Lazard IB Interview Questions

Use CAPM: Cost of Equity = Risk-Free Rate + Beta × Equity Risk Premium — for example, 4.3% + 1.2 × 6.0% = 11.5%, where the risk-free rate is the 10-year Treasury yield, beta measures stock sensitivity, and ERP is roughly 5–7%.

Using WACC = (0.50 × Ke) + (0.50 × 7%), set 12% = 0.50Ke + 3.5%, solve to get Ke = 8.5% / 0.50 = 17%.

Audit peer selection for relevance, verify the EV bridge (diluted shares, all debt components, unrestricted cash), ensure numerator-denominator consistency (equity metrics with equity value, enterprise metrics with EV), normalize financials uniformly, calendarize fiscal years, and use median multiples while trimming outliers.

The strategic deal is better: 15× pro forma EBITDA (10% margin + 2% synergies = 12% of revenue) equals 1.80× revenue, which exceeds the sponsor's 1.70× revenue offer by roughly 6%.

The global economy is in a late-cycle phase with restrictive monetary policy beginning to ease, resilient but decelerating U.S. growth, sticky core inflation, weak Europe/China, and deal activity recovering as rate clarity improves.

Stock generally requires a higher headline premium because target shareholders are receiving a riskier form of consideration. With cash, they get a fixed, certain value at closing. With stock, they remain exposed to the acquirer's share price, market movements, and execution risk, so they often demand a higher nominal premium to accept that uncertainty.

The exit EBITDA is $375mm, since the 2.0x MoM doubles equity from $750mm to $1,500mm, implying an exit TEV of $2,250mm, which at a 6x multiple yields $375mm EBITDA.

The deal needs $150 in after-tax incremental net income ($5.00 dilution × 30 pro forma shares), which requires $150/(1−t) in EBIT synergies. Using the standard interview assumption of a 25% tax rate, required EBIT synergies are $200. If the interviewer specifies a different tax rate, use that instead.

Share price equals EPS times the P/E multiple, so you can increase net income (revenue growth, margin expansion, tax optimization), reduce shares outstanding (buybacks, limiting dilution), or expand the multiple (improve revenue quality, divest low-multiple segments, de-lever).

Divide EV/Revenue by EV/EBITDA and you get EBITDA margin: about 42% for A (8 / 19) and about 35% for B (6 / 17). A's higher margin explains much of why it trades at a higher revenue multiple. But A also trades at a higher EBITDA multiple (19x vs 17x), so investors pay more for each dollar of A's profit too. That leftover premium usually reflects faster expected growth, lower risk, or better cash conversion.

The return on equity is 15%: the $10 gross profit minus $2.50 in interest yields $7.50 net profit on $50 of equity, as leverage amplifies the 10% unlevered asset return by capturing the spread over the 5% debt cost.

The deal is approximately 43.3% accretive to A's EPS, with pro forma EPS of ~$1.433 versus A's standalone EPS of $1.00, driven primarily by the large after-tax revenue synergy of $150.