Deal Mechanics

Core topics include accretion/dilution analysis, sources and uses of funds, synergies (revenue and cost), purchase price allocation, and the strategic rationale behind different deal types. Be prepared to walk through a merger model at a high level.

Understand the LBO framework: acquisition with significant debt, use of cash flows to pay down debt, and exit after several years. Practice the paper LBO (back-of-the-envelope calculation) and know how to calculate IRR and money-on-money returns.

Accretion/dilution measures whether a merger increases or decreases the acquirer earnings per share. Know both the EPS method and the detailed method, understand the key drivers (P/E arbitrage, synergies, financing mix), and when a deal is likely to be accretive.

Paper LBOs are common at bulge bracket and elite boutique banks. You will be given basic assumptions and asked to estimate returns in your head or on paper. Practice calculating entry equity, debt paydown, exit equity value, and approximate IRR quickly.

Interviewers expect you to distinguish between cost synergies and revenue synergies, explain which are more reliable and why, provide examples of each, and understand how synergies are factored into deal pricing and accretion/dilution analysis.

The three return drivers are EBITDA growth (operational improvement), multiple expansion (selling at a higher valuation than purchase), and debt paydown (using free cash flow to reduce leverage). Understand the relative importance and reliability of each lever.

Yes. Know the difference between asset deals and stock deals, how goodwill and step-up in basis work, and the tax implications for buyers and sellers. Tax structuring directly affects deal economics and is frequently tested at top banks.