M&A Interview Questions: Complete Guide
Master M&A interview questions. Learn accretion/dilution, synergies, deal mechanics, and strategic analysis with interactive practice questions.
M&A (Mergers & Acquisitions) is at the heart of investment banking. Whether you're interviewing for an M&A group specifically or a generalist IB role, you'll face questions on deal mechanics, accretion/dilution, synergies, and strategic rationale.
This guide covers the essential M&A concepts tested in interviews—from quick mental math on accretion/dilution to understanding why companies pursue acquisitions in the first place.
Why M&A Questions Matter
M&A questions test whether you can think like a dealmaker. Interviewers want to see that you understand not just the mechanics, but why deals happen and when they create value. Pure technical knowledge isn't enough—you need commercial judgment.
1. Why Companies Do M&A
Before diving into technicals, understand the strategic motivations behind M&A. This context helps you answer "why would Company X acquire Company Y?" questions.
Strategic Rationales for M&A
| Term | Definition | Note |
|---|---|---|
| Growth Acceleration | Buying revenue/customers faster than organic growth | Common in mature industries |
| Synergies | Cost savings or revenue enhancements from combining | The core value creation thesis |
| Market Share / Consolidation | Reducing competition, gaining pricing power | Horizontal deals |
| Vertical Integration | Controlling supply chain or distribution | Supplier or customer acquisition |
| Acqui-hire | Acquiring for talent, not just business | Common in tech |
| Diversification | Entering new markets or reducing risk | Often value-destructive |
Not All M&A Creates Value
Studies show 60-70% of acquisitions fail to create shareholder value. Common reasons: overpaying, integration failures, culture clashes, and overestimated synergies. In interviews, show you understand both the potential and pitfalls of M&A.
2. Accretion/Dilution Analysis
Accretion/dilution is the most common M&A technical question. It measures whether an acquisition increases (accretive) or decreases (dilutive) the acquirer's earnings per share.
The Core Concept
Pro Forma EPS = (Acquirer Net Income + Target Net Income + Synergies - Financing Costs) / Pro Forma SharesIf Pro Forma EPS > Standalone EPS, the deal is accretive. If lower, it's dilutive.
Company A (P/E of 20x) acquires Company B (P/E of 12x) in an all-stock deal. Before considering synergies, is this deal accretive or dilutive to Company A's EPS?
Quick Rules for Accretion/Dilution
Mental Math Shortcuts
All-Stock Deals:
- Acquirer P/E > Target P/E → Accretive
- Acquirer P/E < Target P/E → Dilutive
All-Cash Deals:
- Compare cost of debt (after-tax) to target's earnings yield (E/P)
- If earnings yield > cost of debt → Accretive
- If earnings yield < cost of debt → Dilutive
Synergies:
- Synergies can turn a dilutive deal accretive
- Calculate: how much synergy needed to break even?
Accretion/dilution is tested in virtually every IB interview. Practice until the mental math becomes automatic.
3. Understanding Synergies
Synergies are the additional value created by combining two companies. They're the core justification for paying a premium in M&A—the deal creates value that wouldn't exist if the companies remained separate.
Cost Synergies vs Revenue Synergies
| Aspect | Cost Synergies | Revenue Synergies |
|---|---|---|
| Definition | Expense reductions from combining | New revenue from combination |
| Examples | Headcount, facilities, procurement | Cross-selling, new markets, pricing |
| Certainty | High (70-80% achieved) | Low (30-50% achieved) |
| Timing | 1-2 years to realize | 2-4 years to realize |
| Valuation | Full multiple credit | Often discounted or excluded |
A company announces $100M in annual cost synergies from an acquisition. At a 10x EBITDA multiple, what additional enterprise value do these synergies create?
Synergy Examples in Practice
Cost Synergies (High Certainty):
- Headcount: Eliminate duplicate corporate functions (HR, Finance, Legal)
- Facilities: Consolidate headquarters, warehouses, manufacturing
- Procurement: Better pricing from combined purchasing volume
- Technology: Consolidate IT systems, eliminate duplicate licenses
Revenue Synergies (Lower Certainty):
- Cross-selling: Sell acquirer's products to target's customers
- Geographic: Use target's distribution in new regions
- Pricing power: Reduced competition enables price increases
- Product bundling: Combined offerings attract new customers
4. Deal Structure & Consideration
Understanding how deals are structured—cash vs. stock, and the implications for each party—is essential for M&A interviews.
Cash vs. Stock Consideration
Cash Deal vs Stock Deal
| Aspect | Cash Deal | Stock Deal |
|---|---|---|
| Buyer Risk | Takes all risk post-close | Shares risk with target shareholders |
| Seller Risk | Certainty of value at close | Exposed to acquirer stock movement |
| Tax Impact | Immediate taxable event for seller | Can be tax-deferred (Section 368) |
| Financing | Requires cash/debt capacity | Uses stock as currency |
| Signal | Buyer confident in value | Buyer may see stock as overvalued |
In an M&A transaction, why might a seller prefer stock consideration over cash?
5. Strategic vs Financial Buyers
Understanding the difference between strategic and financial buyers helps you analyze deal dynamics and valuation.
Strategic Buyers vs Financial Buyers
| Aspect | Strategic Buyers | Financial Buyers (PE) |
|---|---|---|
| Who | Operating companies in same/adjacent industry | Private equity funds |
| Motivation | Synergies, market position, capabilities | Financial returns (IRR/MOIC) |
| Valuation | Can pay more (synergy value) | Disciplined on price (returns-focused) |
| Financing | Balance sheet or stock | Leveraged (60-70% debt) |
| Hold Period | Permanent ownership | 3-7 year exit horizon |
| Operations | Integrate into existing business | Standalone with improvements |
Why Strategic Buyers Often Win Auctions
Strategic buyers can typically pay higher multiples because they capture synergies that financial buyers cannot. A strategic can pay 10x EBITDA for a target if $30M of synergies makes their effective multiple 7x. A PE firm without synergies is stuck at the 10x sticker price.
6. The M&A Deal Process
Interviewers often ask about the deal process to test your understanding of how transactions actually work.
M&A Process Timeline
| Term | Definition | Note |
|---|---|---|
| 1. Strategy & Targeting | Identify acquisition candidates, develop investment thesis | Weeks to months |
| 2. Initial Outreach | NDA, preliminary discussions, teaser distribution | 1-2 weeks |
| 3. IOI (Indication of Interest) | Non-binding preliminary bid with valuation range | 1-2 weeks |
| 4. Due Diligence | Data room access, management presentations, deep dive | 4-8 weeks |
| 5. Final Bid / LOI | Binding Letter of Intent with definitive terms | 1-2 weeks |
| 6. Definitive Agreement | Negotiate and sign purchase agreement | 2-4 weeks |
| 7. Regulatory & Closing | Antitrust review, shareholder votes, financing, close | 1-6 months |
Key Takeaways
Key Takeaway
- Know the "why": Understand strategic rationales for M&A—growth, synergies, consolidation, vertical integration
- Master accretion/dilution: Higher acquirer P/E = accretive stock deal. Be able to do mental math quickly
- Understand synergies: Cost synergies are more certain than revenue synergies. Both are valued at multiples
- Know deal structure trade-offs: Cash vs stock has implications for risk, taxes, and signaling
- Strategic vs financial buyers: Strategics can pay more due to synergies; PE is returns-focused
Common M&A Interview Mistakes
- Only focusing on technicals: You need strategic thinking, not just formulas
- Ignoring integration risk: Most deals fail in execution, not valuation
- Overstating synergies: Show you understand synergies often don't materialize
- Not knowing recent deals: Have 2-3 deals you can discuss intelligently
Continue Your M&A Interview Prep
Build on these fundamentals with related guides:
- Accretion/Dilution Explained — Deep dive into merger math with examples
- M&A Deal Process Walkthrough — Detailed guide to transaction mechanics
- Investment Banking Interview Questions — Complete IB interview prep
- Enterprise Value vs Equity Value — Essential for M&A valuation
- LBO Explained Simply — Understand financial buyer mechanics