UBS IB Interview Questions

The stock trades above the offer because the market expects target shareholders to end up with more than $20 per share. The likely route is a competing bid or a raised offer from the original buyer. A target normally trades a little below an all-cash offer: holders wait until closing to get paid, and they carry the risk that the deal fails. At $24, investors are treating $20 as the floor and expecting the final price to come in higher.

Precedent transactions (multiples paid in past acquisitions of similar companies) usually come out above trading comps (multiples at which similar public companies trade today). The reason is the control premium: a buyer pays extra to take full control. When comps come out higher, first find out why. Then normalize the precedents. Put them on the same metric and time period as the comps, remove distressed or unusual deals, and adjust older deals for how far market valuations have moved since they closed.

An error on a pre-tax line of the income statement (the statement of revenue, expenses, and profit) usually moves net income by the error times (1 minus the tax rate). That after-tax change flows into retained earnings (the profit the company has kept over time, part of shareholders' equity on the balance sheet). It is also the top line of the cash flow statement (CFS), where you reverse non-cash items and adjust working capital to get the real change in cash. The balance sheet balances because the asset or liability side moves by the same amount as equity.

Accretion/dilution analysis compares the acquirer's pro forma earnings per share after the deal closes against the EPS it would have earned on its own. Combined EPS higher than standalone means the deal is accretive. Lower means dilutive. You build it by combining both companies' net income, adjusting for the costs and benefits the deal creates, and dividing by the acquirer's new share count.

An unlevered multiple is Enterprise Value divided by a metric earned before debt holders are paid, such as EBITDA. A levered multiple is Equity Value divided by a metric left over after debt holders are paid, such as net income. 'Unlevered' and 'levered' describe which investors the metric belongs to. They say nothing about whether the company has debt or which time period the figures cover.

An LBO is not a floor valuation in two cases: the company is not a realistic LBO candidate, or cheap, plentiful debt lets sponsors bid as high as or above strategic buyers. The first case covers unstable cash flow, a company that cannot support much debt, or lenders who are not lending. Then no financial sponsor (a private equity firm) could really do the deal, and the LBO number does not show the lowest price a real buyer would pay.

For a sell-side M&A pitch, a 4-page pitchbook works best as one page each: an executive summary, a valuation football field, a buyer or market landscape, and a process timeline. Together they tell the client what we recommend, what the business could be worth, who might buy or invest, and how the deal would run. Detailed models, long credentials and deep industry research usually go in an appendix or a later, longer book.

Start with trading comparables (comps). Find similar public companies, calculate valuation multiples such as EV/Revenue and EV/EBITDA, and apply the peer range to the target's own revenue and EBITDA. Then build a simplified DCF (discounted cash flow: the present value of the cash the business is expected to generate) from a few top-down assumptions. Triangulate the two methods into a valuation range, not a single point.