TBO 1

M&A Review Questions

John Dorio
April 14, 2021

1. Walk me through a sell-side M&A process.

2. Why would one company want to acquire another company?

3. A company with a higher P/E acquires a company with a lower P/E. Is this transaction accretive
or dilutive?

4. Would a company ever pursue a dilutive deal? If they would, why?

5. Why would a company choose to pay for the acquisition in stock?

6. Company A: P/E 20x, Tax Rate: 40%, Interest on Cash: 1%

Company B: P/E 10x, Tax Rate: 40%, Interest on Cash: 2%
Deal Structure, Cash: 150. Assuming no synergies and no premium paid for the target, is the
following deal accretive or dilutive? *Note: Company A always buys Company B*

7. Company A: P/E 20x, Tax Rate: 40%, Interest on Cash: 1%

Company B: P/E 10x, Tax Rate: 40%, Interest on Cash: 2%
Deal Structure, Debt: 150 with 5% Interest. Assuming no synergies and no premium paid for the
target, is the following deal accretive or dilutive?
 TBO 2

8. Company A: P/E 20x, Tax Rate: 40%, Interest on Cash: 1%

Company B: P/E 10x, Tax Rate: 40%, Interest on Cash: 2%
Deal Structure, Stock: 150. Assuming no synergies and no premium paid for the target, is the
following deal accretive or dilutive?

9. Company A: P/E 20x, Tax Rate: 40%, Interest on Cash: 1%

Company B: P/E 10x, Tax Rate: 40%, Interest on Cash: 2%
Deal Structure, Cash, 50 <> Debt: 150 with 5% Interest <> Stock, 50. Assuming no synergies and
no premium paid for the target, is the following deal accretive or dilutive?

10. Company A: P/E 20x, Tax Rate: 40%, Interest on Cash: 1%

Company B: P/E 10x, Tax Rate: 40%, Interest on Cash: 2%
Deal Structure, Cash, 50 <> Debt: 150 with 5% Interest <> Stock, 50. Company A’s current share
price is $100. Assuming no synergies and no premium paid for the target, is the following deal
accretive or dilutive?

11. Company C: Share Price: $20, EPS: $2, 50 Shares Outstanding, 40% Tax Rate
Company D: Share Price: $75, Net Income: $50, EPS: $5
Company C acquires Company D for $100 per share, funding the transaction with $600 of new
debt (5% interest rate) and the rest with stock. What is the $ and % EPS accretion / dilution?