merger and acquisition case study examples

Ace Your M&A Case Study Using These 5 Key Steps

• Last Updated November, 2022

Mergers and acquisitions (M&A) are high-stakes strategic decisions where a firm(s) decides to acquire or merge with another firm. As M&A transactions can have a huge impact on the financials of a business, consulting firms play a pivotal role in helping to identify M&A opportunities and to project the impact of these decisions. 

M&A cases are common case types used in interviews at McKinsey, Bain, BCG, and other top management consulting firms. A typical M&A case study interview would start something like this:

The president of a national drugstore chain is considering acquiring a large, national health insurance provider. The merger would combine one company’s network of pharmacies and pharmacy management business with the health insurance operations of the other, vertically integrating the companies. He would like our help analyzing the potential benefits to customers and shareholders.

M&A cases are easy to tackle once you understand the framework and have practiced good cases. Keep reading for insights to help you ace your next M&A case study interview.

In this article, we’ll discuss:

• Why mergers & acquisitions happen.
• Real-world M&A examples and their implications.
• How to approach an M&A case study interview.
• An end-to-end M&A case study example.

Let’s get started!

Why Do Mergers & Acquisitions Happen?

There are many reasons for corporations to enter M&A transactions. They will vary based on each side of the table. 

For the buyer, the reasons can be:

• Driving revenue growth. As companies mature and their organic revenue growth (i.e., from their own business) slows, M&A becomes a key way to increase market share and enter new markets.
• Strengthening market position. With a larger market share, companies can capture more of an industry’s profits through higher sales volumes and/or greater pricing power, while vertical integration (e.g., buying a supplier) allows for faster responses to changes in customer demand.
• Capturing cost synergies. Large businesses can drive down input costs with scale economics as well as consolidate back-office operations to lower overhead costs. (Example of scale economies: larger corporations can negotiate higher discounts on the products and services they buy. Example of consolidated back-office operations: each organization may have 50 people in their finance department, but the combined organization might only need 70, eliminating 30 salaries.)
• Undertaking PE deals. Private equity firms will buy a majority stake in a company to take control and transform the operations of the business (e.g., bring in new top management or fund growth to increase profitability).
• Accessing new technology and top talent. This is especially common in highly competitive and innovation-driven industries such as technology and biotech. 

For the seller, the reasons can be: 

• Accessing resources. A smaller business can benefit from the capabilities (e.g., product distribution or knowledge) of a larger business in driving growth.
• Gaining needed liquidity. Businesses facing financial difficulties may look for a well-capitalized business to acquire them, alleviating the stress.
• Creating shareholder exit opportunities . This is very common for startups where founders and investors want to liquidate their shares.

There are many other variables in the complex process of merging two companies. That’s why advisors are always needed to help management to make the best long-term decision.

Real-world Merger and Acquisition Examples and Their Implications

Let’s go through a couple recent merger and acquisition examples and briefly explain how they will impact the companies.

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KKR Acquisition of Ocean Yield

KKR, one of the largest private equity firms in the world, bought a 60% stake worth over $800 million in Ocean Yield, a Norwegian company operating in the ship leasing industry. KKR is expected to drive revenue growth (e.g., add-on acquisitions) and improve operational efficiency (e.g., reduce costs by moving some business operations to lower-cost countries) by leveraging its capital, network, and expertise. KKR will ultimately seek to profit from this investment by selling Ocean Yield or selling shares through an IPO.

ConocoPhillips Acquisition of Concho Resources

ConocoPhillips, one of the largest oil and gas companies in the world with a current market cap of $150 billion, acquired Concho Resources which also operates in oil and gas exploration and production in North America. The combination of the companies is expected to generate financial and operational benefits such as:

• Provide access to low-cost oil and gas reserves which should improve investment returns.
• Strengthen the balance sheet (cash position) to improve resilience through economic downturns.
• Generate annual cost savings of $500 million.
• Combine know-how and best practices in oil exploration and production operations and improve focus on ESG commitments (environmental, social, and governance).

How to Approach an M&A Case Study Interview

Like any other case interview, you want to spend the first few moments thinking through all the elements of the problem and structuring your approach. Also, there is no one right way to approach an M&A case but it should include the following: 

• Breakdown of value drivers (revenue growth and cost synergies) 
• Understanding of the investment cost
• Understanding of the risks. (For example, if the newly formed company would be too large relative to its industry competitors, regulators might block a merger as anti-competitive.) 

Example issue tree for an M&A case study: 

• Will the deal allow them to expand into new geographies or product categories?
• Will each of the companies be able to cross-sell the others’ products? 
• Will they have more leverage over prices? 
• Will it lower input costs? 
• Decrease overhead costs? 
• How much will the investment cost? 
• Will the value of incremental revenues and/or cost savings generate incremental profit? 
• What is the payback period or IRR (internal rate of return)? 
• What are the regulatory risks that could prevent the transaction from occurring? 
• How will competitors react to the transaction?
• What will be the impact on the morale of the employees? Is the deal going to impact the turnover rate? 

An End-to-end BCG M&A Case Study Example

Case prompt:

Your client is the CEO of a major English soccer team. He’s called you while brimming with excitement after receiving news that Lionel Messi is looking for a new team. Players of Messi’s quality rarely become available and would surely improve any team. However, with COVID-19 restricting budgets, money is tight and the team needs to generate a return. He’d like you to figure out what the right amount of money to offer is.

First, you’ll need to ensure you understand the problem you need to solve in this M&A case by repeating it back to your interviewer. If you need a refresher on the 4 Steps to Solving a Consulting Case Interview , check out our guide.

Second, you’ll outline your approach to the case. Stop reading and consider how you’d structure your analysis of this case. After you outline your approach, read on and see what issues you addressed, and which you didn’t consider. Remember that you want your structure to be MECE and to have a couple of levels in your Issue Tree .

Example M&A Case Study Issue Tree

• Revenue: What are the incremental ticket sales? Jersey sales? TV/ad revenues?
• Costs: What are the acquisition fees and salary costs? 
• How will the competitors respond? Will this start a talent arms race?  
• Will his goal contribution (the core success metric for a soccer forward) stay high?
• Age / Career Arc? – How many more years will he be able to play?
• Will he want to come to this team?
• Are there cheaper alternatives to recruiting Messi?
• Language barriers?
• Injury risk (could increase with age)
• Could he ask to leave our club in a few years?
• Style of play – Will he work well with the rest of the team?

Analysis of an M&A Case Study

After you outline the structure you’ll use to solve this case, your interviewer hands you an exhibit with information on recent transfers of top forwards.

In soccer transfers, the acquiring team must pay the player’s current team a transfer fee. They then negotiate a contract with the player.

From this exhibit, you see that the average transfer fee for forwards is multiple is about $5 million times the player’s goal contributions. You should also note that older players will trade at lower multiples because they will not continue playing for as long. 

Based on this data, you’ll want to ask your interviewer how old Messi is and you’ll find out that he’s 35. We can say that Messi should be trading at 2-3x last season’s goal contributions. Ask for Messi’s goal contribution and will find out that it is 55 goals. We can conclude that Messi should trade at about $140 million. 

Now that you understand the up-front costs of bringing Messi onto the team, you need to analyze the incremental revenue the team will gain.

Calculating Incremental Revenue in an M&A Case Example

In your conversation with your interviewer on the value Messi will bring to the team, you learn the following: 

• The team plays 25 home matches per year, with an average ticket price of $50. The stadium has 60,000 seats and is 83.33% full.
• Each fan typically spends $10 on food and beverages.
• TV rights are assigned based on popularity – the team currently receives $150 million per year in revenue.
• Sponsors currently pay $50 million a year.
• In the past, the team has sold 1 million jerseys for $100 each, but only receives a 25% margin.

Current Revenue Calculation:

• Ticket revenues: 60,000 seats * 83.33% (5/6) fill rate * $50 ticket * 25 games = $62.5 million.
• Food & beverage revenues: 60,000 seats * 83.33% * $10 food and beverage * 25 games = $12.5 million.
• TV, streaming broadcast, and sponsorship revenues: Broadcast ($150 million) + Sponsorship ($50 million) = $200 million.
• Jersey and merchandise revenues: 1 million jerseys * $100 jersey * 25% margin = $25 million.
• Total revenues = $300 million.

You’ll need to ask questions about how acquiring Messi will change the team’s revenues. When you do, you’ll learn the following: 

• Given Messi’s significant commercial draw, the team would expect to sell out every home game, and charge $15 more per ticket.
• Broadcast revenue would increase by 10% and sponsorship would double.
• Last year, Messi had the highest-selling jersey in the world, selling 2 million units. The team expects to sell that many each year of his contract, but it would cannibalize 50% of their current jersey sales. Pricing and margins would remain the same.
• Messi is the second highest-paid player in the world, with a salary of $100 million per year. His agents take a 10% fee annually.

Future Revenue Calculation:

• 60,000 seats * 100% fill rate * $65 ticket * 25 games = $97.5 million.
• 60,000 seats * 100% * $10 food and beverage * 25 games = $15 million.
• Broadcast ($150 million*110% = $165 million) + Sponsorship ($100 million) = $265 million.
• 2 million new jerseys + 1 million old jerseys * (50% cannibalization rate) = 2.5 million total jerseys * $100 * 25% margin = $62.5 million.
• Total revenues = $440 million.

This leads to incremental revenue of $140 million per year. 

• Next, we need to know the incremental annual profits. Messi will have a very high salary which is expected to be $110 million per year. This leads to incremental annual profits of $30 million.
• With an upfront cost of $140 million and incremental annual profits of $30 million, the payback period for acquiring Messi is just under 5 years.

Presenting Your Recommendation in an M&A Case

• Messi will require a transfer fee of approximately $140 million. The breakeven period is a little less than 5 years. 
• There are probably other financial opportunities that would pay back faster, but a player of the quality of Messi will boost the morale of the club and improve the quality of play, which should build the long-term value of the brand.
• Further due diligence on incremental revenue potential.
• Messi’s ability to play at the highest level for more than 5 years.
• Potential for winning additional sponsorship deals.

5 Tips for Solving M&A Case Study Interviews

In this article, we’ve covered:

• The rationale for M&A.
• Recent M&A transactions and their implications.
• The framework for solving M&A case interviews.
• AnM&A case study example.

Still have questions?

If you have more questions about M&A case study interviews, leave them in the comments below. One of My Consulting Offer’s case coaches will answer them.

Other people prepping for mergers and acquisition cases found the following pages helpful:

• Our Ultimate Guide to Case Interview Prep
• Types of Case Interviews
• Consulting Case Interview Examples
• Market Entry Case Framework
• Consulting Behavioral Interviews

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M&A case interviews overview

A detailed look at m&a case interviews with a sample approach and example.

M&A motivations | Approaching M&A cases | M&A question bank | Example case walk-through #1 | Example case walk-through #2

Acquisitions are exciting and make for great headlines, but the decision to pursue one is serious business - and makes for a great case interview topic!

For example, consider mega deals like Salesforce acquiring Tableau for $15.7B or Kraft and Heinz merging at a combined valued of $45B. Mergers and acquisitions (often abbreviated as M&A) are some of the splashiest business decisions, often due to the large size of the deals and ability to quickly shake up market share.

Like profitability or market entry cases , M&A questions will often come up during a case interview, either as the primary topic or as a component of a broader case.

Typical motivations for M&A activity (Top)

Before jumping into case interviews, let's talk about why a company might pursue a merger or an acquisition in the first place. There are 3 main factors that drive M&A decisions: growth, competition, and synergies.

M&A for growth purposes

When determining a long-term growth strategy, companies have several options they tend to consider: build, buy, or partner. Amazon's growth into the grocery industry is a great example of a company implementing both build and buy strategies.

Amazon began by leveraging their existing capabilities to build their offering internally, adding food products to their platform and same-day food delivery. However, in 2017 they announced the acquisition of Whole Foods . By purchasing an existing player in the grocery space, they were able to acquire not only the Whole Foods brand, customer base, and retail footprint, but also the employees, supplier relationships, and industry know-how. The acquisition allowed them to grow at a quicker pace than they would have been able to otherwise.

M&A for competitive purposes

Competition can be another big driver behind M&A activity. Consider Uber and Didi's merger in 2016. Both companies were spending enormous amounts of money to gain market share (Uber's losses were estimated at ~$2B), but were still not achieving profitability. By coming to a merger agreement, Uber and Didi were able to end the destructive competition in China and move forward as partners with a shared interest in each other's success.

M&A for synergy gains

Other companies pursue mergers or acquisitions due to the complementary nature of combining two businesses. These complementary aspects are called synergies and might include things like the ability to cut out redundant overhead functions or the ability to cross-sell products to shared customers.

The value of potential synergies is typically estimated prior to doing a deal and would be one of the biggest points of discussion for the buyer. Note that the task of estimating the value of synergies is often more art than science, and many companies overvalue the expected synergies they'll get from a deal. This is just one of the reasons more than 70% of M&A deals fail .

The synergies that can be realized through a merger or acquisition will be different for any given pair of companies and will be one of the primary determining factors in a purchase price. For example, the synergies between a mass retailer buying a smaller clothing company will be much larger than if a restaurant were to buy that same clothing company. Common cost structures and revenue streams often result in greater synergies. For example, two similar businesses that merge will be able to streamline their finance, HR, and legal functions, resulting in a more efficient operation.

M&A framework (Top)

Mergers and acquisitions are not entered into by companies lightly. These are incredibly strategic decisions that are enormously expensive, from both a time and resource perspective, so any leadership team will want to do their due diligence and consider these decisions from multiple angles.

While each M&A scenario will have its own unique factors and considerations, there are some recurring topics you'll most likely want to dive into. We'll cover these in five steps below.

💡 Remember that every case is unique. While these steps can apply to many M&A cases, you should always propose a framework tailored to the specific case question presented!

Step 1: Unpack the motivations

Before recommending a merger or acquisition, the first step is to understand the deeper purpose behind this strategic decision. The motivation might be hinted at in your case prompt, or it might be apparent given general knowledge of a particular industry.

For example, if the question is "Snack Co. is looking to expand into Asia and wants to determine if an acquisition of Candy Co. would be successful", you can tell that the underlying motivation for acquisition is growth through geographic expansion. If the question is about an airline looking to buy another airline, the drivers are likely the competitive nature of the industry and potential synergies in the cost structure.

Once you understand what's driving the M&A desire, you'll know what lens to apply throughout the remainder of the case. You'll also be able to weave in your business acumen in your final recommendation.

Step 2: Evaluate the market

As with many case interviews, a well-rounded market analysis is typically a good place to start. In this scenario, the market we're evaluating is that of the target company. The goal here is to develop a broad understanding of the attractiveness of the market, as the client is essentially investing in this space through M&A activity. For this step, consider:

• Size and forecasted growth of the market
• Barriers to entry such as regulations
• The competitive landscape
• Supplier and buyer dynamics

This step should not be skipped, even in the case of a merger between two companies in the same market. It can't be assumed that the market is attractive just because the buyer is in it already. Rather, if the market evaluation proves unattractive, the buyer should not only avoid the deal, but also address their existing strategy internally.

Step 3: Assess the target company

If the market is deemed to be attractive, the next question is if the target is the optimal company to acquire or merge with in that market. The main points to address here are:

• Is the target financially stable e.g. profitable with growing revenues?
• Does it have a large market share or growing customer base?
• Does it have a capable and experienced team?
• Does it have other intangible assets such as a powerful brand or a valuable patent?

Step 4: Identify potential benefits and risks

Next, consider the pros and cons of doing the deal. Where might the buyer be able to realize synergies with the target? What are the biggest risks to doing the deal? What might derail the integration? For this part, consider these key questions:

• Are there cost or revenue synergies between the two companies?
• What are the primary risks to integrating the two companies?
• Are there concerns around cultural fit (95% of executives say this is vital to a deal's success )?

Step 5: Present your recommendation

Finally, pull all of your findings together and share your final recommendation. Make sure to support your argument with data from the earlier steps and note what you would want to look at if you had more time.

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M&A question bank (Top)

Below, you'll a see list of M&A case questions sourced from a top candidate - Ana Sousa , an ex-McKinsey Business Analyst currently pursuing her MBA at OSU.

Case A background :

Our client, NewPharma, is a major pharmaceutical company with USD 20 billion in annual revenue. Its corporate headquarters is located in Germany, with sales offices around the world. NewPharma has a long, successful record in researching, developing, and selling “small molecule” drugs. This class represents the majority of drugs today, such as aspirin. They would like to enter a new, fast-growing segment of biological drugs, which are made with large and more complex molecules, and can treat conditions not addressable by conventional drugs. The Research and Development (R&D) associated with biological molecules is completely different from small molecules. In order to acquire these capabilities, a pharma company can build them from scratch, partner with startups, or acquire them. Competition is already many years ahead of NewPharma, so they are looking to jumpstart their own program by acquiring BioAdvance, a leading biologicals startup headquartered in San Francisco. BioAdvance was founded 10 years ago by renowned scientists and now have 200 employees. It is publicly traded, and at current share price, they are worth around USD 2 billion.

Example interview question #1: You are asked to evaluate this potential acquisition and advise on the strategic fit for NewPharma. What would you consider when evaluating whether NewPharma should acquire BioAdvance?

Example interview question #2: let’s explore the setup with bioadvance after a potential acquisition. bioadvance’s existing drug pipeline is relatively limited, however, newpharma is more interested in leveraging bioadvance as a biological research “engine” that, when combined with newpharma’s current r&d assets, would produce a strong drug pipeline over the next 10 years. what are your hypotheses on major risks of integrating the r&d functions of both companies, example interview question #3: in the case of an acquisition, newpharma wants to consolidate all biologicals r&d into one center. there are two options to do so: combine them at newpharma’s headquarters in germany, or at bioadance’s headquarters in san francisco. currently, newpharma does not have any biological facilities or operations in germany, so new ones would need to be built. how would you think about this decision.

Case B background :

Total Energy Inc. (TEI) is a private, medium-sized company with a strong history of drilling and producing natural gas wells in Pennsylvania. They own an ample, and believe valuable, set of land assets where more wells could be drilled. The company is well capitalized but has seen profits decline for the last few years, with a projection of loss for the next year. One of the main drivers is the price of natural gas, which has dropped considerably, mainly because companies like TEI have perfected unconventional drilling techniques, leading to an oversupply of the North American market. Current prices are at a five year low. A larger competition has approached TEI’s leadership about acquiring them for an offer of USD 250 million.

Example interview question #1: TEI’s leadership would like your help in evaluating this offer, as well as identifying alternative strategies. How would you assess this matter?

Example interview question #2: the exploration team at tei has found that there is an oil field in texas that they could acquire, and immediately start drilling. drilling is one of the core competencies and strengths of tei. how would you think about this option in comparison to the selling offer.

Case C background :

Tech Cloud has developed a new research engine designed to increase online retail sales by reshaping customer search results based on real-time customer data analysis. An initial assessment indicates outstanding results in increasing sales, and therefore a tremendous potential for this product. However, Tech Cloud is a small startup, so they do not currently possess the capabilities to sell and install their algorithm in large scale. A major tech company has approached Tech Cloud with a partnership offer: to help them make the new product scalable, offering to pay $150M for it as is, and asking for 50% of profits on all future sales of the new research engine.

Example interview question #1: How would you assess whether Tech Cloud should or should not take this partnership offer?

Example interview question #2: what risks would you outline in this partnership, and how would you recommend tech cloud to mitigate them.

Case D background :

Snack Hack is the fifth largest fast-food chain in the world in number of stores in operation. As most competitors, Snack Hack sells fast-food combo meals for any time of the day. Although Snack Hack owns some of its store, it is mainly operating under a franchising business model, with 85% of its operating stores owned by franchisees. As part of a growth strategy, Snack Hack has been analyzing Creamy Dream as a potential acquisition target. Creamy Dream is a growing ice cream franchise with a global presence. While they also operate by franchising, there is a difference: Snack Hack franchises restaurants (stores), while Creamy Dream franchises areas or regions in which the franchisee is required to open a certain number of stores.

Example interview question #1: What would you explore in order to determine whether Snack Hack should acquire Creamy Dream?

Example interview question #2: what potential synergies can exist between snack hack and creamy dream, example interview question #3: one of the potential synergies that our team believes has great potential is increasing overall profitability by selling creamy dream ice cream at snack hack stores. how would you evaluate the impact of this synergy in profitability, example m&a case #1 (top).

We'll now use our framework to tackle one of the example questions we listed above. Let's focus on Case A and answer the following question:

You are asked to evaluate this potential acquisition and advise on the strategic fit for NewPharma. What would you consider when evaluating whether NewPharma should acquire BioAdvance?

Unpacking: why do they want to acquire.

Following our recommended framework, the first step is to identify the underlying purposes of the acquisition. In this case, you can tell from the context information that their strategic motivation is to enter a new type of drug market. The case has already stated your alternatives outside of this M&A: to build capabilities from scratch or make a partnership/acquisition of a different target.

Evaluating the market: is it an attractive space?

Step 2 in our framework is to evaluate the market. You are told the biological segment is fast-growing, and does not overlap with NewPharma current products, therefore there is no risk of cannibalization. You still need to know who currently competes in this segment, what is the general profitability of these drugs and how it compares to small molecule drugs, and deep dive on the regulation for these drugs, since pharma industry is strongly regulation-driven.

Assessing the target: is it a good company?

Next, we jump into step 3, which is assessing the target. This is where we were given the smallest amount of information, so there is much to cover. R&D is a time-consuming process, and NewPharma will not see profits for drugs they start developing together in case of an acquisition in many years, maybe decades. Therefore, the first thing to look at is the value of BioAdvance’s current drug pipeline, or, in other words, what drugs are they currently developing, their likelihood of success, and their expected revenues and profits.

Another key factor is their capabilities, which is what NewPharma is mostly interested in. What does BioAdvance bring to the table in terms of scientific talent, intellectual property, and research facilities? We also want to look at whether they have current contracts or partnerships with other competitors.

Furthermore, besides their main capability which is research, NewPharma should also learn about their marketing and sales capabilities, to identify any synergies in global sales, and also to understand how they currently promote biologicals, since NewPharma has no experience in this. A great structure would also consider any gaps BioAdvance might have, both in R&D and marketing capabilities. Lastly, NewPharma needs to conduct a due diligence to assess the value of BioAdvance, and therefore the acquisition price.

Identify risks and benefits

Step 4 is identifying the risks and benefits. In a high level, the risks include potential of them having a weak pipeline, which would mean not seeing any profits for years. In addition, NewPharma is a European country, while BioAdvance is from California, which means there is a risk of cultural barriers between both their leaderships and their R&D scientists. In addition, there is the risk that entering this new drug market is not aligned with NewPharma’s strategy or core competencies. The benefits include quickly adding R&D capabilities to catch up with their competitors and addressing a new segment of customers that they currently do not serve.

Example M&A case #2 (Top)

Let's walk through another example M&A case to illustrate how the framework we've introduced might be applied in practice. We'll lay out the thought process a candidate would be expected to demonstrate in a case interview. Here's our prompt:

"Our client, Edu Co., is a publishing company that has historically focused on K-12 curriculum and printed educational materials. They're looking at acquiring a startup that's developed digital classroom materials and assessments. How should they evaluate this opportunity?"

Our first step is to consider why Edu Co. is pursuing an acquisition. From the prompt, we can see that they're an established business looking to acquire a newer entry to the market. Edu Co. has focused on their core capabilities - content and printing - but has not invested in a digital product.

Edu Co. is clearly eyeing the startup target as a way to accelerate their growth into the edtech space. Rather than investing in building a digital product themselves, Edu Co. is looking to buy a company that already has a strong product, customer base, and team.

To begin, we would want to evaluate the digital education market. We might ask for more information on the size and growth rate to start. If we find out the market is large and forecasted to grow at 10% per year, that tells us it's a fairly attractive market.

In terms of barriers to entry, there is limited regulation around K-12 content and assessment. In the edtech space, the main concern is around the secure storage of information having to do with minors.

The competitive landscape is something we would want to ask for more information about. We would want to know how many other companies were pursuing these products and which had the most market share. If the market is highly fragmented, it means there is still room for a clear winner to emerge.

Regarding customer dynamics, we would want to know about any indications of changing preferences. For example, the push towards remote learning during COVID-19 would be relevant, as teachers and students have quickly become more comfortable with digital products.

Once we've determined that the market for digital education is attractive, we'll want to turn our attention to the target company. We would start by asking the interviewer for any information on the company's finances, team, market share, and other assets.

Assume the interviewer gives us revenue, profit, and market share data for the past 3 years. As part of our due diligence, we would want to ensure that all three of these metrics were either stable or growing. If we saw dips in this data, it would be important to dive deeper and understand why their performance had declined.

We would also want to know what their organizational structure looked like. If their staff was primarily sales & marketing (meaning they had outsourced their engineering work), they would be a less attractive target, as acquiring the tech personnel was one of the big reasons Edu Co. was looking to buy the business.

Finally, we would want to understand the technology they had developed. It would be important to understand the strengths and weaknesses of their product as well as any patents or IP.

Next, we would want to lay out any risks or benefits to acquiring the company.

The biggest risk we see is that the two company cultures are very different - Edu Co. is large, slower to make changes, and has an older workforce, whereas the other is much smaller, more agile, and younger. If we tried to integrate these two companies, there may be friction between the two working styles.

On the benefits side, there is potential for both cost and revenue synergies. On the cost side, we would be able to cut redundant administrative roles out, such as HR and finance. On the revenue side, Edu Co. may be able to leverage their customer relationships to cross sell digital products.

Present your final recommendation

Eventually, the interviewer would ask if Edu Co. should pursue the acquisition. Here, we would want to pull all the findings together and lay out our reasoning. Start with the answer first:

Recommendation: "Edu Co. should acquire the edtech startup. It's an attractive market that's growing rapidly and doesn't have a clear leader yet. Furthermore the startup appears to be well-positioned in the market: their revenues, profits, and market share have been growing. As Edu Co. looks to grow into the digital education space, this acquisition will give them a leg-up on competitors. Edu Co. will also be able to leverage their customer relationships to rapidly expand the use of this new digital product. However, Edu Co. will want to develop a robust integration plan to mitigate the risk of culture clash. They may want to consider letting the startup remain in their existing HQ to retain their agile working style."

Summary: putting it all together (Top)

As discussed, M&A cases are fairly common because they have the potential to cover a lot of ground, relevant business challenges.

Realize that in a real M&A case, the due diligence on the target alone could take weeks. It's likely your interviewer will have you dive deeper into one specific step to observe your thought process. In that case, stick with your structure, follow their lead, and always lay out the next steps you would follow if you had more time.

Finally, keep in mind that M&A doesn't just come up because it's fun to analyze; it's also an important source of revenue for the firms - Bain's private equity group does hundreds of due diligence cases annually and BCG's post-merger intergration (PMI) practice makes good money helping firms execute a merger successfully.

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Related Expertise: Business Transformation , Post-Merger Integration , Corporate Finance and Strategy

Lessons from Eight Successful M&A Turnarounds

November 12, 2018  By  Ib Löfgrén ,  Lars Fæste ,  Tuukka Seppä ,  Jonas Cunningham ,  Niamh Dawson ,  Daniel Friedman , and  Rüdiger Wolf

M&A is tough, especially when it involves an underperforming asset that needs a turnaround. About 40% of all deals, on average, require some kind of turnaround, whether because of minor problems or a full-blown crisis. With M&A valuations now at record levels, companies must pay higher prices simply to get a deal done. In this environment, leaders need a highly structured approach to put the odds in their favor.

The greatest M&A turnarounds

Automotive: groupe psa + opel, biopharmaceuticals: sanofi + genzyme, media: charter communications + time warner cable + bright house networks, industrial equipment: konecranes + mhps, retail grocery: coop norge + ica norway, shipbuilding: meyer werft + turku shipyard, retail: office depot + officemax, energy: vistra + dynegy.

We recently analyzed large turnaround deals—those in which the target was at least half the size of the buyer in terms of revenue, with the target’s profitability lagging its industry median by at least 30%. Our key finding was that these deals can be just as successful as smaller deals that don’t require a turnaround in terms of value creation. However, they have a much greater variation in outcomes. In other words, the risks are greater and the potential returns are also greater. Critically, our analysis identified four key factors that lead to success in turnaround deals.

1. These buyers use a “full potential” approach to identify all possible areas of improvement. Rather than merely integrating the target company to capture the most obvious synergies, a full-potential approach generates improvements to the target company, captures all synergies, and capitalizes on the opportunity to make needed upgrades to the acquirer as well. (See the exhibit.)

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2. These buyers have a clear rationale for how the deal will create value, and they take a structured, holistic approach:

• They initially fund the journey by generating quick wins that deliver cash to the bottom line quickly, typically restructuring back-end operations to reduce costs and increase efficiency.
• Then they pivot from cost-cutting to growth measures in order to win in the medium term. They revamp the portfolio, selling off some business units and assets and buying others that align with their strategic direction.
• Finally, they invest in the future, often focusing on building digital businesses, upgrading processes with AI, and investing in R&D to secure long-term growth and expanding margins.

Winning buyers have a clear rationale, execute with rigor and speed, and address culture upfront.

3. Successful acquirers execute their plan with rigor and speed. They begin developing plans long before the deal closes, so that they can begin implementation on day one, seamlessly combining the core elements of post-merger integration and a turnaround program. These acquirers are extremely diligent in building clear milestones and objectives into the plan to ensure that key integration and improvement steps are achieved on time. Throughout the process, they move as quickly as possible, regarding speed as their friend. Moreover, they are confident enough to make their targets public and to systematically report on progress.

4. Winning acquirers address culture upfront by reorienting the organization around collaboration, accountability, and bottom-line value. Culture can often be hard to quantify or pin down, but it’s critical in shaping a company’s performance following an acquisition. (See Breaking the Culture Barrier in Postmerger Integrations , BCG Focus, January 2016.)

The case studies on the following pages illustrate these four principles. They offer clear evidence that M&A-based turnarounds may be hard but carry significant opportunity when done right.

Groupe PSA, the parent company of Peugeot, Citroën, Vauxhall Motors, and DS Automobiles, was languishing after the 2008 financial crisis. Demand was particularly slow to recover in Europe, which accounted for more than two-thirds of the company’s sales. After losing $5.4 billion in 2012 and $2.5 billion in 2013, Groupe PSA struck a deal to sell 14% of the company to Chinese competitor Dongfeng and another 14% to the French government, for $870 million each. With the capital raised, it launched a turnaround program in 2014. As part of the program, Groupe PSA bought the Opel brand, which had lost about $19 billion since 1999, from General Motors. The deal was finalized in August 2017.

The turnaround has a strong growth element with a focus on strengthening brands. A sales offensive was built on reducing the variety of models available, offering more attractive leases (possible thanks to the company’s stronger financial services capability), and maintaining discount discipline. Cost efficiency is another important element. Limiting the number of models reduces complexity across the combined group, which reduces costs in both manufacturing and R&D. The increased scale across fewer models leads to simpler procurement and more negotiating clout with suppliers.

The turnaround continued at a relentless pace through the first half of 2018, with profitability restored at Opel and margins continuing to rise for Groupe PSA as a whole.

Overall, gross margins have increased by 35% since 2013. During the same period, Groupe PSA has rebounded from losing money to an EBIT margin of 6%, in line with competitors such as General Motors and ahead of Hyundai and Kia. Perhaps most impressive, the company’s market cap has increased more than 700%. In all, the transformation has allowed Groupe PSA to resume its position as one of the top-performing automakers in the world.

Key success factors in this turnaround: Groupe PSA started the turnaround by raising capital to fund the journey. That enabled it to buy GM’s Opel unit, halt steep financial losses quickly, and generate a profit within one year of the acquisition.

Raising capital allowed Groupe PSA to buy GM’s Opel unit and generate a profit within one year.

In 2009, French pharmaceutical company Sanofi was in acquisition mode. Many of its products were losing patent protection, and the company wanted to shift from traditional drugs into biologics. One potential target was Genzyme.

From 2000 through 2010, Genzyme had grown rapidly, but manufacturing issues at two of its facilities halted production and led to a shortage of key drugs in its portfolio. Sales plunged, the US Food and Drug Administration issued fines, and investors called for management changes. But many features of the company still met Sanofi’s needs, including a lucrative orphan drug business with no patent cliff and a strong history of innovation. Sanofi made an offer: $20 billion, or $74 per share, which was roughly Genzyme’s value before the manufacturing problems hit.

Management laid out a bold ambition and moved fast. The company streamlined manufacturing, opening a new plant to reduce the drug shortage and simplifying operations to remove bottlenecks at existing plants. Next, it moved sales and marketing for some of Genzyme’s businesses, including oncology, biosurgery, and renal products, under the Sanofi brand. It also reduced the overall sales force by about 2,000 people.

Genzyme’s R&D pipeline was integrated into Sanofi, and a new portfolio review process led to the cessation of some studies and the reprioritizing of others. And about 30% of Genzyme’s cost base was reduced through the integration with Sanofi. Genzyme’s diagnostics unit was sold off, and about 8,000 full-time employees were eliminated in the EU and North America.

The moves generated positive results fast. Overall, the integration led to about $700 million in cost reductions through synergies. By 2011, the company was back in expansion mode with 5% revenue growth, increasing to 17% in 2012. Only about 13% of Sanofi’s revenue came from Genzyme products, but these were poised for strong growth, positioning Sanofi as a global leader in rare-disease therapeutics and spurring its evolution into a dominant player in biologics.

Key success factors in this turnaround: Sanofi laid out a bold ambition in its acquisition of Genzyme, and it executed a strategic repositioning with extreme speed, cutting costs and increasing top-line growth.

Genzyme executed a strategic repositioning with speed, cutting costs and increasing top-line growth.

With 8% of the US market in 2014, cable TV provider Charter Communications found itself facing fierce competition for multichannel video subscribers, who usually had bundled services with increasingly important broadband subscriptions. The threat came not only from other multichannel video providers in its markets—including direct-broadcast satellite services and large telcos—but from internet streaming services, as many cable subscribers were “cutting the cord” and streaming video over mobile and other devices.

To protect its market share and profits, Charter significantly expanded its subscriber base in 2015 by acquiring Time Warner Cable and Bright House Networks, which had a 20.8% and 3.6% share of the US cable market, respectively, paying $67 billion for the two businesses. The acquisitions made Charter the second-largest broadband provider and the third-largest multichannel video provider in the US.

With the deal closed, Charter launched a bold transformation that captured extensive synergies among the three businesses in areas such as overhead, product development, engineering, and IT, and it introduced uniform operating practices, pricing, and packaging. Most important, the company’s increased scale improved its bargaining power with content providers. Charter went beyond synergies in a full-potential plan to accelerate revenue growth, product development, and innovation through the increased scale, improved sales and marketing capabilities, and enhanced cable TV footprint brought about by the combination of the three companies. It improved products and services, centralized pricing decisions, and streamlined operations to achieve additional operating and capital efficiency.

As a result, Charter kept up its premerger growth trend and profitability, growing at an annual rate of 5.5% post-merger to reach $42 billion in revenues in 2017. In addition, Charter’s value creation significantly outperformed that of its peers, increasing annualized TSR to 289% from the closing of the transaction to the end of 2017.

Key success factors in this turnaround: Charter made a bold move in acquiring both Time Warner Cable and Bright House Networks. Management developed an extensive plan to generate operational synergies and rationalize the commercial offering of the new entity.

Charter developed an extensive plan to generate operational synergies and rationalize the new entity’s offering.

Konecranes is a global provider of industrial and port cranes equipment and services. Several years ago, in the face of increased competition, Konecranes was struggling to cut costs or grow organically. In 2016, it bought a business unit from Terex Corporation called Material Handling & Port Solutions (MHPS), its principal competitor. The MHPS business included several brands that complemented Konecranes’ products and services, along with some sizeable overlaps in technology and manufacturing networks.

Before the deal closed, Konecranes drafted an ambitious full-potential plan to generate about $160 million in synergies within three years through cost reductions and new business. That represented a 70% improvement over the joint company’s pro forma financials. The turnaround plan encompassed all main businesses and functions across both legacy Konecranes and MHPS operations.

As part of the preclose planning, Konecranes’ leaders designed an overall transformation to start after the merger was finalized. The program covered all business units and functions and was extremely comprehensive, including the following:

• Reducing procurement spending through increased volumes
• Consolidating service locations
• Aligning technological standards and platforms
• Closing some manufacturing sites
• Streamlining corporate functions
• Adopting more efficient processes
• Optimizing the go-to-market approach
• Identifying new avenues of growth

The full program consisted of 350 individual initiatives, organized into nine major work streams and aligned with the overall organization structure to create clear accountabilities and tie the program’s impact directly to financial results. Still, many of the initiatives were complex by nature, so solid planning and rigorous program management and reporting have been critical.

Konecranes also carried out a holistic baseline survey to assess the cultures of the two organizations and define a joint target culture. An extensive cultural development and communications plan featured strongly in the early days of the integration.

The company has reported on its progress to investors as part of its quarterly earnings calls, and two years into the three-year plan, it has hit or exceeded its targets. That performance has earned praise from investors, leading to a share price increase of more than 50% since the acquisition was announced.

Key success factors in this turnaround: The combination of competitors presented a clear opportunity to create value from synergies, but management took the more ambitious approach of using the deal as a catalyst for the combined entity to perform at its full potential. Hitting —and often exceeding—performance targets has led to a dramatic rise in the company’s stock price.

Konecranes used the deal as a catalyst for the combined entity to perform at its full potential.

Coop Norge ranked third in Norway’s competitive and consolidated retail-grocery landscape in 2014, with a 22.7% share. But the company faced a major strategic challenge from its two larger competitors, which were able to use their scale advantages to negotiate favorable prices from suppliers while opening new stores. A smaller player, ICA Norway, was in a more precarious position, with a 2014 operating loss of more than $57 million on revenue of $2.1 billion. An acquisition made sense. In buying ICA, Coop aimed to become the number-two player and so increase economies of scale in procurement and logistics. ICA stores in Norway were a strong strategic fit as well, complementing Coop’s existing locations.

After the acquisition closed, Coop rebranded all ICA supermarkets and discount stores to concentrate on fewer, winning formats and to fully leverage improvements and synergies in areas such as procurement, logistics, and store operations. Coop’s discount brand, Extra, was already showing good momentum in the market, and this was accelerated through the ICA Norway transaction.

The integration and rebranding created pride and momentum internally at ICA, which led to improved growth and financial performance at the acquiring company as well. Coop moved up to second place in the market, generated new economies of scale, and realized 87% of its expected results from synergies within just eight months of the close and 96% after two years. And because the company stayed true to its existing store strategy, it was able to lean on previous experience and maintain its long-term vision. Operating profits rose by approximately $270 million, from a loss of $160 million in 2015 to a profit of $106 million in 2016. Revenue during that period increased by 10.7%, to nearly $6 billion, of which ICA stores and Coop’s existing locations accounted for 7.8 and 2.9 percentage points, respectively.

Coop Norge’s early successes in the integration created strong momentum and a culture of success.

Key success factors in this turnaround: The early successes achieved in the integration created strong momentum and a culture of success, enabling the combined entity to increase both revenue and profits in a highly competitive market.

In the early 2010s, the global shipbuilding industry declined significantly, in part because of a contraction in the demand for ships. That left many shipyards—including the Turku yard, which operated in the sophisticated niche of cruise ships and ferries—in need of cash. When Turku’s owner, STX Finland, verged on insolvency in 2014, the Finnish government (which had a stake in STX) began looking for a new owner. Meyer Werft, a leading European shipbuilder, believed that the Turku shipyard could be operated profitably and bought 70% of the yard in September 2014. As part of the deal, Turku secured two new cruise ship projects. With the orders confirmed, Meyer Werft bought the remaining shares, becoming sole owner.

Renamed Meyer Turku Oy, the company began to integrate the shipyard’s operations and find synergies in development, procurement, and other support functions. Having negotiated up-front for new business, it was able to fill Turku’s production capacity, benefit from increased scale, and begin to boost profitability almost immediately. Critically, the deal helped restore trust among employees, which extended to other important stakeholders such as customers and lenders. Such trust is essential in an industry that hinges on building a small number of very large projects, and it was fostered by Meyer Werft’s delivery on promises right from the start.

Meyer Werft then looked to planning growth in the longer term: increasing capex to boost capacity—and profitability—still further and investing in a new crane, cabin production, and a new steel storage and pretreatment plant while modernizing existing equipment. It also entered into a joint R&D project with the University of Turku to develop more sustainable practices across a ship’s life cycle—from raw materials to manufacturing processes and beyond. And it hired 500 new workers, partially replacing retiring employees, in 2018.

As a result, the company increased revenues from $590 million in 2014 to $970 million in 2017, an annual growth rate of more than 18%. It also increased profit margins to 4% in 2017, up from a loss of 5% in the acquisition year. The company now has a stable order book out to 2024, and productivity continues to climb.

Key success factors in this turnaround: In addition to making operational improvements, Meyer Werft was able to foster trust among employees and customers by delivering on its promises and showing its commitment through long-term investment.

Meyer Werft fostered trust among employees and customers by delivering on its promises.

In early 2013, Office Depot and OfficeMax were in a similar situation: online retailers were threatening their business. They agreed on a merger, with the goal of generating synergies by reducing the cost of goods sold, consolidating support functions to cut overhead, and eliminating redundancies in the distribution and sales units.

Because the two companies were merging as equals—rather than one buying the other— some decisions were difficult to make before the close (for example, which IT system the combined entity would use and where headquarters would be located). But management was able to define synergy targets and begin planning the integration during the six months before the close. The companies also created an integration management office (IMO) that addressed areas that were critical for business continuity, specifying which units would be integrated and which would be left as is.

The IMO created playbooks for 15 integration teams, addressing finance, marketing, the supply chain, and e-commerce operations, and developed a plan for communication, talent management, and change management for the overall effort. It categorized all major decisions into two groups: those that could be made prior to the close (because the steering committee was aligned) and those that couldn’t be made during that period. For decisions in the second category, the IMO laid out the two or three best options to consider. Critically, the IMO’s rigorous plans included timelines for how the businesses would evolve over the first, second, and third years of the merger, helping to align functions and manage interdependencies.

Once the deal closed, all this preparation allowed the two organizations to start the integration process immediately on day one. Within weeks, they had agreed on a leadership team for the combined entity, a headquarters site, and an IT platform. The organization was largely redesigned in just two months—a remarkably rapid effort given that it ultimately affected about 9,000 employees.

Most important, the smooth integration process allowed the companies to be extremely rigorous in capturing more synergies—and doing it faster—than anticipated. For example, they integrated the e-commerce businesses in a way that allowed them to retain most key customers. In the first year after the deal closed, the company captured cost savings close to three times management’s original targets; cost savings of the end-state organization were 50% more. In all, the merger unlocked about $700 million, putting the new company in a much better competitive position.

An extremely rigorous integration plan allowed Office Depot and OfficeMax to exceed cost savings targets.

Key success factors in this turnaround: Office Depot and OfficeMax merged in response to the threat of online competition. An extremely rigorous integration plan allowed the combined business to dramatically exceed its cost savings targets.

Texas-based Vistra Energy operates in 12 US states and delivers energy to nearly 3 million customers, with a mix of natural gas, coal, nuclear, and solar facilities enabling about 41,000 megawatts of generation capacity. It was formed in October 2016 when its predecessor emerged from a protracted bankruptcy process.

At the conclusion of bankruptcy proceedings, Vistra underwent a corporate restructuring, moving from a siloed operating model to a unified organization with a centralized leadership team and common objectives. New governance structures facilitated more consistent and rigorous corporate decision making, with an emphasis on capital allocation and risk management. In addition, management immediately launched a turnaround effort to reduce costs and improve performance across the entire organization.

In all, the company managed to reduce costs and enhance EBITDA by approximately $400 million per year, exceeding its original target by $40 million without any drop in service levels or safety standards. At the same time, investments in new service offerings—many enabled by digital technology—boosted customer satisfaction.

In 2017, Vistra announced the acquisition of Dynegy, one of its largest peers, resulting in the largest competitive integrated power company in the US. The combined entity offers significant synergies, with Vistra now on track to deliver $500 million of additional EBITDA per year, along with annual after-tax free cash flow benefits of nearly $300 million and $1.7 billion in tax savings. The deal also allows Vistra to expand into new US markets, diversifying its operations and earnings, reducing its overall business risk, and creating a platform for future growth.

The addition of Dynegy also supports Vistra’s shift toward a more modern power generation fleet based on natural gas. The company preceded that deal with the acquisition of a large, gas-fueled power plant in west Texas, and it also retired several uneconomical coal-burning facilities. In all, Vistra’s generation profile has evolved from approximately two-thirds coal-fueled sources to more than 50% natural gas and renewables.

With these measures—a successful turnaround followed by two strategic acquisitions—Vistra has positioned itself to sustainably create value for its shareholders in a very competitive industry.

Key success factors in this turnaround: Vistra’s acquisition of Dynegy represented both a pivot to growth and an opportunity to extend cost savings to an acquired operating platform.

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A blueprint for M&A success

Large mergers and acquisitions (M&A) tend to get the biggest headlines, but, as McKinsey research  indicates, executives should be paying attention to all the small deals, too. These smaller transactions, when pursued as part of a deliberate and systematic M&A program, tend to yield strong returns over the long run with comparatively low risk. And, based on our research, companies’ ability to successfully manage these deals can be a central factor in their ability to withstand economic shocks. 1 Martin Hirt, Sven Smit, Chris Bradley, Robert Uhlaner, Mihir Mysore, Yuval Atsmon, and Nicholas Northcote, “ Getting ahead of the next stage of the coronavirus ,” April 2020.

The execution of such a programmatic M&A strategy is not easy, however. Consider the situation at one global cosmetics company (a hypothetical case based on real-world experiences). Enthusiastic executives all had different ideas about which M&A opportunities the company should pursue (exhibit).

Undue influences

The hypothetical case of the global cosmetics company points to two common cognitive biases that can emerge when any company attempts to pursue programmatic M&A: the shiny-object syndrome and Maslow’s hammer.

The shiny-object syndrome —also known as extreme distraction. Companies that continually chase down the next new thing run the risk of pursuing initiatives in the wrong order, skipping foundational tasks, or duplicating efforts and investments.

The M&A team at the cosmetics company, for instance, was reactive. It was swayed by deals sourced by third parties, and it ended up inventing growth strategies around possible, exciting targets without a clear understanding of how they could generate value.

Maslow’s hammer. In his 1966 book The Psychology of Science (HarperCollins), psychologist Abraham Maslow stated, “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” This is the approach the cosmetics company favored—establishing a well-organized M&A team but then using it to drive almost all growth rather than applying it only to those opportunities best suited to be bought, not built.

Without an M&A blueprint to provide an incontrovertible fact base and action plan, the cosmetics company’s efforts to implement programmatic deal making turned into a quixotic, time-wasting effort.

The CEO was pushing for a big bet on digital given the company’s superior financial position. Some senior leaders proposed expansion in greater China, the fastest-growing market for premium cosmetics. Other business-unit leaders saw poten­tial in the markets for organic products and men’s grooming. All had their own agendas (see sidebar, “Undue influences”).

Propelled by a healthy dose of FOMO (or fear of missing out) but lacking a clear set of priorities, the M&A team made multiple small bets on a range of businesses—even on some unexpected targets in adjacent markets (such as pet grooming). But the team did not have a clear plan for creating value from these targets nor for integrating them into the current business structure. The result? The organization ended up wasting time and resources on deals that were mostly unsuccessful, and its executives unintentionally created an unwieldy portfolio of businesses.

The M&A blueprint prompts business leaders to conduct a thorough self-assessment along with a comprehensive market assessment.

As this example illustrates, success in programmatic M&A requires much more than just executing on a long string of deals. Acquirers must articulate exactly why and where they need M&A to deliver on specific themes and objectives underlying their overarching corporate strategies. In addition, they must give careful thought as to how they plan to pursue programmatic M&A—including constructing a high-level business case and preliminary integration plans for each area in which they want to pursue M&A.

Taken together, these factors combine into what we call an M&A blueprint. In this article we discuss how it can be implemented to help organizations remain unrelentingly focused on their investment thesis throughout the deal process. Having a clear M&A blueprint is even more critical as com­panies begin to consider how to rebound from COVID-19. Without an M&A blueprint, it will be more difficult for companies to distinguish between through-cycle opportunities  that are consistent with their corporate strategy and “low hanging, distressed asset” deals that are not.

M&A blueprint: The building blocks

The M&A blueprint can help executives answer three main questions: Why and where should we use programmatic M&A to achieve our corporate strategy? And how should we use programmatic M&A to achieve our corporate strategy? Answering these questions will require asking still more clarifying questions about specific organizational strengths and capabilities, resources available, and other inputs to effective deal making.

Understanding ‘why’ and ‘where’

The M&A blueprint prompts business leaders to conduct a thorough self-assessment along with a comprehensive market assessment. The self-assessment helps establish the baseline from which to identify gaps in corporate ambitions as well as the opportunities for M&A to fill these gaps. It involves examining a company’s key sources of competitive advantage and testing their scalability to determine whether they would still play to the company’s advantage after a transaction. For its part, the market assessment acts as a “sense check” for business leaders, ensuring that the company’s M&A strategy capitalizes on the most recent and relevant trends, accounts for potential disruptions, and acknowledges competitors’ likely actions and reactions.

An M&A blueprint should also define any boundary conditions, or limits to the company’s use of M&A. These conditions, which are typically imposed by the CFO or the board investment committee, provide an important reality check: they define the con­straints on certain types or sizes of deals, thereby further narrowing the scope of potential targets. In setting these conditions, business leaders should account for preexisting financial hurdles—for instance, a rule that “deals must be accretive in the first year” likely would not apply to deals targeting growth and might therefore overly constrain M&A activity. Establishing these boundary conditions at the outset—with explicit agreement from the CFO and the board—can help put teeth into investment commitments and align everyone on negotiable and nonnegotiable terms.

Taken together, the self-assessment, market assessment, and review of boundary conditions can help executives understand the circumstances under which the pursuit of M&A makes the most sense, as well as the markets they are best positioned to enter. Indeed, the output of business leaders’ discussions about “why and where” will be a set of M&A themes that reflect the company’s best value-creation opportunities—those for which the company has the capabilities and resources to achieve intended strategic goals.

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What does a good M&A theme entail? For each theme, senior leaders should identify important deal criteria (categorizing potential targets by geog­raphy, sales channel, product type, and so on) as well as standard screening metrics like company size, number of employees, revenue growth, product port­folio, ownership, and so on. With this detailed information, organizations and M&A deal teams can continually cultivate potential targets within focused M&A themes while still being opportunistic about deals that present themselves.

Once these themes have been identified, business leaders should test them to ensure that they can execute against them—for instance, are there enough targets available, and do the right targets exist to fill gaps in the company’s capabilities? The M&A blueprint will be particularly critical in target-rich environments to help narrow down the list of potentials.

A “gold standard” M&A blueprint is detailed and focused on critical competitive information (value-creation levers, company capabilities, and so on). To understand whether their companies’ M&A themes are detailed enough, business leaders should consider whether they would be comfortable broadcasting those themes to competitors. The answer should be “no.” If the answer is “yes,” more work on the blueprint will be needed, as it and the related themes are likely not specific enough to be useful to M&A teams.

Understanding ‘how’

An M&A blueprint also prompts senior leaders to come up with a plan for “how” they will use M&A to further their overarching corporate strategies. Specifically, the M&A blueprint should delineate the high-level business case and preliminary integration plans associated with each M&A theme.

The business case should explain how the acqui­ring company plans to add value to the target or targets within a given M&A theme—for instance, the capital and operating expenditures needed (beyond the acquisition price) to integrate and scale the asset or assets. It should also outline the operational changes and capabilities that will be required to integrate the new assets—for instance, the creation of a new business unit or a set of new business processes to manage an acquired digital platform.

One large US healthcare company had committed to a strategy of building scale in its services businesses through M&A. First, it consolidated existing disparate service businesses under a new brand and organized them into three distinct units: pharmacy-care services, diversified health and wellness services, and data-analytics and tech­nology services. These became their three M&A themes. Then, over a ten-year period, this program­matic acquirer closed more than 60 deals, spending well over $20 billion, as it sought to fill out its portfolio along these three themes. The organization knew where it wanted to play and how.

Of course, the business case should include a preliminary integration plan for the acquired asset or assets that is consistent with the deal’s value-creation thesis—for instance, all shared services will be absorbed by the acquirer, and the target company’s product portfolio will be cross-sold to the acquirer’s existing customers.

Through their use of the M&A blueprint, business leaders can stay focused on those parts of the deal that can create the most value—especially impor­tant when companies are pursuing multiple deals within the same M&A theme. What’s more, they can prepare functional leaders, suppliers, and others well in advance for the actions they may need to take to integrate an asset or multiple assets.

How lots of small M&A deals add up to big value

M&a blueprint: putting it all together.

An M&A blueprint cannot and should not be developed based on “gut instinct” by a single execu­tive or defined post hoc to validate the theory behind an exciting deal. An executive or business-unit leader should lead its development but should be supported by corporate-strategy and corporate-development executives. The blueprint itself can take the form of a frequently updated and disseminated written report, or it can be a standing agenda item in every M&A and corporate-strategy meeting. Regardless of format, it can help decision makers assess critical factors relating to deal sourcing, due diligence, and integration planning before making any moves and taking steps to identify targets.

Looking back at the case of the cosmetics company, it becomes clear how an M&A blueprint could have helped the organization prioritize a bunch of scattershot ideas into a comprehensive programmatic M&A strategy.

With its market assessment, for instance, it might have seen that the market for digital cosmetics is projected to grow five times faster than the market for nondigital cosmetics. What’s more, market data might have revealed that customers want and expect to buy cosmetics through digital channels, and that there is no clear leader in the space. In its self-assessment, the M&A team might also have seen a gap in the company’s product portfolio com­pared with peers. And a look at boundary conditions might have revealed the time and latitude required to pay off initial acquisition investments, enabling the team to look beyond “base hit” deals with lower acquisition costs.

The M&A blueprint would have led the cosmetics company to a different outcome—perhaps a laser focus on acquiring the set of assets and capabilities needed to build a digital platform for selling cosmetics.

Spending time up front creating an M&A blueprint will pay off over the long term—particularly given the volume of deals associated with a programmatic M&A strategy. With M&A themes and criteria well defined and understood by all, companies can not only be more proactive but also more opportunistic. The top team will be aligned on strategy and focused on deal must-haves prior to reaching out to potential targets. Negotiations with potential targets can be grounded in the business case. Diligence processes can be accelerated and focused only on the most critical sources of value. Integration planning can begin early, with a focus on realizing the strategic intent of the deal rather than just stabilizing companies, people, and processes in the wake of change. Most important, the M&A blueprint can help executives tell a compelling story (inside and outside the company) about its deal-making strategy and its vision for the future.

Sophie Clarke is a consultant in McKinsey’s New Jersey office, where Liz Wol is an associate partner; Robert Uhlaner is a senior partner in the San Francisco office.

The authors wish to thank Anthony Chui, Jack Gordon, Steve Santulli, and Lexi Wang for their contributions to this article.

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Mastering M&A: Your Ultimate Guide for Understanding Mergers and Acquisitions

• August 11, 2023

Table of Contents

The process of two companies or their major business assets consolidating together is known as an M&A (merger and acquisition). It is a business strategy involving two or more companies merging to form a single entity or one company acquiring another. These transactions take place entirely on the basis of strategic objectives like market growth, expanding the company’s market share, cost optimisation and the like.

M&As are also an essential component of investment banking capital markets . It helps in revenue generation, shaping market dynamics, and more. This article will provide a profound understanding of mergers and acquisitions including the types, processes, and various other nitty-gritty involved in the investment banking fundamentals relevant to this business strategy . 

Types of Mergers and Acquisitions 

There are many types associated with the mergers and acquisitions strategy. These are:

Horizontal Mergers 

The merger or consolidation of businesses between firms from one industry is known as a horizontal merger. This occurs when competition is high among companies operating in the same domain. Horizontal mergers help companies gain a higher ground due to potential gains in market share and synergies. Investment banking firms have a major role to play in identifying potential partners for this type of merger. 

Vertical Mergers 

A vertical merger occurs between two or more companies offering different supply chain functions for a particular type of goods or service. This form of merger takes place to enhance the production and cost efficiency of companies specialising in different domains of the supply chain industry. Investment banking firms help in the evaluation of said synergies to optimise overall operational efficiency.

Conglomerate Mergers 

A conglomerate merger occurs when one corporation merges with another corporation operating in an entirely different industry and market space. The very term ‘conglomerate’ is used to describe on company related to several different businesses. 

Friendly vs. Hostile Takeovers 

Leveraged buyouts (lbos) .

A leveraged buyout occurs when a company is purchased via two transactional forms, namely, equity and debt. The funds of this purchase are usually supported by the existing or in-hand capital of a company, the buyer’s purchase of the new equity and funds borrowed. 

Investment banking services are majorly relied upon throughout the entire process encompassing a leveraged buyout. Investment banking skills are necessary for supporting both sides during a bid in order to raise capital and or decide the appropriate valuation. 

Mergers and Acquisitions Process 

To succeed in investment banking careers, your foundational knowledge in handling mergers and acquisitions (M&A) should be strong. Guiding clients throughout the processes involved in M&A transactions is one of the core investment banking skills.

Preparing for Mergers and Acquisitions

To build a strong acquisition strategy, you need to understand the specific benefits the acquirer aims to gain from the acquisition. It can include expanding product lines or entering new markets.

Target Identification and Screening

The acquirer defines the requirements involved in identifying target companies. They may include criteria like profit margins, location, or target customer base. They use these criteria to search for and evaluate potential targets.

Due Diligence

The due diligence process begins after accepting an offer. A comprehensive examination is conducted wherein all aspects of the target company's operations are analysed. They may include financial metrics, assets and liabilities, customers, and the like. Confirming or adjusting the acquirer's assessment of the target company's valuation is the main goal.

Valuation Methods

Assuming positive initial discussions, the acquirer requests detailed information from the target company, such as current financials, to further evaluate its suitability as an acquisition target and as a standalone business.

Negotiating Deal Terms

After creating several valuation models, the acquirer should have enough information to make a reasonable offer. Once the initial offer is presented, both companies can negotiate the terms of the deal in more detail.

Financing M&A Transactions

Upon completing due diligence without significant issues, the next step is to finalise the sale contract. The parties decide on the type of purchase agreement, whether it involves buying assets or shares. While financing options are usually explored earlier, the specific details of financing are typically sorted out after signing the purchase and sale agreement.

Post-Merger Integration

Once the acquisition deal is closed, the management teams of the acquiring and target companies cooperate together to merge the two firms and further implement their operations.

Taking up professional investment banking courses can help you get easy access to investment banking internships that will give you the required industry-level skills you need to flourish in this field. 

Financial Analysis   

Financial statements analysis  .

Financial statement analysis of a merger and acquisition involves evaluating the financial statements of both the acquiring and target companies to assess the financial impact and potential benefits of the transaction. It may include statements like the income statement, balance sheet, and cash flow statement. It is conducted to assess the overall financial health and performance of the company.

In investment banking, financial modelling is a crucial tool used in the financial statement analysis of a merger and acquisition (M&A). Investment bankers develop a merger model, which is a comprehensive financial model that projects the combined financial statements of the acquiring and target companies post-merger. 

Cash Flow Analysis  

Examining a company's cash inflows and outflows to assess its ability to generate and manage cash effectively. In investment banking jobs , one of the primary roles is to assess the transaction structure, including the consideration paid and the timing of cash flows. 

Ratio Analysis  

Utilising various financial ratios to interpret and analyse a company's financial performance, efficiency, and risk levels. Investment banking training equips professionals with a deep understanding of various financial ratios and their significance. They learn how to calculate and interpret ratios related to profitability, liquidity, solvency, efficiency, and valuation.

Comparable Company Analysis  

Comparable Company Analysis (CCA) plays a crucial role in mergers and acquisitions (M&As) due to its importance in determining the valuation of the target company. In investment banking training , you will learn how to conduct a CCA and identify a group of comparable companies in the same industry as the target company. 

By comparing the target company's financial metrics to its peers, you can identify the company's strengths, weaknesses, and positioning within the industry and provide appropriate guidance.

Discounted Cash Flow (DCF) Analysis

Discounted Cash Flow (DCF) analysis is a crucial valuation technique used in M&As. It helps determine the intrinsic value of a company. It helps project the potential cash flows of a company in the future. DCF analysis involves factors like revenue growth, operation costs, working capital requirements and the like.  

Investment banking training provides the skills in building complex financial models that are required for DCF analysis. They develop comprehensive models that incorporate projected cash flows, discount rates, and terminal values to estimate the present value of a company.

Merger Consequences Analysis

Merger Consequences Analysis helps assess the potential outcomes and impact on financial performance, operations, and value of the entities partaking in the M&A. Investment bankers conduct an extensive evaluation to identify and quantify potential synergies that may result from the merger or acquisition, encompassing cost savings, revenue growth opportunities, operational efficiencies, and strategic advantages. 

This analysis aids in estimating the financial implications of these synergies on the combined entity.

Legal and Regulatory Considerations

If you are pursuing an investment banking career , knowledge of the various legalities involved in M&As will help you nail any investment banking interview . The regulatory legalities involved in the process of M&As that partaking entities and investment banking services need to consider:-

Antitrust Laws and Regulations

Antitrust laws and regulations aim to foster fair competition and prevent anti-competitive practices. In the context of M&A, it is vital to assess whether the combination of the acquiring and target companies could potentially harm competition significantly. 

Complying with antitrust laws may involve seeking clearance from regulatory bodies or implementing remedies to address any potential anti-competitive concerns.

Securities Laws and Regulations

Securities laws and regulations are of utmost importance in M&A transactions, considering the issuance of securities or transfer of ownership interests. Compliance with these laws governs the disclosure of material information, fair treatment of shareholders, and the filing of requisite documents with regulatory entities.

Regulatory Approvals and Filings

M&A transactions often necessitate obtaining approvals from various regulatory bodies, including government agencies, industry regulators, or competition authorities. These approvals ensure adherence to specific industry regulations and are typically indispensable for proceeding with the transaction. 

Additionally, filings and disclosures like Form S-4 or 8-K, may be mandatory for furnishing relevant information about the transaction to legal authorities.

Confidentiality and Non-Disclosure Agreements

Confidentiality is crucial throughout M&A transactions. To safeguard sensitive information and trade secrets, parties involved usually enter into non-disclosure agreements (NDAs). These NDAs outline the terms and conditions governing the sharing and handling of confidential information throughout the entire transaction process.

M&A Documentation

The following M&A documents are instrumental in organising and formalising the holistic M&A process. They give clarity, safeguard the interests of all parties included, and guarantee compliance with pertinent legal and regulatory prerequisites all through the transferring process.

Letter of Intent (LOI)  

The Letter of Intent (LOI) is the first and most urgent document that frames the agreements proposed in an M&A. It fills in as the commencement for exchanges and conversations among the gatherings participating in the business procedure.

Merger Agreement  

The Merger Agreement is a legally approved contract that covers every detail of the merger. It may include crucial information like the price of purchase, terms of payment, warranties, post-closure commitments and representations. This arrangement formalises the responsibilities between the partaking parties.

Share Purchase Agreement  

The Share Purchase Agreement is a legally binding contract that oversees the assets of the target organisation being acquired. It frames the terms, conditions, and legitimate liabilities connected with the exchange of ownership interests.

Asset Purchase Agreement  

An Asset Purchase Agreement is utilised when particular assets of the target organisation are being gained. It is a legal contract that sets out the regulatory commitments attached to the procurement and division of those assets.

Confidentiality Agreements  

Confidentiality Agreements, also known as Non-Disclosure Agreements (NDAs), play a major role in protecting sensitive data collected during the M&A cycle. They lay out rules and commitments to guarantee the safe handling and non-exposure of restrictive proprietary information and secrets.

Due Diligence Checklist  

The Due Diligence Checklist is a broad list that helps direct the assessment process by framing the important documents, data, and areas to be evaluated. It works with an exhaustive and deliberate evaluation of the objective organisation's monetary, legal, functional, and business viewpoints.

M&A Case Studies   

M&A case studies serve as a hub of knowledge, enabling companies to make informed decisions and avoid common pitfalls. By delving into these real-world examples, organisations can shape their M&A strategies, anticipate challenges, and increase the likelihood of successful outcomes. Some of these case studies may include:-  

Successful M&A Transactions  

Real-life examples and case studies of M&A transactions that have achieved remarkable success provide meaningful insights into the factors that contributed to their positive outcomes. By analysing these successful deals, companies can uncover valuable lessons and understand the strategic alignment, effective integration processes, synergies realised, and the resulting post-merger performance. 

These case studies serve as an inspiration and offer practical knowledge for companies embarking on their own M&A journeys.

Failed M&A Transactions  

It's equally important to learn from M&A transactions that did not meet expectations or faced challenges. These case studies shed light on the reasons behind their failure. We can examine the cultural clashes, integration issues, financial setbacks, or insufficient due diligence that led to unfavorable outcomes. 

By evaluating failed M&A deals, companies can gain valuable insights so they can further avoid the pitfalls and consider the critical factors to build a successful M&A strategy.

Lessons Learned from M&A Deals  

By analysing a wide range of M&A transactions, including both successful and unsuccessful ones, we can distill valuable lessons. These case studies help us identify recurring themes, best practices, and key takeaways. 

They provide an in-depth and comprehensive understanding of the various pitfalls and potential opportunities involved in an M&A that can enhance their decision-making processes to develop effective strategies.

Taking up reliable investment banking courses can be instrumental in taking your career to unimaginable heights in this field. 

M&A Strategies and Best Practices   

By implementing the following M&A strategies, companies can enhance the likelihood of a successful merger or acquisition:

Strategic Fit and Synergies  

One of the key aspects of M&A is ensuring strategic fit between the acquiring and target companies. This involves evaluating alignment in terms of business goals, market positioning, product portfolios, and customer base.

Integration Planning and Execution  

A well-balanced integration plan is crucial for a successful M&A. It encompasses creating a roadmap for integrating the acquired company's operations, systems, processes, and people. 

Effective execution of the integration plan requires careful coordination, clear communication, and strong project management to ensure a seamless transition and minimise disruption.

Cultural Integration  

Merging organisations often have different cultures, values, and ways of doing business. Cultural integration is essential to aligning employees, fostering collaboration, and maintaining morale. Proactively managing cultural differences, promoting open communication, and creating a shared vision can help mitigate integration challenges and create a cohesive post-merger organisation.

Managing Stakeholders  

M&A transactions involve multiple stakeholders, including employees, customers, suppliers, investors, and regulatory bodies. Managing their expectations, addressing concerns, and communicating the strategic rationale and benefits of the deal are all crucial. 

Engaging with stakeholders throughout the process helps build trust and support, ensuring a smoother transition and post-merger success.

Risk Management in Mergers and Acquisitions  

M&A transactions involve inherent risks that need to be effectively managed. Conducting comprehensive due diligence, identifying and assessing potential risks, and developing risk mitigation strategies are essential steps. 

It's important to consider legal and regulatory compliance, financial risks, operational challenges, cultural integration issues, and potential resistance from stakeholders.

Post-Merger Performance Evaluation  

Evaluating the performance of the merged entity post-transaction is critical to assessing the success of the deal and identifying areas for improvement. This involves tracking financial performance, measuring synergies realised, monitoring customer and employee satisfaction, and conducting periodic assessments. 

Continuous evaluation helps refine strategies and ensure the realisation of intended benefits.

Conclusion   

Mergers and acquisitions (M&A) are intricate processes that require in-depth knowledge and expertise in investment banking operations. The components discussed, such as M&A documentation, case studies, and strategies, emphasise the importance of comprehensive analysis, due diligence, and risk management. 

Many students tend to pursue investment banking careers because of the comparatively high investment banking salary involved. If you are one of these enthusiasts, pursuing a Certified Investment Banking Operations Professional course from Imarticus can provide you with the investment banking certification you need to get started . 

This course help you develop the specialised skills and knowledge required for a successful career in investment banking . It covers essential topics related to M&A, financial analysis, valuation methods, and regulatory considerations, equipping learners with the necessary tools to navigate the complexities of M&A transactions.

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11 Powerful Acquisition Examples (And What We Learned from Them)

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

One of the factors that makes acquisitions such a fascinating area of finance to study is that, while all transactions are relatable to some extent, no two deals are the same. Every M&A transaction has at least some takeaways.

We, at DealRoom, help companies organize their M&A process and here we look at 11 well-known acquisitions, analyze the key takeaways, and provide some pointers on how companies have utilized these acquisition strategies in each particular case.

What is an acquisition?

An acquisition is a transaction whereby companies, organizations, and/or their assets are acquired for some consideration by another company.

Some examples of acquisitions include:

• Google’s $50 million acquisition of Android in 2005
• Pfizer’s $90 billion acquisition of Warner-Lambert in 2000
• Anheuser-Busch InBev’s $100 billion acquisition of SABMiller in 2016

Examples of Acquisitions

The motive for one company to acquire another is nearly always growth, although there is some contention around this issue; how does one measure the growth generated by the acquisition? Through event studies that look at the movement of the acquiring company’s stock price? Or income growth?

These are the questions that keep M&A industry onlookers in business.

In the next section, we look at some of these issues in more detail. Here are the 5 common acquisition type examples:

Example #1 - The acquisition as part of a roll up strategy

Salesforce is an example of a company that has made acquisitions a central part of its growth strategy .

Its acquisition of Slack for $27.7 billion in July 2021 was made after the company realized that the workplace had changed forever as a result of the Covid-19 pandemic.

However the Slack acquisition is just one of many that have allowed the company to become a leader in the workplace technology space.

Why not check out: 7 Biggest M&A Deals of 2022 (So far)

Example #2 - The acquisition to enter a new geography

Spanish bank Banco Santander has also adopted a roll up strategy of sorts, where the emphasis is on geographic expansion. Banco Santander didn’t let Spain’s relatively small population of less than 40million people at the time its acquisition spree began, to limit its growth prospects.

It looked to the Latin American and later, European markets, where cultural and economic links gave it an advantage.

An example of an acquisition (or series of acquisitions) to enter a new geography is well exhibited by Banco Santander’s acquisitions in Argentina.

To enter the market, it acquired a series of small bank entities, starting in Argentina. In 1963 they bought Banco del Hogar Argentino and in the next four years Banco Mercantil de Rosario y de Santa Fe, and Banco Comercial eIndustrial de Córdoba. In 1996, it acquired Banco Tornquist, cementing itself as the largest private banking entity in Argentina, a market with more banking consumers than Spain, according to Statista .

Example #3 - The synergistic acquisition

Morgan Stanley’s acquisition of E*Trade could be considered a synergistic acquisition or an acquisition aimed at acquiring technology, as there is considerable overlap.

However, from the synergies perspective, the $13billion deal allows Morgan Stanley to tap into $56 billion of low cost deposits, data about millions of E*Trade’s customer base, and a powerful new tool to add to Morgan Stanley’s existing portfolio.

Here is a helpful visualization of value captured by synergies and synergistic acquisitions.

Following is growth of Morgan Stanley's share price since its acquisition of E*Trade.

Example #4 - The acquisition to acquire technology

Despite closing hundreds of small add-on technology acquisitions, Google (or Alphabet, as it’s now officially called) made what is widely regarded as its best acquisition nearly 20 years ago.

The acquisition of Android in 2005 for $50 million, enabling Google to enter the cellular phone market for the first time.

To say that the acquisition was a success would bean understatement: in 2020, the Android operating system was the operating system operating in over 70% of the world’s mobile technology, with this figure reported to increase in the following years.

Example #5 - The acquisition to extend the product line

The Coca-Cola fridge is instantly recognizable worldwide, but its contents have continued to change over the decades in response to consumer tastes. In 2015, recognizing a global thirst for energy drinks, the Coca-Cola company went looking for a popular energy drink to bolster its portfolio.

It acquired a stake in energy drink business Monster - the world’s second largest selling energy drink after Red bull - for $2.15bn, allowing customers to open that fridge and take out a cola, a lemonade, an orange, water, juice or an energy drink, which are all amongst Coca-Cola's product and brand portfolio.

Such is the power of an acquisition that extends a company’s product line.

List of Largest Corporate Acquisitions in History

• Vodafone and Mannesmann AG - The biggest acquisition of all time
• Heinz and Kraft Foods - The biggest consumer goods deal of all time
• China Guodian and Shenhua Group - The largest deal involving a state owned enterprise (SOC)
• Philip Morris and Altria - The largest deal which failed to close
• Exxon and Mobil - The deal that created the largest company in the world
• Rosneft and TNK-BP - The largest ever emerging market acquisition

The 6 largest corporate acquisitions in history

We have established some of the different types of acquisitions, but what about the deals whose implicit intention is to reshape industries?

These multibillion dollar deals are the ones that grab the most headlines and more often than not, attract the attention of anti-monopoly regulators concerned that the transaction may lead the acquiring company to wield too much power in their industry.

Below, we look at the six biggest acquisition deals of all time and some of the implications of each.

1. Vodafone and Mannesmann AG - The biggest acquisition of all time

It has been over two decades since Vodafone acquired Mannesmann AG, for $200 billion, still the largest acquisition of all time.

The deal created the world’s largest mobile phone operator, which is still a leader in most European markets, as well as several outside of Europe.

DealRoom looked at the implications of the deal in a previous article about the largest M&A deals of all time . Incidentally, the deal is also considered to be the largest hostile takeover of all time.

2. Heinz and Kraft Foods - The biggest consumer goods deal of all time

The biggest consumer goods deal, like many of the biggest, was considered more a merger of equals than an acquisition per se. When the $100 billion deal was announced in 2015, it made everyone in the already highly consolidated food industry - think P&G, Mars, Nestlé, Danone, and others - sit up and take notice.

However, despite creating one of the world’s undisputed giants of the food industry, the deal wasn’t considered a success, and was followed by slumping sales, shareholder lawsuits, and even shadows hanging over the firm’s accounting practices.

3. China Guodian and Shenhua Group - The largest deal involving a state owned enterprise (SOC)

Here in the United States, we’re not accustomed to the government becoming involved in the M&A scene (with the notable exception of some interventions around the time of the 2008 financial crisis).

However, in China, this is common fare, and some of the deals - largely unknown here in the west - have been astronomically large.

The biggest of these was the merger between China Guodian Corporation and Shenhua Group, creating what is thought to be the largest coal producer in the world with assets of just under $300billion .

4. Philip Morris and Altria - The largest deal which failed to close

Sometimes, it’s not the transaction that closes, but rather the one that didn’t and makes you wonder what might have been, that’s most fascinating.

In 2019, tobacco industry giants Altria and Philip Morris came close to signing a $202 billion deal that would have an epoch-defining and probably epoch-ending (there cannot be many big deals left in the tobacco industry) transaction.

Ultimately, the deal failed to close because of a lack of investor interest on both sides, and a storm brewing over issues related to vaping, where Altria has a large stake in one of the industry leaders.

5. Exxon and Mobil - The deal that created the largest company in the world

On November 30, 1999, as the United States entered the last month of a century in which the antitrust commission had spent much of its time separating large oil companies, two American oil giants, Exxon and Mobil, announced a merger that would not only create an industry leader, but the biggest company in the world by market cap.

The $73 billion deal enabled the two companies to react better to movements in crude prices, and is thought to have gotten the green light from anti monopolists in a bid to protect America’s energy interests.

6. Rosneft and TNK-BP - The largest ever emerging market acquisition

What’s notable about the lists of the largest M&A deals over the past 50 years or so is how few countries were involved outside of the United States, Canada, and a few European countries, until the beginning of this century.

That has started to change quite rapidly with giants from emerging market companies now competing on the world stage. The biggest deal to date involving these companies was the acquisition of TNK-BP by Russian oil giant Rosneft in 2013 for a fee of $55 billion, creating yet another Russian national champion in the oil and gas industry at the time.

In a way, ’mergers and acquisitions’ is a catch-all term for different types of acquisitions that can involve anything from SMEs to massive state owned enterprises, from businesses operating the same industry to those operating in seemingly completely unrelated areas, and from the same city to deals involving countries on the other side of the world.

What every single one has in common is a desire for corporate growth.

In this article, we covered the best 11 acquisition examples that taught us everything there is to know about acquisitions. Learn more about the largest 13 Largest M&A Deals of all Time and check out our Guide to Mergers & Acquisitions .

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S T R E E T OF W A L L S

M&a case study: amazon and zappos.

In this Case Study module we will discuss three key aspects of understanding a real-life Mergers & Acquisitions (M&A) deal:

Company Overviews

Merger deal overview, valuation methods used.

We will take a deep look into the large M&A deal that took place in the eCommerce sector. In November 2009, Amazon, Inc. completed a previously announced acquisition of Zappos.com, Inc. Under the terms of the deal, Amazon paid Zappos.com’s shareholders approximately 10 million shares of Amazon stock (valued at $807 million at time the deal was announced) and $40 million in cash. The M&A deal was advised by investment banking teams at Morgan Stanley (Zappos) and Lazard (Amazon).

Amazon.com is a customer-centric company for three kinds of customers: consumers, sellers and enterprises. The Company serves consumers through its retail websites, and focus on selection, price, and convenience. It also provides easy-to-use functionality, fulfillment and customer service. Amazon is the largest online retailer in the nation, with revenues exceeding $45 billion annually.

Zappos.com was the #1 online seller of shoes at the time of the deal, stressing customer service. It stocks 3 million pairs of shoes, handbags, apparel and accessories, specializing in some 1,000 brands that are difficult to find in mainstream shopping malls. Through its website (and 7,000 affiliate partners), Zappos.com distributes stylish and moderately priced footwear to frustrated and shop-worn customers nationwide. In 2008, one year prior to the deal, Zappos reported annual revenues exceeding $630 million.

The following graphic illustrates the timeline of Amazon’s acquisition of Zappos, from the birth of the possible transaction until the deal’s closing:

M&A Deal Announced: In July 2009, Amazon announced that it had reached an agreement to acquire Zappos in a deal that was valued at $847 million. The Purchase Price of the deal was financed with approximately 10 million shares of Amazon common stock and $40 million of Cash and Restricted Stock units on the balance sheet.

M&A Deal Closed: In November 2009, Amazon announced that it had closed the previously announced acquisition of Zappos. Given the closing price of Amazon stock on the previous Friday (October 30, 2009), the deal was valued at approximately $1.2 billion (including fees).

Financial Advisors

Two investment banks are enrolled in the merger process. In April 2009, Zappos formally engaged Morgan Stanley as its lead financial advisor to a possible sale or strategic relationship. Throughout April, Lazard met with Amazon and ultimately became the buy-side advisor for the transaction.

Rationale for the Deal

Shortly after the deal was announced, Amazon filed an S-4 registration document with the SEC detailing the rationale of both parties for undertaking the deal. Their reasoning was as follows:

• Amazon believed that there was a tremendous opportunity to grow the Zappos brand.
• Zappos was interested in keeping its brand and culture intact, and Amazon supported its vision as an independent company.
• Zappos felt it was in the best interest of shareholders to sell based on current valuations paid by Amazon.

Comparable Company Analysis

Morgan Stanley ran a Comparable Company Analysis as part of the valuation process when estimating the value of Zappos. Comparable Company Analysis is based on the idea that companies with similar characteristics should have approximately similar valuations. Morgan Stanley compared the financial information of Zappos to that of publicly traded Comparable Companies in the eCommerce space.

eCommerce companies used in Morgan Stanley’s Comparable Company Analysis included the following:

Selected Comparable Companies

• Amazon.com, Inc.
• Blue Nile Inc.
• Digital River Inc.
• GSI Commerce Inc.
• Netflix, Inc.
• OpenTable, Inc.
• Overstock.com Inc.
• VistaPrint Ltd.

For the analysis, Morgan Stanley looked at trading multiples in the eCommerce space for two key metrics of earnings: forward EBITDA (the ratio of Enterprise Value to next year’s expected Earnings Before Interest, Taxes, Depreciation & Amortization, or EBITDA) and forward Earnings (ratio of Equity Value to next year’s expected Net Income). Based on consensus estimates for calendar years 2009 and 2010, Morgan Stanley applied these ranges to the relevant Zappos financials.

Discounted Cash Flow Analysis

Morgan Stanley also calculated Equity Value ranges for Zappos based on Discounted Cash Flow (DCF) analysis . DCF models are often used in Investment Banking deals to value a company or asset using the time value of money concept. Expected future cash flows are discounted back to today to give the Net Present Value of those cash flows, which should approximate the current value of the underlying company or asset.

Components used in a DCF Analysis

• Company’s Free Cash Flow (Morgan Stanley projected out 10 years)
• Solving for Terminal Value of the Company (Morgan Stanley uses the Perpetuity Growth Rate approach)
• Weighted Average Cost of Capital (Discount Rate for the Company’s Equity and Debt, appropriately weighted for the Company’s relative mix of Debt and Equity)

Morgan Stanley calculated a Terminal Value as of July 1, 2019 by applying a Perpetual Growth Rate range of 3-4% and a Discount Rate range of 12.5-17.5%. The projected Free Cash Flows (unlevered), Discount Rates, and implied Terminal Value were then used to solve for the Net Present Value of Zappos’ expected future cash flows. Based on the DCF projections, Morgan Stanley implied a Zappos Equity Value range of $1,555-2,785 million. The lower end of the sensitivity analysis implied a Zappos Equity Value of $430 million, so the deal value was within the sensitivity range.

Precedent Transactions Analysis

As part of the due-diligence process, Morgan Stanley also performed a Precedent Transaction Analysis to imply a value for the company using recent historical M&A transactions of similar companies. Precedent Transaction Analysis is based on the idea that recently acquired companies with similar characteristics should provide a solid guideline for a reasonable Purchase Price for the given Target company (in this case, Zappos).

Morgan Stanley researched publicly available M&A transactions looking at deal multiples in the Internet sector with a buyout of $250 million or more since January 2008. The following is a list of the transactions that Morgan Stanley analyzed:

Selected Precedent Transactions (Target/Acquirer)

• Gmarket Inc./eBay Inc.
• Bill Me Later, Inc./eBay Inc.
• Greenfied Online Inc./Microsoft Corporation
• Bebo, Inc./Time Warner Inc.
• CNET Networks, Inc./CBS Corporation
• Audible, Inc./Amazon.com, Inc.

Using the transactions chosen, Morgan Stanley selected ranges of deal multiples and applied those ranges of multiples to the appropriate Zappos financials. Morgan Stanley applied a next-twelve-month (NTM) EBITDA range of approximately 15-30x to Zappos financials, which implied an Equity Value range of $530-1,120 million. Morgan Stanley applied a last-twelve-month (LTM) EBITDA range of approximately 25-75x, implying an Equity Value range of $270-885 million.

Historical Stock Price & Next Twelve Months (NTM) Multiple Analysis

Morgan Stanley also reviewed Amazon’s stock price performance relative to an eCommerce index, an Internet Bellwether Index, and the NASDAQ over various periods of time. The following companies comprised the eCommerce index:

eCommerce Index Components

• Overstock.com, Inc.

The following companies comprised the Internet Bellwether index:

Internet Bellwether Index Components

• Google Inc.
• Yahoo! Inc.

The table below shows Morgan Stanley’s analysis of stock price performance for these selected metrics:

Morgan Stanley then looked at recent trading multiples compared to next-twelve-months (NTM) Earnings Per Share and NTM EBITDA, as well as implied stock prices using these multiples, based on current NTM financials for Amazon. Morgan Stanley commented that over the period Amazon stock traded at an NTM Price/Earnings multiple range of 21.9-94.4x and an NTM EBITDA range of 8.2-32.5x.

Footnote: Selected Zappos.com, Inc. Financial Results

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The Case for M&A in a Downturn

• Brian Salsberg

Companies that made significant acquisitions during the financial crisis outperformed those who didn’t.

As companies begin planning for a post-Covid future, there may be opportunities to make one or more long-sought acquisitions. Deal premiums are likely to come down and assets that companies had been reluctant to sell may become available. But the window for maximizing value could be relatively short, if history is any indication. An analysis of evidence from the global financial crisis shows that companies that made significant acquisitions outperformed those that did not. Companies considering an M&A will need to consider some of the unique aspects to getting a deal done, from transaction diligence to post-acquisition integration.

In these difficult times, we’ve made a number of our coronavirus articles free for all readers. To get all of HBR’s content delivered to your inbox, sign up for the Daily Alert newsletter.

Most companies are still in the early days of assessing the impact from the Covid-19 crisis on their business. But as they begin planning for the future, there may be opportunities to make one or more long-sought acquisitions.

• Brian Salsberg is the EY Global Buy and Integrate Leader. In this role, he leads fully-integrated M&A management services across sectors for the EY organization. He has experience working directly with CEOs, executives, business teams and boards of directors, as well as PE-backed companies, in all facets of strategic planning, due diligence, corporate development and M&A.

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The Private Equity Case Study: The Ultimate Guide

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The private equity case study is an especially intimidating part of the private equity recruitment process .

You’ll get a “case study” in virtually any private equity interview process , whether you’re interviewing at the mega-funds (Blackstone, KKR, Apollo, etc.), middle-market funds , or smaller, startup funds.

The difference is that each one gives you a different type of case study, which means you need to prepare differently:

What Should You Expect in a Private Equity Case Study?

There are three different types of “case studies”:

• Type #1: A “ paper LBO ,” calculated with pen-and-paper or in your head, in which you build a simple leveraged buyout model and use round numbers to guesstimate the IRR.
• Type #2: A 1-3-hour timed LBO modeling test , either on-site or via Zoom and email. This is a pure speed test , so proficiency in the key Excel shortcuts and practice with many modeling tests are essential.
• Type #3: A “take-home” LBO model and presentation, in which you might have a few days up to a week to pick a company, research it, build a model, and make a recommendation for or against an acquisition of the company.

We will focus on the “take-home” private equity case study here because the other types already have their own articles/tutorials or will have them soon.

If you’re interviewing within the fast-paced, on-cycle recruiting process with large funds in the U.S. , you should expect timed LBO modeling tests (type #2).

If the firm interviews dozens of candidates in a single weekend, there’s no time to give everyone open-ended case studies and assess them.

You might also get time-pressured LBO modeling tests in early rounds in other financial centers, such as London .

The open-ended case studies – type #3 – are more common at smaller funds, in off-cycle recruiting, and outside the U.S.

Although you have more time to complete them, they’re significantly more difficult because they require critical thinking skills and outside research.

One common misconception is that you “need” to build a complex model for these case studies.

But that is not true at all because they’re judging you mostly on your investment thesis , your presentation, and your ability to answer questions afterward.

No one cares if your LBO model has 200 rows, 500 rows, or 5,000 rows – they care about how well you make the case for or against the company.

This open-ended private equity case study is often the final step between the interview and the job offer, so it is critically important.

The Private Equity Case Study, in Parts

This is another technical tutorial, so I’ve embedded the corresponding YouTube video below:

Table of Contents:

• 4:32: Part 1: Typical Case Study Prompt
• 6:07: Part 2: Suggested Time Split for a 1-Week Case Study
• 8:01: Part 3: Screening and Selecting a Company
• 14:16: Part 4: Gathering Data and Doing Industry Research
• 22:51: Part 5: Building a Simple But Effective Model
• 26:32: Part 6: Drafting an Investment Recommendation

Files & Resources:

• Case Study Prompt (PDF)
• Private Equity Case Study Slides (PDF)
• Cars.com – Highlighted 10-K (PDF)
• Cars.com – Investor Presentation (PDF)
• Cars.com – Excel Model (XL)
• Cars.com – Investment Recommendation Presentation (PDF)

We’re going to use Cars.com in this example, which is one of the many case studies in our Advanced Financial Modeling course:

Advanced Financial Modeling

Learn more complex "on the job" investment banking models and complete private equity, hedge fund, and credit case studies to win buy-side job offers.

The full course includes a detailed, step-by-step walkthrough rather than this summary, an additional advanced LBO model, and other complex case studies for investment banking, hedge funds, and credit.

Part 1: Typical Private Equity Case Study Prompt

In some cases, they’ll give you a company to analyze, but in others, you’ll have to screen for companies yourself and pick one.

It’s easier if they give you the company and the supporting documents like the Information Memorandum , but you’ll also have less time to complete the case study.

The prompt here is very open-ended: “We like these types of deals and companies, so pick one and present it to us.”

The instructions are helpful in one way: they tell us explicitly not to build a full 3-statement model and to focus on the market and strategy rather than an “extremely complex model.”

They also hint very strongly that the model must include sensitivities and/or scenarios:

Part 2: Suggested Time Split for a 1-Week Private Equity Case Study

You have 7 days to complete this case study, which may seem like a lot of time.

But the problem is that you probably don’t have 8-12 hours per day to work on this.

You’re likely working or studying full-time, which means you might have 2-3 hours per day at most.

So, I would suggest the following schedule:

• Day #1: Read the document, understand the PE firm’s strategy, and pick a company to analyze.
• Days #2 – 3: Gather data on the company’s industry, its financial statements, its revenue/expense drivers, etc.
• Days #4 – 6: Build a simple LBO model (<= 300 rows), ideally using an existing template to save time.
• Day #7: Outline and draft your presentation, let the numbers drive your decisions, and support them with the qualitative factors.

If the presentation is shorter (e.g., 5 slides rather than 15) or longer, you could tweak this schedule as needed.

But regardless of the presentation length, you should spend MORE time on the research, data gathering, and presentation than on the LBO model itself.

Part 3: Screening and Selecting a Company

The criteria are simple and straightforward here: “The firm aims to find undervalued companies with stagnant or declining core businesses that can be acquired at reasonable valuation multiples and then turn them around via restructuring, divestitures, and add-on acquisitions.”

The industry could be consumer, media/telecom, or software, with an ideal Purchase Enterprise Value of $500 million to $1 billion (sometimes up to $2 billion).

Reading between the lines, I would add a few criteria:

• Consistent FCF Generation and 10-20%+ FCF Yields: Strategies such as turnarounds and add-on acquisitions all require cash flow. If the company doesn’t generate much Free Cash Flow , it will have to issue Debt to fund these strategies, which is risky because it makes the deal very dependent on the exit multiple.
• Relatively Lower EBITDA Multiples: If the company has a “stagnant or declining” core business, you don’t want to pay 20x EBITDA for it. An ideal range might be 5-10x, but 10-15x could be OK if there are good growth opportunities. The IRR math also gets tougher at high EBITDA multiples because the maximum Debt in most deals is 5-6x.
• Clean Financial Statements and Enough Detail for Revenue and Expense Projections: You don’t want companies with 2-page-long Cash Flow Statements or Balance Sheets with 100 line items; you can’t spare the time required to simplify and consolidate these statements. And you need some detail on the revenue and expenses because forecasting revenue as a simple percentage growth rate is a bad idea in this context.

We used this process to screen for companies here:

• Step 1: Do a high-level screen of companies in these 3 sectors based on industry, Equity Value or Enterprise Value, and geography.
• Step 2: Quickly review the list of ~200 companies to narrow the sector.
• Step 3: After picking a specific sector, narrow the choices to the top few companies and pick one of them.

In software , many of the companies traded at very high multiples (30x+ EBITDA), and others had negative EBITDA , so we dropped this sector.

In consumer/retail , the companies had more reasonable multiples (5-10x), but most also had low margins and weak FCF generation.

And in media/telecom , quite a few companies had lower multiples, but the FCF math was challenging because many companies had high CapEx requirements (at least on the telecom side).

We eliminated companies with very high multiples, negative EBITDA, and exorbitant CapEx, which left this set:

Within this set, we then eliminated companies with negative FCF, minimal information on revenue/expenses, somewhat-higher multiples, and those whose businesses were declining too much (e.g., 20-30% annual declines).

We settled on Cars.com because it had a 9.4x EBITDA multiple at the time of this screen, a declining business with modest projected growth, 25-30% margins, and reasonable FCF generation with FCF yields between 10% and 15%.

If you don’t have Capital IQ for this exercise, you’ll have to rely on FinViz and use P / E multiples as a proxy for EBITDA multiples.

You can click through to each company to view the P / FCF multiples, which you can flip around to get the FCF yields.

In this case, don’t even bother looking for revenue and expense information until you have your top 2-3 candidates.

Part 4: Gathering Data and Doing Industry Research

Once you have the company, you can spend the next few days skimming through its most recent annual report and investor presentation, focusing on its financial statements and revenue/expense drivers.

With Cars.com, it’s clear that the company’s “Dealer Customers” and Average Revenue per Dealer will be key drivers:

The company also has significant website traffic and earns advertising revenue from that, but it’s small next to the amount it earns from charging car dealers to use its services:

It’s clear from this quick review that we’ll need some outside research to estimate these drivers, as the company’s filings and investor presentation have little.

Fortunately, it’s easy to Google the number of new and used car dealers in the U.S. and estimate the market size and share like that:

The company’s market share has been declining , and we expect that trend to continue, but it’s not clear how rapid the decline will be.

Consumers are increasingly buying directly from other consumers, and dealers have less reason to use the company’s marketplace services than in past years.

We create an area for these key drivers, with scenarios for the most uncertain one:

You might be wondering why there’s no assumed uptick in market share since this is supposed to be a “turnaround” case study.

The short answer is that we think the company is unlikely to “turn around” its core business in this time frame, so it will have to move into new areas via bolt-on acquisitions .

For example, maybe it could acquire smaller firms that sell software and services to dealers, or it could acquire physical or online car dealerships directly.

Another option is to acquire companies that can better monetize Cars.com’s large and growing web traffic – such as companies that sell auto finance leads.

As part of this process, we also need to research smaller companies to acquire, but there isn’t much to say about this part.

It comes down to running searches on Capital IQ for smaller companies in related industries and entering keywords like “auto” in the business description field.

In terms of the other financial statement drivers , many expenses here are simple percentages of revenue, but we could also link them to the employee count.

We also link the website traffic to the sales & marketing spending to capture the spending required for growth in that area.

Finally, we need to input the financial statements for the company, which is not that hard since they’re already fairly clean:

It might be worth consolidating a few items here, but the Income Statement and partial Cash Flow Statement are mostly fine, which means the Excel versions are close to the ones in the annual report.

Part 5: Building a Simple But Effective Model

The case study instructions state that a full 3-statement model is not necessary – but even if they had not, such a model would rarely be worthwhile.

Remember that LBO models, just like DCF models , are based on cash flow and EBITDA multiples ; the full statements add almost nothing since you can track the Cash and Debt balances separately.

In terms of model complexity, a single-sheet LBO with 200-300 rows in Excel is fine for this exercise.

You’re not going to get “extra credit” for a super-complex LBO model that takes days to understand.

The key schedules here are:

• Transaction Assumptions – Including the purchase price, exit assumptions, scenarios, and tranches of debt. Skip the working capital adjustment unless they specifically ask for it. For more on these nuances, see our coverage of Enterprise Value vs. purchase price and cash-free debt-free deals .
• Sources & Uses – Short and simple but required to calculate the Investor Equity.
• Revenue, Expense, and Cash Flow Drivers – These don’t need to be super-complex; the goal is to go beyond projecting revenue as a simple percentage growth rate.
• Income Statement and Partial Cash Flow Statement – The goal is to calculate Free Cash Flow because that drives Debt repayment and Cash generation in an LBO.
• Add-On Acquisitions – These are part of the “turnaround strategy” in this deal, so they’re quite important.
• Debt Schedule – This one is quite simple here because the deal is not dependent on financial engineering.
• Returns Calculations – The IPO vs. M&A exit options add a bit of complexity.
• Sensitivity Tables – It’s difficult to draft the investment recommendation without these.

Skip anything that makes your life harder, such as circular references in Excel (to avoid these, use the beginning Cash and Debt balances to calculate interest).

We pay special attention to the add-on acquisitions here, with support for their revenue and EBITDA contributions:

The Debt Schedule features a Revolver, Term Loans, and Subordinated Notes:

The Returns Calculations are also simple; we do assume a bit of Multiple Expansion because of the company’s higher growth rate by the end:

Could we simplify this model even further?

I don’t think the M&A vs. IPO exit options mentioned above are necessary, and we could also drop the “Growth” vs. “Value” options for the add-on acquisitions:

Especially if we recommend against the deal, it’s not that important to analyze which type of add-on acquisition works best.

It would be more difficult to drop the scenarios and Excel sensitivity tables , but we could restructure them a bit and fold the scenario into a sensitivity table.

All investing is probabilistic, and there’s a huge range of potential outcomes – so it’s difficult to make a serious investment recommendation without examining several outcomes.

Even if we think this deal is spectacular, we must consider cases in which it goes poorly and how we might reduce those risks.

Part 6: Drafting an Investment Recommendation

For a 15-slide recommendation, I would recommend this structure:

• Slides 1 – 2: Recommendation for or against the deal, your criteria, and why you selected this company.
• Slides 3 – 7: Qualitative factors that support or refute the deal (market, competition, growth opportunities, etc.). You can also explain your proposed turnaround strategy, such as the add-on acquisitions, here.
• Slides 8 – 13: The numbers, including a summary of the LBO model, multiples vs. comps (not a detailed valuation), etc. Focus on the assumptions and the output from the sensitivity tables.
• Slide 14: Risk factors for a positive recommendation, and the counter-factual (“what would change your mind?”) for a negative one. You can also explain the potential impact of each risk on the returns and how you could mitigate these risks.
• Slide 15: Restate your conclusions from Slide 1 and present your best arguments here. You could also change the slide formatting or visuals to make it seem new.

“OK,” you say, “but how do you actually make an investment decision?”

The easiest method is to set criteria for the IRR or multiple of invested capital in each case and say, “Yes” if the deal achieves those numbers and “No” if it does not.

For example, maybe the targets are a 30% IRR in the Upside case, a 20% IRR in the Base case, and a 1.0x multiple in the Downside case (i.e., avoid losing money).

We do achieve those numbers in this deal, but the decision could go either way because the deal is highly dependent on the add-on acquisitions.

Without these acquisitions, the deal does not work; the IRR falls by 10%+ across all the scenarios and turns negative in the Downside case.

We need at least 5 good acquisition candidates matching very specific financial profiles ($100 million Purchase Enterprise Value and a 15x EBITDA purchase multiple with 10% revenue growth or 5x EBITDA with 3% growth).

The presentation includes some examples of potential matches:

While these examples are better than nothing, the case is not that strong because:

• Most of these companies are too big or too small to fit into the strategy proposed here of ~$100 million in annual acquisitions.
• The acquisition strategy is unclear ; acquiring and integrating dealerships (even online ones) would be very, very different from acquiring software/data/media companies.
• And since the auto software market is very niche, there’s probably not a long list of potential acquisition candidates beyond the few we found.

We end up saying, “Yes” in this recommendation, but you could easily reach the opposite conclusion because you believe the supporting data is weak.

In short: For a 1-week open-ended case study, this approach is fine, but this specific deal would probably not stand up to a more detailed on-the-job analysis.

The Private Equity Case Study: Final Thoughts

Similar to time-pressured LBO modeling tests, you can get better at the open-ended private equity case study by “putting in the reps.”

But each rep is more time-consuming, and if you have a demanding full-time job, it may be unrealistic to complete multiple practice case studies before the real thing.

Also, even with significant practice, you can’t necessarily reduce the time required to research an industry and specific companies within it.

So, it’s best to pick companies and industries you already know and have several Excel and PowerPoint templates ready to go.

If you’re targeting smaller funds that use off-cycle recruiting, the first part should be easy because you should be applying to funds that match your industry/deal/client background.

And if not, you can always make a lateral move to a bulge bracket bank and interview at the larger funds if you prefer the private equity case study in “speed test” form.

If you liked this article, you might be interested in:

• The Growth Equity Case Study: Real-Life Example and Tutorial
• The Full Guide to Healthcare Private Equity, from Careers to Contradictions
• Healthcare Investment Banking: The Best Group to Check Into When Human Civilization is Collapsing?

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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