M&A Interview Q&A: Master Deal-Based Interviews

M&A and Transactions_Questions with Sample Answers

M&A and Transactions

What do you understand about M & A? Why do companies do M&A? Give an example

Mergers and Acquisitions (M&A) refer to corporate transactions where one company merges with or acquires another to achieve strategic or financial objectives. M&A can take many forms — from friendly mergers to hostile takeovers, full buyouts, or partial stake sales.

Companies pursue M&A for several reasons:

Market expansion (geographic or product-based)
Synergies (cost savings, revenue enhancement)
Access to technology, talent, or IP
Diversification of risk or revenue streams
Scale and efficiency gains

For example In 2023, HDFC Bank merged with HDFC Ltd., creating India’s largest private lender by market cap. The merger helped the bank gain access to a broader mortgage portfolio, reduce cost of funds, and offer a unified product suite to customers — a textbook case of strategic and financial synergy.

What is a demerger?

A demerger is a corporate restructuring process where a company separates one or more of its business units into a new, independent entity. The goal is to unlock value, improve strategic focus, and allow each entity to operate with greater agility. Shareholders of the parent company typically receive proportional shares in the demerged entity. Demergers can be done to streamline operations, prepare for fundraising, or attract sector-specific investors.

For example in 2023, Reliance Industries demerged Jio Financial Services, carving it out as a separate listed company to focus on financial services independently from its telecom and retail businesses.

What is restructuring?

Restructuring is a strategic process where a company reorganizes its operations, financial structure, or ownership to improve performance, manage risk, or adapt to changing business conditions. It can take various forms—financial restructuring (e.g., debt refinancing, equity infusion), operational restructuring (e.g., layoffs, cost cuts, process overhauls), or corporate restructuring (e.g., mergers, demergers, divestments). Companies may restructure to reduce debt, restore profitability, unlock value, or respond to crises.

In 2020, Vodafone Idea underwent financial restructuring, converting part of its debt to equity and seeking relief from regulatory dues to survive in India’s competitive telecom sector.

What are synergies and what are their types?

Synergies refer to the additional value a buyer gains from an acquisition that goes beyond what the standalone financials would suggest. In other words, it’s the idea that the whole is greater than the sum of its parts.

There are two main types of synergies:

Revenue Synergies: These arise when the combined company can boost sales, for example, by cross-selling products to new customers or up-selling new offerings to existing clients. The deal may also enable the company to expand into new markets or geographies. Revenue synergies can also incur due to forward and backward integration.
Cost Synergies: These come from reducing expenses. The combined firm might consolidate offices, streamline administrative functions, and eliminate duplicate roles. It may also shut down overlapping stores or facilities to improve efficiency.

While synergies bring in a lot of value, a M&A deal could also lead to people, process and technology challenges during integration.

Briefly explain the process of a buy-side M&A deal

In a buy-side M&A deal, a significant amount of time is dedicated to conducting extensive research on potential acquisition targets. We would go through multiple rounds of screening and evaluation.

Based on the client’s feedback, the list of targets would narrowed down, and decisions would be made on which companies to approach further. Initial meetings are held with potential sellers to assess their interest and openness to a deal.

If there’s mutual interest, serious discussions follow, involving detailed due diligence, valuation and determination of an appropriate offer price.This leads to negotiating the purchase price and other key terms of the agreement.

Finally, once everything is agreed upon, the M&A transaction is publicly announced.

For example, Japanese bank Sumitomo Mitsui Banking Corporation is set to acquire a 20% stake in Yes Bank for approx. ₹13,480 Cr (US $1.58 Bn) from Indian shareholders, marking one of the largest cross‑border investments into the Indian banking sector

What’s the difference between a merger and an acquisition?

In a merger, two companies combine to form a new entity, often as equals (e.g., Glaxo Wellcome + SmithKline = GSK). In an acquisition, one company takes over another (e.g., Facebook acquired Instagram for ~$1B in 2012).

What’s the difference between horizontal and vertical mergers?

Horizontal merger is between competitors (e.g., Vodafone–Idea merger in telecom). Vertical merger is between companies at different stages of the value chain (e.g., Amazon acquiring Whole Foods to strengthen its grocery logistics).

How do you value a company in an M&A context?

To value a company in M&A context, we can use DCF (intrinsic), comparable companies (multiples like EV/EBITDA), and precedent transactions. Example: If a target has EBITDA of ₹100 Cr and industry multiple is 10x, EV = ₹1,000 Cr.
DCF typically gives a conservative figure. In reality, all three methods are used with different weightages.

How do you calculate synergies in a model?

I would first estimate cost savings or revenue uplifts, then discount to present value. Example: ₹20 Cr annual savings, discounted at 10% = ₹200 Cr, hence synergy value (PV = 20/0.10)

If Company A buys Company B using 100% debt, how does it affect the P&L and balance sheet?

Debt increases interest cost in P&L. On balance sheet: debt increases liabilities, assets increase by purchase price. Example: ₹500 Cr debt at 10% = ₹50 Cr annual interest.

How do you value a loss-making startup in M&A?

For loss making, one cannot use DCF. Use revenue multiples or GMV (gross merchandise value). Example: If revenue is ₹200 Cr and peer multiple is 5x revenue, value = ₹1,000 Cr.

What are the different ways to finance a deal?

There are several ways to finance an M&A deal, each with trade-offs. The most common are cash, stock, debt, or a mix of these. A cash deal involves the acquirer paying upfront using internal reserves or borrowed funds, offering certainty to the seller. A stock deal offers shares in the acquirer, useful when cash is limited or the acquirer’s stock is overvalued. Debt financing increases leverage and interest burden but avoids equity dilution. Hybrid structures (e.g., part-cash, part-stock) are common. For example: Microsoft’s acquisition of LinkedIn in 2016 was an all-cash deal funded through debt.

What are the pros and cons of stock vs. cash deal?

Stock deal: no cash outflow, but dilutes ownership; good if acquirer’s stock is overvalued. Cash: no dilution, but increases leverage.

How would you structure a deal to retain the founder?

Offer partial equity rollover, earn-outs, or employment contract with incentives. Example: 20% stake retained + ₹50 Cr earn-out over 3 years. HUL has done this Minimalist

What are the tax considerations in M&A?

Tax considerations in M&A play a critical role in structuring the deal. Key factors include capital gains tax for the seller, goodwill treatment (whether amortizable), and the ability to carry forward tax losses. The structure—asset sale vs. share sale—also impacts taxation; asset sales typically result in higher taxes due to double taxation, while share sales may be more tax-efficient. Cross-border deals must consider withholding tax, transfer pricing, and treaty benefits.

For example, in India, a share sale may be taxed at 20% (LTCG) after indexation, while an asset sale could trigger GST, stamp duty, and corporate tax on gains.

When would a hostile takeover be used?

A hostile takeover is used when the acquiring company wants to purchase a target firm, but the target’s management is unwilling to sell or negotiate. In such cases, the acquirer bypasses the board and directly approaches shareholders via a tender offer or attempts a proxy fight to replace the board. This strategy is often used when the acquirer sees untapped value in the target or strategic benefits that management is resisting.

In 2019, Larsen & Toubro (L&T) launched a hostile takeover of Mindtree, acquiring a controlling stake despite opposition from Mindtree’s founders. It was India’s first major hostile tech takeover.

Would you acquire a company trading at a higher multiple than yours?

Only if synergies or strategic value justify the premium. Example: Acquirer P/E = 20x, target = 30x; accretive only if earnings grow fast post-acquisition.

A listed company wants to acquire a fast-growing private firm. How would you advise them?

Focus on strategic fit, growth prospects, integration planning. Value using revenue multiples or DCF. Recommend staged acquisition or earn-out to manage risk.

How would you evaluate a cross-border acquisition?

Assess currency risk, legal issues, regulatory approvals, cultural fit. For example TCS acquiring UK-based firm—assess GBP/INR impact and compliance with UK labor laws.

Briefly explain accretion and dilution analysis

Accretion and dilution analysis helps assess the impact of an M&A deal on the acquirer’s earnings per share (EPS). If the deal increases the acquirer’s EPS post-acquisition, it is accretive; if it decreases EPS, it’s dilutive. This analysis is important because shareholders often react based on whether a deal is expected to enhance or reduce near-term earnings.

It compares the acquirer’s standalone EPS to the pro forma EPS (post-deal), factoring in financing costs (interest on debt or dilution from new shares) and synergies.

For example: Company A has EPS of ₹10. It acquires Company B, whose earnings boost total net income but new shares are issued. If pro forma EPS rises to ₹11, the deal is accretive. If it drops to ₹9, it’s dilutive.

Accretion/dilution is typically used in stock or mixed deals, and less relevant for all-cash transactions where EPS impact is driven mostly by interest expense and synergies.

If a company with a low P/E acquires a company with a high P/E in an all-stock deal, is the transaction likely to be accretive or dilutive?

If a company with a low P/E acquires a company with a high P/E in an all-stock deal, the transaction is typically dilutive. This is because the acquirer is issuing relatively expensive equity (based on its lower earnings multiple) to buy a company with lower earnings per unit of value, leading to a decrease in the combined EPS.

For example, Company A has EPS of ₹10 and a share price of ₹100 (P/E = 10x). Company B has EPS of ₹5 and a share price of ₹100 (P/E = 20x). Issuing stock at 10x P/E to buy 20x P/E usually reduces EPS, causing dilution.

A company with ₹100 Cr EBITDA and ₹500 Cr debt is being sold at 12x. What's the equity value?

Enterprise Value (EV) = EBITDA × Multiple = ₹100 Cr × 12 = ₹1,200 Cr.

Equity Value = EV – Net Debt = ₹1,200 Cr – ₹500 Cr = ₹700 Cr.

So, the shareholders of the company would receive ₹700 Cr. This approach reflects the principle that Enterprise Value includes both debt and equity, and equity value is what remains after paying off net obligations. This is a standard way to bridge operational performance with actual shareholder payout in M&A.

How would you value synergies in a consumer brand acquisition?

Synergies in consumer brand M&A are typically a mix of cost savings (shared distribution, marketing, procurement) and revenue uplift (cross-selling, pricing power). You’d estimate annual synergies (e.g., ₹30 Cr), then discount them using the acquirer’s WACC to find present value. Example: ₹30 Cr per year at 10% WACC → synergy value = ₹300 Cr. It’s important to assess whether synergies are recurring or one-time, and build in a risk-adjusted probability of realization. Overestimating synergies is a common pitfall in brand-heavy consumer acquisitions.

What are the risks in acquiring a founder-led company?

Acquiring a founder-led company carries risks like key-man dependency, where the brand or culture is strongly tied to the founder’s vision. There may be weak second-level management or limited process maturity. Founders might resist integration or cultural alignment, affecting post-deal execution. Additionally, unstructured governance, informal financial reporting, or overreliance on personal networks may pose risks. Mitigation strategies include earn-outs, retaining the founder in an advisory role, staggered integration, and aligning incentives to long-term performance. Due diligence should assess organizational depth and succession readiness carefully.

How is Goodwill created in an acquisition?

Goodwill is an intangible asset that typically remains unchanged over time and is not amortized like other intangible assets. It only arises in the event of an acquisition.

Goodwill represents the non-physical, unrecorded assets of a company—such as its brand value, customer relationships, reputation, and intellectual property—which aren’t explicitly listed on the balance sheet.

It is calculated as the difference between the purchase price paid for the target company and its book value (or fair market value of net assets). In essence, it reflects the premium the buyer pays above the tangible and identifiable intangible assets of the seller.

Briefly describe what you would do if you were working on an IPO for a client

To begin with, you would meet the client to collect all the necessary information—such as their financials, customer base, and industry insights—to fully understand the business.

Following that, you would collaborate with other bankers and legal advisors to prepare the registration statement, which outlines the company’s business model and market positioning for potential investors.

Once the statement is submitted, you would receive feedback from the SEC and continue to revise the document until it meets all regulatory requirements.

In the following weeks, you would organize and participate in roadshows, where the company is introduced to institutional investors with the goal of generating interest and securing investment.

Why does a company delist?

A company may choose to delist from the stock exchange—voluntarily or involuntarily—for several strategic, financial, or regulatory reasons.

The most common reason is to regain full control and operational flexibility by removing the pressures of public scrutiny, quarterly reporting, and regulatory compliance. This is particularly appealing to promoters or private equity investors aiming for long-term restructuring without short-term market expectations. Delisting also helps avoid market undervaluation, especially when the stock is trading below intrinsic value.

Companies may also delist as part of a merger or acquisition, where the acquirer plans to fully integrate the target. Alternatively, a firm may delist if it fails to meet listing obligations or has limited liquidity and low public shareholding.

ICICI Securities, the broking and investment banking arm of ICICI Bank, was listed on the stock exchange in 2018. In 2023, ICICI Bank initiated a delisting process to make it a wholly owned subsidiary, citing strategic integration and synergy benefits.

What are the benefits of a company getting listed on a stock exchange?

Getting listed is a significant milestone for a company, primarily because it provides liquidity for its shares, making it easier for investors to buy and sell them.

Many investors, especially institutional ones, prefer or are restricted to investing in publicly traded companies, so listing broadens the investor base.

Additionally, being listed helps establish a market-driven valuation for the company’s stock, which can be useful in future acquisitions, where the company may offer stock instead of cash as part of the deal.

What is included in a pitch book?

The content of a pitch book varies depending on the type of deal being presented, but it typically follows a standard structure that includes:

Credentials showcasing the firm’s track record and expertise in executing similar transactions
A summary of the client’s strategic options
Relevant financial models and valuation analyses
Investment banking charts and market data to support the case
A list of potential acquisition targets or interested buyers, depending on whether it’s a buy-side or sell-side deal
A summary and key recommendations outlining the proposed next steps and strategic advice for the client

Why do private equity firms use leverage when acquiring a company?

Private equity firms use leverage (debt) to finance a significant portion of the purchase price, which in turn reduces the amount of equity they need to invest in the deal.

By doing so, they can enhance their returns on equity when they eventually exit the investment, as a smaller equity outlay combined with successful growth or cost improvements can lead to a substantially higher rate of return.

When should a company consider issuing debt instead of equity?

A company may choose to issue debt over equity for several strategic reasons:

Debt is generally a cheaper and less dilutive form of financing compared to issuing new equity.
If the company is generating taxable income, debt offers a tax shield, as interest payments are tax-deductible.
When the company has predictable and stable cash flows, it can comfortably manage regular interest payments.
Utilizing debt can increase financial leverage, potentially enhancing returns on invested capital.
If issuing debt leads to a lower Weighted Average Cost of Capital (WACC) than issuing equity, it becomes the more attractive option.

What is convexity?

Convexity is a more precise way to measure how a bond’s price responds to changes in interest rates, improving upon what duration alone can capture.

While duration assumes a linear relationship between bond prices and interest rates, in reality, the relationship is curved—hence the term convexity.

Convexity is used as a risk management tool to better understand and predict how a bond’s yield and price will react to fluctuating interest rates.

Define the risk-adjusted rate of return

When evaluating an investment, it’s not enough to consider just the expected return. For example, if Investment A offers higher projected profits than Investment B, it might seem like the obvious choice.However, if Investment A also carries a higher probability of loss, it may actually be more risky and not necessarily the better option.

The risk-adjusted rate of return takes this into account—it evaluates an investment’s return in relation to the level of risk taken to achieve that return.This measure is often expressed as a numerical value or score, helping investors compare opportunities on a more informed basis.

Risk can be quantified using metrics like beta, alpha, the Sharpe ratio, R-squared, and standard deviation, all of which help assess the volatility or performance consistency of an investment.

What is the average Price/Earnings (P/E) ratio for the S&P 500 Index?

The average P/E ratio for the S&P 500 typically ranges between 15 to 20 times. However, it can fluctuate depending on the industry and where we are in the economic cycle.

What happens to Earnings Per Share (EPS) if a company issues debt to repurchase shares?

Taking on debt increases interest expense (after-tax), which tends to reduce EPS. However, buying back shares decreases the total number of shares outstanding, which has the effect of increasing EPS.

The overall impact on EPS depends on the net effect of these two opposing forces—whether the reduction in share count offsets the increased interest expense.

When do companies issue preference shares?

Companies issue preference shares when they want to raise capital without diluting ownership or taking on traditional debt. Preference shares offer investors a fixed dividend and priority over equity shareholders during dividend payments and liquidation, but usually have limited or no voting rights. Firms often issue them to maintain control, strengthen the balance sheet, or bridge funding gaps before an IPO or major expansion.

In 2021, Tata Motors issued ₹3,000 Cr of preference shares to raise funds for its EV business, allowing them to secure capital without impacting promoter control or raising debt servicing pressure.