Evercore IB Interview Questions

CapEx down 10 has the biggest impact: free cash flow rises by the full 10. At a 25% tax rate, revenue up 10 adds only 7.50 after tax. Depreciation down 10 lowers free cash flow by 2.50, because the business loses a tax deduction.

Accretive. Company A's earnings per share (EPS, net income divided by shares outstanding) rises from $1.00 to $1.25, up 25%. Assuming A pays B's $150 market value with no premium, it issues $150 ÷ $25 = 6 new shares, so the combined $20 of net income is spread over 16 shares. The shortcut: A's stock trades at 25x earnings (its P/E, or price-to-earnings ratio) and it buys B at 15x. Paying with stock for earnings priced below your own P/E is accretive.

Yes, but the type of debt depends on the company's stage. Commercial-stage biotechs, meaning companies that already sell approved drugs, typically borrow the conventional way through term loans and bonds, and the largest profitable ones issue investment-grade bonds. Pre-revenue biotechs usually lack the steady cash flow that lenders size loans against. They typically rely on venture debt, convertible notes, and royalty-based financing, with equity as their main source of funding.

The three main valuation approaches are discounted cash flow (DCF) analysis, comparable companies analysis, and precedent transactions analysis. A DCF values a company on its own projected cash flows. The two relative methods value it against what similar businesses sell for. Precedent transactions usually give the highest values because buyers in past deals paid a control premium: an extra amount above the market price to gain control of the company.

Raise debt, assuming the company can use the interest deduction and has room to borrow at 10%. The 10% is pre-tax. Interest is tax-deductible, so at a 25% tax rate the after-tax cost is 10% × (1 − 25%) = 7.5%. A 10x P/E gives an earnings yield (earnings divided by share price, the inverse of P/E) of 1/10 = 10%, a rough stand-in for the cost of equity. Debt at 7.5% beats equity at roughly 10%.

A DCF (discounted cash flow) values a company at the present value of the cash it will generate in the future. You project unlevered free cash flow (the cash left for all capital providers, both debt and equity) for about five to ten years. You estimate a terminal value for the years after that, then discount both back to today at the WACC (weighted average cost of capital). That sum is enterprise value. Subtract net debt to get equity value, then divide by diluted shares for an implied share price.

The IRR is about 18%. The purchase price is 10x $200mm = $2.0bn, funded with $1.2bn of debt (6x EBITDA) and $800mm of equity. At exit the company is worth 10x $300mm = $3.0bn. Repay the $1.2bn of debt and the sponsor keeps $1.8bn of equity, 2.25x its $800mm. The question gives no holding period, so use the standard 5-year hold and assume the debt stays at $1.2bn. Over 5 years, 2.25x works out to roughly 17-18% a year.

Forecast the mine's cash flows year by year until its reserves are used up (depletion), then discount them at the discount rate. The terminal value is the mine's salvage value (what the equipment and land sell for at closure) minus environmental remediation costs (the cost of cleaning up and restoring the site). It replaces the perpetuity, and it can be negative. Sum the present values to get the mine's value, often called its net asset value (NAV).

Walk the deal through the deal framework, then give the sector beta as a number with a source. Beta measures how much a stock moves when the overall market moves: 1.0 moves with the market, above 1.0 moves more, below 1.0 moves less. Keep the standard order. Details: the acquirer and target, deal size, premium, multiple, and cash vs. stock. Hook: why the deal interests you. Rationale: the strategic and financial logic. Then state the sector beta. Bankers usually take the median unlevered beta of comparable companies (beta with the debt effect stripped out) and relever it at the target's capital structure.

Compare the combined company's pro forma EPS to the acquirer's standalone EPS. Higher, and the deal is accretive. Lower, and it is dilutive. Pro forma EPS is combined net income less the after-tax interest on the new debt, divided by the acquirer's existing shares plus the new shares issued to fund the stock half. EPS is earnings per share, net income divided by share count, so both the numerator and the denominator have to move before you can call it.

10.0x. Enterprise value is the $800 equity offer plus $250 of net debt (total debt less cash, which the buyer effectively assumes), or $1,050. The denominator is LTM EBITDA of $100 plus $5 of pretax synergies, or $105. $1,050 / $105 = 10.0x.

Start with why the client needs the money and how much. Then weigh the structure: an IPO for a private company or a follow-on for a public one, a private placement, a convertible or preferred security, or a rights offering to existing shareholders. For each option, look at dilution (existing owners' stake shrinking), cost of capital, market conditions, investor demand, timing and execution risk, and the signal the raise sends to the market. Then compare it all with debt, because equity is usually the more expensive source of capital.