing.

All-cash deals are typically more accretive when interest rates are low and the acquirer has cash or unused debt capacity. All-stock deals are typically more accretive when the acquirer's P/E is much higher than the target's. Mixed deals are most common — they balance dilution, leverage, and signaling.

Under acquisition accounting, the purchase price is allocated to identifiable assets and liabilities at fair value. The excess over net identifiable fair value becomes goodwill. Identifiable intangibles — customer relationships, technology, trade names, in-process R&D — are amortized over useful life, creating non-cash expense that hits pro forma EPS. Goodwill is not amortized but tested for impairment annually.

PPA matters in interviews because intangible amortization is a real EPS drag that candidates routinely forget. A deal that looks accretive before PPA can flip to dilutive once amortization is added. The fix is not to ignore amortization but to disclose two EPS numbers — GAAP (post-PPA) and adjusted (pre-PPA) — and let the audience pick.

Stock deal: buyer acquires the legal entity and inherits all assets, liabilities, contracts, and tax history. NOLs may carry forward subject to Section 382 limits in the U.S. No step-up in tax basis. Faster to execute because contracts transfer with the entity.

Asset deal: buyer cherry-picks assets and liabilities and gets a step-up in tax basis equal to fair value, generating future tax shield via depreciation and amortization. More complex — every contract must be re-assigned, and consents may be required. Buyer-friendly tax-wise; seller often resists because of double taxation at the corporate and shareholder levels (in C-corp jurisdictions).