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M&A Case Study Assessment Center

Mergers & Acquisitions (M&A) are often an answer to broader problems during case interviews

Merger & Acquisition cases are best practiced using mock interviews

Many growth strategy case studies eventually lead to M&A questions. For instance, companies with excess funds, searching for ways to grow quickly might be interested in acquiring upstream or downstream suppliers (vertical integration), direct competitors (horizontal integration), complementary businesses or even unrelated businesses to diversify their portfolio. The most important requirement for an M&A is that it must increase the shareholders' value and it must have a cultural fit even when the decision financially makes sense.

Analogous to making a purchase at a grocery store, M&A can be viewed as a "buying decision". In general, we know that a consumer first determines the "need" to buy a product followed by analyzing whether he or she can afford the product. After analyzing the first 2 critical factors, the consumer might look at long/short term benefits of the product. Applying similar logic in M&A cases:

  1. Why does the company want to acquire ?
  2. How much is the target company asking for its purchase price & is it fair (see cost-benefit analysis)? Can the acquiring company afford to pay the valuation? Financial valuation will generally include industry & company analysis.
  3. Benefits - potential synergies.
  4. Feasibility and risks (cultural and economical).

Key areas to analyze: assets, target, industry, and feasibility

When you are sure that it is an M&A case, proceed with the following analyses after structuring the case as discussed above:

Analyze the client’s company

  • Why does the client want to acquire? Potential reasons could be the following:
    • (a) Strategic (market position, growth opportunities, diversification of product portfolio)
    • (b) Defensive (acquisition by another competitor could make the competitor unconquerable)
    • (c) Synergies/value creation (cost saving opportunities such as economies of scale, cross-selling, brand)
    • (d) Undervalued (ineffective management, unfavorable market, and the client has the power to bring the target company to its potential value)
  • In which industry does the client operate?
  • Which other businesses does the client possess? Lookout for synergies?
  • What are the client’s key customer segments?

Analyze the target industry

Once it's clear why the client is interested in acquiring a particular company, start by looking at the industry the client wants to buy. This analysis is crucial since the outlook of the industry might overshadow the target's ability to play in it. For instance, small/unprofitable targets in a growing market can be attractive in the same way as great targets can be unattractive in a dying market.

Potential questions to assess are:

  • Can the market be segmented and does the target only play in one of the segments of the market?
  • How big is the market?
  • What are the market’s growth figures?
  • What is the focus? Is it a high volume/low margin or a low volume/high margin market?
  • Are there barriers to entry?
  • Who are the key competitors in the market?
  • How profitable are the competitors?
  • What are possible threats?

Use Porter's Five Forces as a suitable framework here. You should use it without ever mentioning Porter's name.

Analyze the target company

After analyzing the target industry, understand the target company. Try to determine its strengths and weaknesses (see SWOT analysis) and perform a financial valuation to determine the attractiveness of the potential target. You are technically calculating the NPV of the company but this calculation likely is not going to be asked in the case interview. However, having the knowledge of when it is used (e.g., financial valuation) is crucial. Analyze the following information to determine the market attractiveness:

  • The company’s market share
  • The company’s growth figures as compared to that of competitors
  • The company’s profitability as compared to that of competitors
  • How can current businesses from the client leverage revenues and profitability from the business to be acquired (keyword synergies)?
    1. Does the company possess any relevant patents or other useful intangibles (see Google purchasing Motorola)?
    2. Which parts of the company to be acquired can benefit from synergies?
  • The company’s key customers
  • Valuation

Analyze the feasibility of the M&A

Finally, make sure to investigate the feasibility of the acquisition.

Important questions here are:

  • Is the target open for an acquisition or merger in the first place? If not, can the competition acquire it?
  • Are there enough funds available (have a look at the balance sheet or cashflow statement)? Is there a chance of raising funds in the case of insufficient funds through loans etc.
  • Is the client experienced in the integration of acquired companies? Could a merger pose organizational/management problems for the client?
  • Are there other risks associated with a merger? (For example think of political implications and risks of failure, like with the failed merger of Daimler and Chrysler.)

Conclusion

You should now be able to evaluate the venture’s financial and qualitative attractiveness for the client. If you conclude that the client should go on with the M&A, make sure to structure your conclusions in the end. Your suggestions should also include:

  • potential upsides of the merger
  • potential risks and how are we planning to overcome/mitigate them

Keen on cracking an M&A case now? Have a look at Chip equity or General holding

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“It’s not about the money. It’s about the game between people.”

-Gordon Gekko, Wall Street: Money Never Sleeps

The assessment center is the final sprint of the recruiting process – but it’s also a marathon in and of itself.

It’s the longest, most intense, and most tiring part of everything you do before receiving an offer.

And if you’re from the US and you think superday interviews are intense, well, you’ve never experienced the pain and agony that an assessment center can induce.

Here’s what to expect, and how you can make it through the process and land investment banking offers without losing your sanity – or getting voted off the island:

Why Assessment Centers?

The logic is simple: you can say whatever you want in an interview and BS all day long, but it’s much harder to fake it til you make it when you actually have to do the work.

Assessment centers let banks evaluate how well you’d actually perform on the job, because they make you create presentations, answer case study questions, and work together in a group – everything you’d do as an analyst or associate in investment banking.

You could argue that ACs are not representative of your abilities because of all the politicking and one-upping that goes on, but guess what?

That’s also part of what you deal with in banking – or any corporate job – so you better get used to it and learn how to play the office politics game.

What Are Assessment Centers?

After you get past the ability tests and the first round(s) of interviews, you’ll get summoned into the center for a day or two of “festivities”:

  • Interviews with HR and/or Real Bankers
  • Test Verification
  • Role Playing and Case Studies
  • Report Writing
  • Group Discussion(s)
  • Presentation(s)
  • E-Tray / In-Tray

The bank attempts to emulate what you’d have to do on the job, and then tests how well you’d perform over a day or two of exercises.

Whether or not you get an offer afterward depends not only on your work, but how well you interact with everyone else, how you handle yourself around senior bankers, and how much everyone there likes you.

How Do You Tackle Assessment Centers?

Here’s a breakdown of what to expect in each different type of exercise, and how to succeed throughout the entire day:

Interviews with HR and/or Real Bankers

Just as with the interviews before you arrive at the assessment center, you’ll usually speak with someone from HR and then one or two bankers from the group you’re applying to.

There aren’t many differences here, so see the previous article on everything before the assessment center for tips on what to say and how to use the STAR technique to answer interview questions.

It may seem repetitive to go through interviews yet again after you’ve already reached the assessment center, but banks always like to collect multiple opinions of you.

Sometimes they’ll even meet up afterward, trade notes, and look for inconsistencies in what you’ve said and see what everyone thinks of you – so make sure you tell the same story to everyone you meet.

Test Verification

Yes, believe it or not, you may actually get more numerical and verbal tests at the assessment center.

Some people are not so honest and cheat in the online versions of these tests – since no one is watching over them and since it’s all done remotely, taking the tests in pairs or consulting other sources for answers is not exactly difficult.

So banks will make you sit through the tests again, using either a paper version or a computerized one that mimics the earlier version you took, all to see whether or not you completed it on your own the first time around.

If you want the best practice around, sign up for the online aptitude tests and package deals offered on Job Test Prep.

And make sure you don’t cheat the first time around, or you’ll be in for a big surprise on the day of your assessment center.

Role Playing and Case Studies

No, I’m not talking about dressing up as Gandalf or getting your own Excalibur replica here – that would be too nerdy for bankers and screams “IT nerd in the back office.”

These role playing exercises test your ability to interact with clients, your communication skills, and how well you manage large amounts of information in business scenarios – not how much you know about dragons and wizards.

You’re given a package prior to meeting with a client or colleague in the scenario, and you get a folder that includes your place in the company’s hierarchy, the problem at hand, and supporting information and previous communication that you’ve had with the person.

Example scenarios that you might be asked to role play:

  • Your company needs to cut costs by 10% and they’ve asked you to determine where and how they should make these cuts.
  • Your company wants to expand into a new line of business, and they’re choosing between 3 different options. They want your input on which one is best to pursue.
  • Your company is trying to decide which one of 2 candidates is best for a new role and they want your input. What criteria are most important, and how would you make your decision?

With these exercises, structure is most important. Even if there’s no clear-cut way to make a decision, invent a rationale and sound confident about your reasoning. Rambling on without any structure is the worst way to respond.

These exercises also tend to be more common for consulting roles, so you might not necessarily get them when applying to banks.

Report Writing

Despite all the hype over technical skills and financial modeling, banks also care deeply about your writing and communication skills.

As an analyst or associate, you’ll be writing a lot of memos, presentations, and emails – and if you can’t communicate succinctly you’ll never make it anywhere.

This exercise may last anywhere from 30 minutes to 1.5 hours and you may be asked to write anything from a multi-page report to a memo to a simple email.

Once again, the key points are structure and presentation. Possible topics they might ask you to write about:

  • We’re considering acquiring one of these 3 companies. Which target do you think is most compelling, and why? Write one page explaining your response.
  • Please review the analysis and documents concerning this potential acquisition, and write a page explaining why you think it’s a good deal or a bad deal for us.

To answer both these questions, you should use a structure such as:

  1. Introduction and state your recommendation explicitly;
  2. Supporting Reason 1;
  3. Supporting Reason 2;
  4. Supporting Reason 3;
  5. Conclusion and re-state your recommendation.

So you might say that one company is the best target because it’s in the highest-growth market, the acquisition would be accretive to EPS, and you see potential to up-sell and cross-sell to your company’s existing customers using their products and services.

It should not be complicated – keep it simple, be definitive, and make a decision even if you have no idea what to say.

For more recommendations and examples, check out this guide to investment banking case studies and group presentations.

Group Discussion(s)

This part of the assessment center will make you think of a reality TV show, and you’ll wonder how your own fate is different from a contestant who just got voted off.

You’re placed in a group of around 5 people and you’re given anywhere from a few minutes to half an hour to familiarize yourself with an information package that determines the direction of your group discussion.

As you’re going through the materials and discussing what to say, bankers observe you and try to determine your “natural behavior within a group/work environment.”

The sample discussion questions and scenarios you’ll get are similar to the other examples above – which company to acquire, which acquisition strategy to pursue, how to raise capital, how to expand, and so on.

The two most common mistakes:

  1. Dominating the discussion too much and ignoring what other people say to promote your own ideas instead.
  2. Being too quiet and never saying anything – if you do this, bankers can’t assess you very well.

You should take a middle-of-the-road approach and speak up to make good points when necessary, but also try to include everyone else in the conversation.

It’s not a “competition” to see who can say the most or who’s the loudest person in the group – even if you only speak up a few times, it’s more about the quality of your ideas rather than the frequency of your mouth opening.

Presentation(s)

The presentation is another common exercise at any assessment center, but the structure and approach vary by firm and recruiter.

Sometimes you may get the topic a week in advance and have plenty of time to prepare, while other banks give you an information package and ask you to come up with something on the spot.

Common topics for presentations:

  • Similar to the examples above: which company to acquire, which acquisition or financing strategy to pursue, how to value a company, and so on.
  • Your opinion on something in the news – whether or not a company splitting itself up is a good idea, whether a huge M&A deal makes sense, or where the markets might be heading in the future.
  • The prospects of the company you’re interviewing at – what are their biggest opportunities and their greatest threats?

Regardless of the topic, you need to research it thoroughly (if you have advance notice), present your arguments in a structured way (intro, point 1, point 2, point 3, conclusion) and be confident when presenting.

The biggest mistakes candidates make:

  1. Attempting to make too complex an argument and running out of time;
  2. Not using any structure and rambling aimlessly;
  3. Not stating their opinion or giving a definitive recommendation.

Remember that as a banker – or as anyone in finance – you’ll have to make decisions without knowing all the facts. Indecision is worse than making the wrong decision, whether on the job or at the assessment center.

E-Tray / In-Tray

“E-Tray” and “In-Tray” exercises may seem intimidating at first, but they’re really just combinations of the exercises above, where you’re given information, asked to make a recommendation or write an email or report, and you then have to reply to emails as you would in real life.

In E-Tray exercises, you’re given a laptop and you’re presented with an email inbox with different files related to a scenario – your position in the company, the hierarchy of the company and where you stand in it, the projects you’re working on, financial information, and so on.

In-Tray exercises are similar but everything is in paper format instead.

You might get around 10 minutes to go through the documents and familiarize yourself with the information in E-Tray exercises, after which you start receiving simulated emails in your inbox.

You then need to respond to these emails by selecting from one of 3 options they present you with – your answers are based on calculations you have to perform or on facts from the documents, or they might be based on your gut feeling or what you think the correct course of action should be.

For example, you might be asked to assume the role of a senior project analyst working for a company that specializes in consulting with other organizations on their growth strategies and rationalization processes.

As part of the task, you need to advise a retail company on their future growth strategy, focusing on the following areas:

  • Regional expansion
  • Product diversification
  • Analysis of market trends
  • Acquisitions

With the information on your laptop and the folders you have been given, you may be asked:

  • Which two advisers are available to work on the project given its timeframe and the skills required?  To answer this type of question, read the requirements in the question and relate them to the information in your folders to select the appropriate choice. Be sure not to double book anybody, and select the people with the appropriate skills – it’s not difficult, but it is easy to read too quickly and make mistakes.
  • Which of the expenses went over-budget? This one requires you to make some simple calculations – again, not difficult, but it’s easy to move too quickly and select the wrong answer.
  • The company has been asked to carry out another project within the limits of the initial timeframe. Should you execute the project as it was initially agreed upon, ask for an extension, or postpone it for a later date? Here, the answer is based on the capacity of the company and the team, and also on your personal understanding, appreciation of the project, the client, and so on.

Once you reply to these incoming emails, the second part of the E-Tray exercise is very similar to the Writing exercise described above: you need to write an email, a report, or a recommendation on your laptop using the information they give you.

The questions throughout all these assessment center exercises are very similar, and the E-Tray exercise is no exception: you recommend an acquisition, an expansion strategy, a financing method, a new factory or store location, and so on.

Make sure you leave time near the end to review your written work, because the software may not be equipped with spell check or grammar check.

Even if you do happen to have spell check and grammar check, neither one works 100% perfectly so you should still review your writing manually at the end.

Got Persistence?

Getting hired in investment banking – not only in Europe, the Middle East, and Africa, but everywhere in the world – is a question of persistence.

And while you may want to work finance to make more money than everyone else, getting into the industry in the first place isn’t about the money.

Just like Gordon Gekko said, it’s about the game between people – especially when you have an assessment center coming up.

So make sure you play that game until you master it – and that you remain the last one standing at your assessment center when the tribal council of bankers delivers its verdict.

For Even More Practice…

For even more practice with numerical, verbal and logical aptitude tests and assessment centers in general, check out Job Test Prep and all their test prep offerings.

They have our highest recommendation for online tests and assessment center prep – and their courses are the single best way around to prepare for EMEA recruiting.

About the Author

Leni S. grew up in Bulgaria, studied in London and Paris, and worked in venture capital, asset management, and investment management.

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