M&A Interview Questions
M&A is where IB interviews get serious. Accretion/dilution, merger models, purchase price allocation, these questions test whether you can think about deals, not just memorize formulas.
WORK THROUGH THE DECISION
Separate purchase logic from EPS arithmetic
An M&A answer has at least two separate questions: does the transaction change earnings per share, and does it create value? Do the arithmetic cleanly, then explain what the calculation cannot establish.
Build a short earnings bridge
Fictional buyer: net income 100 and 50 shares, giving EPS of 2. The buyer issues 10 shares for a target losing 10. After-tax synergies are 15 and after-tax purchase-accounting expense is 5. Ignore other changes.
Combined income is 100 − 10 + 15 − 5 = 100. Combined shares are 60, so EPS is 1.67. The deal is dilutive even though synergies offset the target’s loss and the added expense. The extra shares still matter.
Identify the assumptions before extending the answer
| Changed input | What must change in the bridge |
|---|---|
| Cash funding | Lost interest income, if relevant |
| Debt funding | Incremental interest and justified tax effects |
| Pretax synergies | Tax treatment and realization timing |
| Partial-year ownership | Contribution period and share weighting |
| One-time costs | Clear separation from recurring earnings |
Work through the negative-target-earnings exercise to solve the break-even synergy. If the interviewer adds an impairment, use the goodwill tax-assumption example rather than applying a tax rate automatically.
Explain the investment limitation
A deal can increase EPS and still be a poor investment if the buyer overpays, understates risk or misses integration costs. Damodaran’s acquisition analysis cautions against treating accretion as proof of value creation. Compare the purchase price with the economics, not only the earnings bridge.
If your gap is arithmetic, practice one bridge with changed funding assumptions. If it is economic reasoning, use the valuation-methods guide. The technical PDF is useful for structured practice across both areas; it is not a substitute for transaction-specific diligence. Inspect its sample before deciding whether more paid material adds value to your preparation.
Choose support only for the gap you found
Useful for: Candidates who need to connect deal funding, earnings and valuation under follow-up questions.
Limit: Accretion is not proof of value creation; teaching cases omit transaction-specific complexity.
89-page technical guide with 306 numbered questions, worked explanations and six linked diagnostic drills.
Current price: $59. Review the contents and sample before purchase. This is the existing edition described on the product page, not a new 2028 edition.
Inspect the Finance Technical Interview Guide sample →The P/E Rule for Stock Deals
The Shortcut Every Banker Uses:
If acquirer's P/E > target's P/E → deal is accretive (buying earnings cheaply)
If acquirer's P/E < target's P/E → deal is dilutive (buying earnings expensively)
For cash deals, compare the earnings yield on the target to the after-tax cost of debt financing.
M&A Questions by Frequency
Is this deal accretive or dilutive?
Compare combined pro forma EPS to the acquirer's standalone EPS. Higher = accretive. For stock deals, use the P/E shortcut: if acquirer's P/E > target's P/E, it's accretive.
Walk me through a merger model.
Combine standalone financials, calculate PPA/goodwill, layer in financing (new debt, shares issued), add synergies, compute pro forma EPS vs. standalone.
What is goodwill?
The excess of purchase price over the fair market value of net identifiable assets. Not amortized under GAAP, tested for impairment annually.
Stock deal vs. cash deal, which is better?
Depends. Stock when shares are overvalued (using expensive currency). Cash when confident in returns and shares are undervalued. Cash is immediately taxable to sellers; stock deals can be tax-deferred.
What are synergies?
Cost synergies: eliminating redundancies (5-10% of smaller company's cost base). Revenue synergies: cross-selling, new markets. Cost synergies are more predictable and valued higher by the market.
Walk me through purchase price allocation.
Step up target's assets/liabilities to FMV, identify intangible assets (brand, customer lists, patents), remainder = goodwill. Stepped-up assets increase future depreciation.
What's a stock deal vs. an asset deal?
Stock deal: buy shares, assume all assets/liabilities. Asset deal: cherry-pick specific assets. Sellers prefer stock (capital gains). Buyers prefer asset (tax basis step-up on assets).
Why would an acquirer pay a premium?
Control premium (20-40%) reflects synergies, strategic value of control, and competitive bidding dynamics. Without a premium, target shareholders have no reason to sell above market price.
Practice All 8 Technical Topics
M&A is Chapter 5 of 8 in the Finance Technical Interview Guide. Get the full picture, Accounting, EV, DCF, Comps, M&A, LBOs, Advanced Valuation, and Complex Accounting, in 306 technical questions.