Mergers & Acquisitions interview questions

A standard three-statement variation once you've handled depreciation.

A company repurchases $100 of its own stock using cash on hand. Walk me through the three statements. Then tell me what changes if it funds the buyback with debt at a 5% interest rate.

Foundational screen. Expect it early in a first round.

Explain the difference between accrual and cash accounting, and why public companies report on an accrual basis. Give an example where the two diverge materially.

The opening exercise in most modelling tests. Speed and accuracy on the basics.

Build a three-year operating forecast from the assumptions provided. Revenue grows at the stated rate each year. EBITDA and D&A are percentages of that year's revenue. Compute EBIT, then tax the result at the stated rate…

Foundational for DCF and LBO modeling; asked across all banking groups.

Where does capex appear on each statement? Distinguish maintenance from growth capex and explain why the split matters in valuation.

Standard question once you've named the three methodologies.

Compare comparable companies analysis and precedent transactions. Which produces higher values and why? How do you select the comparable set in each?

Asked in essentially every investment banking interview. Expect follow-ups immediately.

Explain the difference between enterprise value and equity value. Why do we use each, and how do you get from one to the other?

A quick screen on whether you actually understand accrual mechanics.

Explain the difference between a prepaid expense and an accrued liability. Give an example of each and the cash flow effect.

A quick warm-up before harder statement questions.

Walk me through the three statements when a company raises $100 of debt at 6%. Then do the same for $100 of equity. Assume a 25% tax rate and that the cash is held, not spent.

Standard opener before the interviewer drills into whichever one you seem least sure about.

What are the three primary valuation methodologies? Rank them by the valuation they typically produce and explain why.

The single most commonly asked question in investment banking analyst interviews.

Explain how the income statement, balance sheet and cash flow statement connect. Assume the interviewer wants the full linkage, not just a description of each statement in isolation.

Screening question across banking, corporate finance and credit interviews.

Define working capital and net working capital. What does an increase in net working capital do to cash flow, and what does a negative working capital balance tell you about a business?

The immediate follow-up to the EV vs. equity value question.

Why is cash subtracted when calculating enterprise value? Is all cash treated the same way?

Asked when discussing how a signed deal actually gets to closing.

What is a break fee, and what other deal protections does an acquirer negotiate? Why don't boards simply agree to whatever the buyer asks?

Practical question about the deliverable analysts actually produce.

What is a football field chart, how is each range constructed, and how would you respond if the client says your valuation range is too wide?

Foundational for both merger and LBO models; expect it as a build-it-now exercise.

Construct the sources and uses for an acquisition of a company with $500m equity purchase price, $150m of existing debt to be refinanced, $40m of cash on its balance sheet, and $25m of fees. The buyer funds it with $400m…

Expect to be asked to compute this with numbers on a whiteboard.

Walk me through calculating WACC. Where does each input come from, and why do we use a target capital structure rather than the current one?

The grunt work behind every comps page, and interviewers check you know why it exists.

You're building a comps set. One company has a June fiscal year end, another December. How do you handle it, and how do you calculate LTM EBITDA?

Tests whether you can reason from the balance sheet identity rather than recall a rule.

Can a healthy, profitable company have negative shareholders' equity? Explain how it happens and name situations where it isn't a warning sign.

Common in restructuring, credit and corporate banking interviews.

Define the cash conversion cycle and its components. A company's CCC moves from 45 days to 70 days year over year, what would you investigate?

Tests whether you can think like an advisor rather than a modeler.

An acquirer can fund a deal with cash, new debt, or stock. Compare the three from both the buyer's and the seller's perspective, and explain what signal each sends to the market.

Sector-specific multiple knowledge is what distinguishes prepared candidates.

Which multiple would you use to value: (a) a software company, (b) an airline, (c) a bank, (d) a REIT, (e) an early-stage biotech? Justify each.

The analysis that determines the ownership split in a stock-for-stock merger.

Two companies are merging in an all-stock deal with no premium. How do you determine the ownership split, and what is contribution analysis?

Asked when discussing precedent transactions or fairness opinions.

What is a control premium and why does it exist? How does it relate to a minority discount, and what determines its size in a given deal?

Asked to test commercial judgement, not modeling ability.

Distinguish cost from revenue synergies. Which do you trust more and why? How should synergies affect the price a buyer is willing to pay?

Increasingly common given how many deals involve software and subscription businesses.

A SaaS company collects $120 cash upfront for a 12-month contract on January 1st. Walk me through the accounting at collection and at the end of month one. Why do investors watch deferred revenue?

The standard follow-up to the three-statement walkthrough. Assume a 25% tax rate.

Depreciation increases by $10. Walk me through what happens on all three statements. Use a 25% tax rate and assume nothing else changes.

You will be asked to compute this by hand, without a calculator.

A company has 10 million basic shares trading at $50. It has 1 million options with a $20 strike. Calculate diluted shares and equity value using the treasury stock method.

Relevant given the volume of separation activity across large caps.

Compare a sale, a spin-off and a carve-out IPO as ways to separate a business unit. When would you recommend each, and what makes carve-outs operationally hard?

Common in middle-market M&A where buyer and seller expectations diverge.

A buyer values a target at $80m; the seller insists on $100m based on a forecast the buyer doesn't believe. What structures could bridge the gap, and what are the pitfalls of each?

A WACC follow-up where candidates reach for the wrong number.

How do you estimate the cost of debt for a WACC? Why not just use the interest expense divided by total debt?

Tests whether you can critique the tools you use.

Compare EV/EBITDA and P/E. Give a specific situation where each one gives a misleading signal.

Bridges accounting and M&A. Expect it in any deal-heavy group.

How is goodwill created in an acquisition? Then walk me through the three statements when $100 of goodwill is written off, assuming a 25% tax rate.

Tests whether you understand that balance sheet movements alone don't touch the income statement.

A company buys $10 of additional inventory, funded entirely with debt. Walk me through the three statements immediately after the purchase, and then tell me what happens when the inventory is eventually sold.

Tests whether you can handle a non-cash charge that isn't depreciation.

A company writes down $100 of obsolete inventory. Walk me through the three statements at a 25% tax rate.

A live debate in tech coverage and growth equity. Interviewers want a view, not a recital.

Stock-based compensation is added back as a non-cash expense in most adjusted EBITDA calculations. Do you think that's the right treatment? Defend your position.

Expect this as a rapid mental-math question with no calculator.

Company A trades at 20x P/E and acquires Company B at 15x P/E in an all-stock deal, with no synergies. Is the deal accretive or dilutive? Explain the rule and its limits.

Asked in industrials and consumer coverage where inventory accounting materially changes reported earnings.

Explain LIFO and FIFO. In a period of rising prices, which produces higher net income, and which company would you rather own?

A standard DCF follow-up that separates builders from reciters.

What is the mid-year convention, why is it used, and roughly how much does it change a valuation?

A curveball used to see whether you reason from first principles.

Can enterprise value be negative? What would that imply, and would you buy such a company?

One of the four analyses in every fairness opinion.

Walk me through a premiums paid analysis. What are its weaknesses compared to precedent transactions?

What a VP does in ninety seconds before the analyst's model reaches a client.

You've built a DCF. What checks do you run before showing it to anyone?

Follows directly from the DCF walkthrough. Terminal value is where the value actually sits.

What are the two methods for calculating terminal value? Compare them, and explain how you'd sanity check one against the other.

Interviewers use this to check whether you know which cash flow belongs in which analysis.

Define unlevered free cash flow, levered free cash flow and free cash flow to the firm as reported by companies. When is each used, and why do the definitions disagree?

The interviewer is checking whether you understand what your DCF actually values.

Define unlevered and levered free cash flow. Which do you use in a DCF, what discount rate pairs with each, and what does each produce?

Top-three most asked question in investment banking interviews.

Walk me through a discounted cash flow analysis from start to finish.

Core technical for any M&A or coverage group interview.

Walk me through building a merger model from start to finish.

Tests whether you can reason about debt-like items rather than recite a formula.

Beyond debt and cash, what other items belong in the enterprise value bridge? Explain the principle you'd use to decide whether something is a debt-like item.

The counterpart to the deferred tax asset question, and more commonly asked.

What creates a deferred tax liability? Give the most common cause and explain why a DTL can grow indefinitely without ever being paid.

Tests modeling instinct, which levers actually matter.

You build a DCF and the output looks too high. Which assumptions would you interrogate first, and in what order?

A practical purchase price question that also reveals incentive dynamics.

A target has significant outstanding employee options and RSUs. What happens to them in an acquisition, and how does it affect the purchase price?

Tests whether you understand the advisory product, not just the analysis behind it.

A board asks its banker for a fairness opinion. What does it actually say, what does it not say, and why is it worth paying for?

Tests judgement about tool selection rather than mechanics.

Name situations where a DCF is the wrong tool, and explain what you would use instead in each case.

A judgement question. The interviewer wants structured thinking and a view.

Studies consistently find most acquisitions fail to create value for the acquirer. Why? What separates the deals that work?

Tests whether you can reason about market reaction, not just mechanics.

On announcement of an acquisition, the target's stock typically rises and the acquirer's typically falls. Explain the mechanics behind both, including the role of merger arbitrage.

Asked to test whether a candidate uses EBITDA thoughtfully or reflexively.

EBITDA is often used as a proxy for cash flow. Explain why that proxy breaks down, and name the specific items that separate EBITDA from actual free cash flow.

The dominant execution risk in large deals, and the first question a merger arb asks.

Two competitors announce a merger. Walk me through the antitrust process and what determines whether it clears.

Common in middle-market M&A and private equity interviews.

Explain the difference between an asset purchase and a stock purchase. Which does a buyer prefer, which does a seller prefer, and how does the tension get resolved?

Follows the WACC question when the interviewer wants to go deeper.

What does beta measure? Walk me through unlevering and relevering beta and explain why the process is necessary.

The core modelling test for investment banking and equity research superdays.

Value the business with a five-year DCF and bridge to an implied share price. Free cash flow for years 1–5 is given. Discount at the WACC using end-of-year convention. Calculate terminal value with the Gordon growth…

Standard for M&A groups. The model behind the question every banker is asked.

An acquirer is buying a target in a 50% cash / 50% stock deal. Build the pro forma EPS. The cash portion is funded with new debt at the stated rate; the stock portion is funded by issuing acquirer shares at the…

The step candidates skip in the merger model walkthrough. And the one that has to balance.

Walk me through constructing the pro forma balance sheet at close in an acquisition. What are the adjustments, and how do you make it balance?

A quantitative follow-up that appears frequently in superdays.

An acquirer's deal is $40m dilutive to net income on a pro forma basis. The acquirer's tax rate is 25%. How much in pre-tax synergies are needed to break even? Then explain how you'd assess whether that number is…

Separates candidates who understand the enterprise value bridge from those who memorised it.

A company owns 70% of Subsidiary A and 30% of Company B. How does each appear in the financials, and what does that mean for enterprise value?

Shows up in M&A and restructuring where NOLs are a material part of deal value.

What creates a deferred tax asset? Explain how net operating losses are valued in an acquisition and what limits their usefulness to a buyer.

Separates candidates who memorised the formula from those who understand it.

Debt is cheaper than equity and tax-deductible. Does adding debt always lower WACC? Explain what actually happens.

The structuring decision at the heart of every stock deal.

In an all-stock deal, explain the difference between a fixed exchange ratio and a fixed value deal. Who bears the risk in each, and what is a collar for?

Asked in M&A groups and activist defence practices.

A client receives an unsolicited hostile bid. What defensive measures are available, and how would you advise the board to think about them?

Essential for FIG groups; also a common curveball in generalist interviews.

Why can't you value a bank with a standard DCF and EV/EBITDA? Walk me through how you would value one instead.

The purchase price adjustment that gets negotiated after the headline number is agreed.

A deal is signed on a cash-free, debt-free basis with a normalised working capital target. What does that mean, and why is the target contested?

Asked in retail, restaurant, airline and industrials groups where leases dominate the balance sheet.

Since ASC 842 / IFRS 16, how are operating and finance leases treated? Explain the impact on EBITDA and on leverage metrics, and how you would treat leases when calculating enterprise value.

A technical differentiator. Most candidates cannot explain the DTL.

Walk me through purchase price allocation in an acquisition. Why does a deferred tax liability get created, and what effect does it have on goodwill?

The analysis that justifies. Or fails to justify. A control premium.

An acquirer expects $80m of annual run-rate cost synergies, phased over three years, with $120m of one-time costs to achieve. How much are the synergies worth, and how much of that should show up in the premium?

An M&A associate review exercise built around finding linked errors rather than building from a blank page.

A first-year analyst sends you a merger model and draft client page forty minutes before the internal review. Find every issue that can change the recommendation, decide what must be fixed first, and write the review…

Asked in technology, media and healthcare coverage groups where contract structures are complex.

Outline the five-step revenue recognition model under ASC 606. Then apply it: a software company sells a three-year licence bundled with implementation services and ongoing support for $300k paid upfront.

Essential for conglomerates and any company an activist is targeting.

A conglomerate has three divisions in unrelated industries. How would you value it, and why might the sum exceed the market price?

Process mechanics that come up in any conversation about deal timing.

Explain the difference between a one-step merger and a two-step tender offer. When would you recommend each?

Asked in cross-border M&A and emerging markets coverage.

How do you adjust a DCF for a company operating in an emerging market? Where does the country risk go?

Common in middle-market M&A and valuation advisory.

How does valuing a private company differ from a public one? What discounts apply and how do you estimate a discount rate without a share price?