Questions you will always encounter in an M&A interview. And how to answer them

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Questions you will always encounter in an M&A interview. And how to answer them

Can you walk me through a cash flow statement?

2020 has been a tough year for mergers and acquisitions bankers, as Covid 19 has put deals on hold and travel bans have confined rainmakers to peddle their charm to clients on endless Zoom calls, rather than taking them to the Tokyo Grand Prix.

But a recent revival in mergers and acquisitions activity means banks are hiring again, especially at the analyst, VP and director levels. “Banks are under pressure to cut costs, and that leads to juniorization with opportunities for less experienced bankers to take on more responsibility,” says one headhunter.

That means if you’re looking to get into M&A, it’s as competitive as ever. On top of showing you have the technical and interpersonal skills to thrive, there’s the added challenge of knowing how to convey this over Zoom.  Preparation is everything.

These are the questions you can expect.

1. Expect some 'fit' questions 

The FIT questions are a platform to show you the right person they are looking for. You’ll be competing with peers often with a similar background and education so it’s important to talk about  your interests and how you are the right fit for the firm you are applying to.

Marc Hatz is a former Goldman Sachs and Perella Weinberg Partners banker who runs a boutique M&A advisory firm focusing on global growth markets. He also who has been offering advice on preparing for investment banking interviews.  And his advice is to keep it simple.  “Be concise in your answers. introduce yourself by going through your CV, and using that to show why you are the right person for the job. When thinking about this, you are looking to answer the questions ‘why me?’ and ‘why you want to work for a particular bank’.”  

2. Expect technical questions

TThe technical interview will include questions about accounting and valuation and you’ll be expected to know this. 

Matan Feldman, a former J.P. Morgan associate and founder of Wall Street Prep, which provides online boot camps along with resources to help candidates prepare for a career in finance, says many students erroneously believe that if they are not finance/business majors, then technical questions do not apply to them. “On the contrary, interviewers want to be assured that students going into the field are committed to the work they’ll be doing for the next few years, especially as many finance firms will devote considerable resources to mentor and develop their new employees,” he says. 

Feldman says all M&A interviewees should also be familiar with cashflow questions.  Wall Street Prep recommends that you start with net income and go through the statement line by line. You'll need to cover major adjustments, such as depreciation, changes in working capital, and deferred taxes.

Hatz agrees that a knowledge of discounted cash flows, company balance sheets and valuation multiples is essential.  “On the accounting and valuation questions you can’t afford to be hesitant. The person interviewing you will want someone they can trust to give work to,” he says.

Wall Street Prep recommends you must be able to explain how an income statement is related to a balance sheet, and can define terms like goodwill and working capital.  You must be comfortable to talk through a discounted cash flow analysis and walk the interviewer through a cash flow statement. “Start with net income, go line by line through major adjustments (depreciation, changes in working capital and deferred taxes) to arrive at cash flows from operating activities,” says Wall Street Prep.

Hatz says technical knowledge is particularly important when interviewing at boutiques. “They have fewer resources and flatter structures. You’re likely to be working on more complex deals from day one.” But try and keep your answers as concise as possible.

3. Expect to be asked how to perform a LBO analysis

"You'll usually be asked about LBO models," says Hatz. "Know the basics about them." An LBO is a, "modeling exercise aiming at understanding a financial investor's expected return on an investment, based on specific factors like entry and exit prices, operational projections, and leverage" says Hatz. 

4. Expect brain teasers

To prove you can think on your feet, banks still like throwing in that M&A interview staple: the brain teaser.

Hatz says that a typical question is, ‘How many pigs are there in China?’ You won't be expected to know the answer but it’s intended as a way to demonstrate your thought processes and to show that you're flexible enough to attempt a solution.

5. Expect questions trying to unearth whether you’re a team player

Banks understand that juniors won't be expected to know everything from day one, but you'll need to show that you have a flexible attitude and can function as a member of a team. Expect questions about when you solved a problem with other people. Be sure to have some solid example of previous situations when you worked successfully with others. 

6. Expect quick mathematics questions

Among other tips, Hatz suggests you may want to brush up on your mental math. “An example is, what is seven exponent three, an easy question you want to make sure you answer correctly*.”

With more interviews taking place online, don’t forget to be ‘Zoom-ready’. Hatz adds: “Dress smartly, maintain a good posture,  check that the interviewer can hear you, choose a good background, and smile.”  

*The answer is 343.

Photo by Andrea Natali on Unsplash
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