Houlihan Lokey IB Interview Questions

The three valuation methods are Precedent Transactions, Comparable Companies, and DCF analysis. The typical ranking from highest to lowest is Precedent Transactions, then DCF, then Comparable Companies — although DCF can move above or below comps depending on the assumptions.

EV/Revenue for high-growth or unprofitable tech firms and EV/EBITDA for mature, profitable ones, since EV-based multiples neutralize capital structure differences and EV/Revenue avoids reliance on earnings that may not yet exist.

You project unlevered free cash flows, discount them and a terminal value back to present using WACC to get enterprise value, then subtract net debt and other claims to arrive at implied equity value per share.

Unlever betas from public comparables, relever to the private company's target capital structure, plug into CAPM, then add a size premium and a company-specific risk premium for illiquidity and idiosyncratic risk.

Buyers rely most on the documents that move the price: the audited financials and the quality of earnings (QoE) report, the key customer contracts and how concentrated revenue is among them, the debt schedule, the working capital history, and any pending litigation. The data room is the secure online folder where the seller posts confidential documents so shortlisted bidders can check the business before their final bid. A QoE is a review, typically by an accounting firm, of which profits will actually recur. Each item either confirms the earnings figure the buyer pays a multiple of, usually EBITDA, or exposes a liability that lowers the price or changes the deal terms.

It is determined case by case — you build the full buyer universe, then narrow it based on strategic fit, financial capacity, regulatory risk, confidentiality concerns, and seller preferences to choose a broad, targeted, or limited process.

At a 25 percent tax rate, net income falls $7.50, cash rises $2.50, and net PP&E falls $10. Depreciation is the accounting charge that spreads the cost of a long-lived asset (property, plant and equipment, or PP&E) across its useful life. No money leaves the company when it is recorded, but the charge is tax-deductible, so it cuts the cash tax bill by $10 x 25% = $2.50. That tax saving is the only real cash effect, and it works in the company's favor.

You prepare a teaser, CIM, financial model, buyer list, and management presentation; send the teaser broadly, distribute the CIM only after NDAs are signed, narrow to shortlisted buyers for diligence and management meetings, then negotiate and close with the winning bidder.

On the day the debt is issued, cash and debt both rise by the same amount on the balance sheet. The cash flow statement shows the money raised as an inflow in cash flow from financing. The income statement does not move, because borrowed money is not revenue. It only feels the debt later, when interest expense cuts net income by the interest times (1 - tax rate).

The out-of-home advertising company matches to 40% due to high operating leverage on fixed assets, the pipe installation company matches to 25% reflecting typical contractor margins, and the esports team matches to 15% given high player costs and volatile revenue.

The sell-side M&A process typically flows through six phases—Engagement (Engagement Letter; preparation of marketing materials such as the Teaser and CIM), First Round (Teaser, NDA, IOIs), Second Round (Management Presentations, draft SPA/APA, LOIs or bid letters), Negotiation & Signing (Definitive Agreement, Disclosure Schedules, TSA, Escrow Agreement), Regulatory/Pre-Close (HSR Filing, Proxy Statement or tender offer documents if public), and Closing.

Calendarization adjusts a company's financial data to a common calendar period for apples-to-apples comparison by taking a weighted average of two fiscal years, weighted by the months each contributes to the target calendar year.