Can You Tell Me About a Recent Deal?

mergersandinquisitions.com/investment-banking-interviews-deal-discussions/

January 22, 2014

by Brian DeChesare Comments (38)

Judging by our email and comment volume over the past few months, there’s one
interview question that causes more confusion than everything else combined…

Can you tell me about a recent deal?”

It seems like a very simple question: after all, you just read up on a deal online and then
summarize what you find, right? Right?

Well, not quite.

Sure, background research must be part of your answer to this question, but it’s not just
about summarizing the news.

The real point of this question is to test whether or not you speak the same language
as bankers, and whether or not you can extract the 80/20 of what’s relevant about
transactions.

Sure, you can memorize technical questions and recite your story word-for-word…

But can you walk the walk when it comes to speaking the Banker Dialect of the English
language?

If you can, you position yourself well for internship and full-time offers.

And if you can’t, you might want to start thinking about your “Plan B” options.

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Why Deal Discussions Matter

Asking you to discuss a recent deal is an easy way to test whether or not you really
understand how deals work (whether it’s M&A, debt, or equity / IPOs).

You can BS your way through “fit” questions and you can memorize responses to technical
questions, but it’s much harder to do this for deal discussions and still sound reasonably
intelligent.

It’s the same reason why case studies are so widely used in the EMEA region, and are now
common even in the US, especially for lateral interviews: if you can’t walk the walk, it will
be very obvious.

In regions with assessment centers and competency questions, such as EMEA and parts of
Asia-Pacific, deal discussions are likely to come up in the form of written questions or
case studies given at the assessment center.

What Should You Do to Prepare?

Picking a deal to research in the first place isn’t terribly complicated: focus on bigger
transactions that have decent coverage in mainstream sources, and just do a search for
recent deals in an industry you’re interested in.

You could also sign up to receive alerts when a deal happens in the sector of your
choosing via this service provided by Dealogic; you can even get information on
debt/equity financing deals from specific banks (examples below):

A long time ago, you could get information on deals more easily because the WSJ used to
publish “deal profiles” in its Money Beat blog (example for Oracle and Acme).

Unfortunately, they no longer publish these detailed profiles, so you have to do more
detective work.

Here’s what you can do instead:

1. Read mainstream press releases from the usual sources – the WSJ and FT, Forbes,
Business Insider, etc. You can get a lot of the qualitative information from these.
2. The NY Times Deal Book sometimes has useful articles on deals, especially for
bigger / more significant ones. Here’s a great example for Apollo’s buyout of Chuck
E. Cheese.
3. If you can’t find the key multiples (EV / Revenue, EV / EBITDA, etc.) in these
sources, look up the company’s filings in the SEC database (for non-US companies,
you’ll have to look at the investor relations section of their sites) and search for
anything that was issued around the time of the deal announcement.

If you can find the Fairness Opinion (for an M&A deal), that’s ideal because the bank
discloses so many of the numbers and key multiples.

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If not, you can still calculate them yourself based on what’s in company presentations
issued around the time of the deal announcement.

For equity issuances, look at the S-1 (or equivalent form in other countries) and use the
company’s share price at issuance – which is easy to find in online sources.

It can be tougher to find information on debt issuances unless you have access to
Bloomberg or Capital IQ, so it’s generally a better idea to cite LBO / M&A / equity deals in
interviews.

As you can tell, it takes time to do this research.

I create new case studies every year, and it still takes me at least 1 hour to find everything
required for even a basic discussion of an M&A or LBO deal.

So I don’t recommend going crazy with this and researching dozens of deals – prepare to
discuss 1 deal, or maybe 2 deals at most.

How Do You Actually Discuss a Deal?

Now you’ve done the research, found enough press releases, and you have the basic
numbers required for the discussion.

Here’s the structure I recommend using:

1) Background information on the buyer and seller (revenue, profits/EBITDA,

multiples, businesses) – or just the company itself in an equity/debt discussion.

2) Deal rationale – Why did the buyer/seller want to do it? Why did the company want
to issue debt or equity?

3) Premium paid and deal multiples, and anything else unusual such as the deal
structure (e.g., if it was an asset deal rather than a stock one). There’s no premium in an
equity or debt deal, so there you’re just focused on multiples and, for debt deals, credit
stats such as leverage and coverage ratios.

4) Your opinion on whether or not it will be beneficial for both the buyer and seller (or
the issuing company) in the short-term and long-term.

Most deal discussions miss point #4 completely, which is probably the most common
mistake.

Many discussions also miss the background information and deal rationale and skip
straight into the numbers – that’s another mistake because the interviewer will have no
idea what you’re talking about.

Take Me to the Examples, Please

As with all interview questions, you should be concise in your verbal answers to this
question, but you can give more detailed explanations if you’re answering in writing.

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Here, we’ll go through 2 examples for the Twitter IPO and the Dell leveraged buyout.

Yes, they’re both tech companies, but they’re also both based on real deal discussions I’ve
critiqued in recent mock interviews.

Plus, it gives me another chance to laugh at how over-hyped and insanely overvalued
Twitter is.

And since I’m not laughing at the Fed or central banks or “the recovery” this time around,
Twitter will serve as a close substitute.

Example #1: The Twitter IPO

“One deal that interested me recently was Twitter’s $1.8 billion IPO.

Twitter, a major social media company everyone knows, had around $317 million in
revenue and a net loss of $80 million in its last fiscal year prior to IPO, and in its current
fiscal year so far, sales have increased nearly 80% but the net loss has also increased.

Twitter decided to go public because of the favorable market environment and its
growing size – the company could raise funding at an attractive valuation that let insiders
and investors reap their gains while also giving the firm enough funds to continue
growing its business.

Twitter priced at $26.00 per share, which valued it at around 12.4x forward revenue. That
was in-line with Facebook’s multiple of 11.6x and LinkedIn’s multiple of 12.2x at the
time. Although those multiples are extremely high and unheard of for non-tech
companies, the valuation wasn’t completely ridiculous since the comps were in a similar
range.

After the IPO, however, Twitter’s shares surged almost 73% in the first day and even went
over $70.00 before falling back closer to $60.00 in the months afterward.

In my opinion, the original valuation at $26.00 share was reasonable, though still very
rich compared to other industries, and a good deal for both new and old investors.

The valuation since the IPO, however, has grown far too high and it’s likely that the price
will decline once again, especially if Twitter misses revenue, earnings, or user growth
expectations.

It’s a good example of a ‘Great company, but not a great investment at its current price’
story.”

Commentary: The background information here is very brief because everyone knows
Twitter, but we do at least mention the industry, revenue, and net income figures.

The most important part is that we cite the multiples of peer companies and use
those to show how the initial valuation was not that ridiculous – but how it became
overvalued afterward as silly retail investors hopped on board the train, unknowingly

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headed into a large black hole.

EV / EBITDA and P / E multiples do not apply since the company was unprofitable, so we
cite revenue multiples instead (which is, itself, another sign of an overvalued company).

You could get all this information from 2 mainstream news articles, with no further work
required: Bloomberg and Business Insider.

Example #2: The Dell Leveraged Buyout

“One deal that interested me recently was Silver Lake’s $24 billion leveraged buyout
of Dell, announced early last year. Dell was a struggling hardware and software company
that started out selling PCs, but expanded into laptops, servers, software, and services. As
of the deal announcement, it had around $57 billion in revenue and EBITDA of $4.2
billion. Prior to deal rumors leaking out, it traded at 3.9x EV / EBITDA and 0.3x EV /
Revenue.

The official deal rationale was that Dell could not turn itself around as a public
company, and required the buyout to get out of the public eye while it transformed itself
(to focus more on mobile, software, and services). At the same time, Silver Lake was
looking for bigger targets to acquire since it had so much ‘dry powder’ back then.

They paid a ~25% premium for Dell, which equated to 5.1x trailing EBITDA. Close to $13
billion in funding came from debt, $6 billion from excess cash, $4 billion from Michael
Dell’s rollover, and just over $1 billion in equity from Silver Lake. The leverage ratio, just
over 5x, was fairly aggressive for this type of company, but the excess cash funding and
the fact that Michael Dell’s ownership increased from 15% to nearly 80% incensed
shareholders, who were being excluded from the potential upside of the deal.

My opinion is that it’s unlikely to be a great deal for anyone except Michael Dell –
there’s no reason the company had to go private to transform its business because
companies like IBM and HP did that as public entities.

In the short-term, Dell’s share price probably wouldn’t have increased by a huge amount
– so while people like Carl Icahn were correct that the offer could have been better, they
wouldn’t have necessarily seen a ton of extra upside from a one-time cash dividend and
holding Dell’s stock.

Finally, it’s difficult to see how Silver Lake will get a solid IRR in any reasonable scenario
unless the company’s growth and margins increase substantially.”

Commentary: OK, I “cheated” a bit on this one by referencing all the work we’ve already
done for the Dell LBO case study covered previously on this site.

It would be very difficult to find all this information from press releases – but you can find
a surprising amount, even if the estimates are very rough.

For a good example, see this Seeking Alpha article. The numbers aren’t precise and you
won’t necessarily get the point on the IRR from that, but it’s a move in the right direction.

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For better sources, you should review the actual filings for the deal and do the math
yourself.

The most important point is that we’ve expressed an opinion on the key
issue: was it a good deal for everyone involved?

And the answer, in my view, is “no” for the reasons stated above.

What Next?

Now you have the instructions you need to find information on deals, you have my
recommended template, and you even have a few sample deal discussions to use as your
references.

Now, go research 1-2 recent deals that interested you and make sure you have enough
information to follow the structure outlined above.

A fantastic deal discussion won’t necessarily get you an offer – but a terrible discussion
almost guarantees that you won’t get the offer.

So not preparing for this question is sort of like buying Twitter’s stock – maybe it will pay
off, and maybe it won’t be a total disaster…

But it’s not a chance you’d want to take in the current (job) market environment.

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About the Author
Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street.
In his spare time, he enjoys memorizing obscure Excel functions, editing resumes,
obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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Comments

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Read below or Add a comment

1.
Amelia Jay
June 12, 2019
Do most interviews require that you describe a deal that the particular firm has
done?

Reply
1.
M&I - Brian
June 13, 2019
It’s a fairly common question, but you won’t necessarily get it in all interviews.
It’s worth preparing for if you’re doing a single interview, but if you’re
interviewing at, say, 10-15 firms, you don’t need a different deal for each one.

Reply

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2.
VVS
February 8, 2019
Hi – I am a VP in Software Equity Research, interviewing for a position in Software
banking at another firm. I have an interview with the Head of Software Banking in a
few days. In terms of deal discussion:

(1) Is there any way to find specific Software deals this bank has done? They don’t
have much info on the bank’s website.

(2) All else equal, would you suggest discussing a Software deal this bank worked on
(bcoz that shows that I have done my research), or a Software deal they did NOT
work on (bcoz then the banker would not know so much detail and cannot ask very
detailed questions)?

Thanks!

Reply
1.
M&I - Brian
February 11, 2019
1) Capital IQ is the best way to look up deals if you have access. If not, and you
can’t find much online, you can’t do much to find deals here because some
banks just don’t publish that information.

2) I would recommend picking a software deal this bank did not work on
because you want to demonstrate your knowledge of the sector but avoid
discussions where the interviewer knows far more than you.

Reply

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3.
analyst
January 9, 2019
It seems you are somewhat critical of the deal in both cases above. Being mildly
critical and thoughtful seems better than simply approving of the deal you discuss
(shows that you can think). 1) Would it be fine to be critical or bring up any concerns
even if the bank you’re interviewing with is involved in the deal? 2) Is it important to
discuss the deal your interviewer’s bank is involved with (to show the interest in that
bank)? 3) How recent should the deal be (last 12 month, last 2 yrs, etc.)? Thanks for
the great article.

Reply
1.
M&I - Brian
January 9, 2019
Yes, I think it’s fine to bring up concerns or weaknesses even if the bank you’re
interviewing with was involved with the deal. Just don’t make it too overtly
negative. You don’t need to pick a deal the interviewer’s bank was involved in.
Aim for high-quality discussions on deals you know well, not deals that match
up with their bank exactly. Last 12 months is best.

Reply
4.
Kim Nzima
May 31, 2018
Thank you so much. I’ve been in the job market for over two years with no success. i
believe this will help me a great deal.

Reply

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5.
anna
November 28, 2017
Hi Brian,

I’m a first year and not getting as much exposure on pitches as my other 1st year
class although I’ve just closed my first deal. Do you think I should be speaking up or
does this reflect my work product and it’s a sign I’m not performing well?

Reply
1.
M&I - Brian
November 29, 2017
You should speak up because in many cases, banks are just disorganized and
don’t know who is doing what

Reply
6.
Adil Rajabali
August 11, 2017
So I am a second year analyst at a generalist investment bank, looking to lateral over
to a larger, energy-focused IB group. I’ve have a good amount of deal experience
that I can leverage during an interview. However, I am having a tough time
approaching the question “So walk me through some of the deals you’ve worked
on?” Do I just ramble off all the deals on my resume (I have 4 listed from my current
job and another two at a previous shop), give a quick background story on each deal,
and then tell them how I added value to the overall deal process(i.e. developed book,
financial model, facilitated flow of information)? I feel like I might be talking for a
while and potentially lose the interviewer’s interest.

How would I approach this type of question where the interviewer wants me to walk
him/her through multiple deals at once??

Reply
1.
M&I - Brian
August 13, 2017
We cover this topic in other articles and in the interview guide… you can go on
for a bit longer (maybe 60 seconds) for a discussion of a deal you’ve worked
on, but you still shouldn’t speak for minutes at a time. For a summary question
like that, summarize the industries and deal types and then ask them what
they want to hear more detail on. Don’t go into details on individual deals until
they ask you to.

Reply

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7.
Sponsor
July 13, 2017
Dear Brian,

How do we find the % of debt that a sponsor used in an acquisition? Is it revealed in

any of the SEC filings of the target?

Best.

Reply
1.
M&I - Brian
July 14, 2017
You should be able to find it somewhere in the filings or press releases… or,
better yet, Capital IQ if you have access.

Reply
8.
Julia
September 13, 2014
Dear Brian,
I am preparing for a private-equity interview right now and my resume states the
company names and $ amounts for some of my previous deals as this information is
public. I am not sure how to talk about the fundamentals of those deals without
breaking any confidentiality rules. For instance can I mention the percentage
revenue split of the company by industry or by customers or any kind of future
growth projections?
Thanks in advance!

Reply
1.
M&I - Nicole
September 13, 2014
If the information is public, then I believe you can list them. If not, I may not
and just say that such details are confidential

Reply

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9.
Kyle
May 12, 2014
Is it bad practice to discuss deals that the bank itself hasn’t taken part of, even
though the deal I’m discussing is really hot in the press (e.g. Twitter IPO or
Comcast/Time Warner)? What I’m really wondering is if I should have 1 or 2 deals
to discuss with each bank. I’ll be interviewing at the associate level if that
helps/matters. Thanks!

Reply
1.
M&I - Nicole
May 12, 2014
Yes you can do that, but its ideal if you can discuss deals the bank was involved
in. Make sure you know the deals inside and out if you were to bring them up
in interviews.

Reply

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10.
Scott
February 12, 2014
How would you explain raising preliminary prospectus and additional funding in
terms of private placements? And in terms of #’s I only have deal size, warrants,
premium % over the conversion price. Any others I should mention?

Cheers

Reply
1.
M&I - Brian
February 13, 2014
Those #s are fine. Private placements are very similar to the IPO discussion
since you also discuss valuation, the company’s appeal to investors, and so on,
the main difference being that there’s no post-IPO price performance to
discuss.

So I would focus on how investors reacted to the offering, whether it was

oversubscribed, etc. in place of the post-IPO performance.

Reply
1.
Scott
April 7, 2014
Thanks Brian. Another question came to mind… How would you explain
“potential IPOs or Private Placements” without revealing and
maintaining the confidential info.

Thanks

Reply
1.
M&I - Nicole
April 7, 2014
You can just talk give out general information like industry name,
deal size (if not confidential) and talk about the tasks you have
done. You don’t need to go into details re. pricing etc. If they press
for more info, just say that this is confidential

Reply

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11.
Dre
January 27, 2014
Hi, Brian,

I know this is off topic but are you going to do an article on fine art/paintings as an
alternative investment?
Especially because I’m a part-time painter.

Reply
1.
M&I - Brian
January 28, 2014
If someone volunteers, sure, we can cover that. It would have to be an
interview, though, because I don’t know anything about it personally.

Reply

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12.
Andrew
January 26, 2014
Hey Great Article.

2 Questions:

1 Do you agree with the notion that you should specifically not discuss a deal in the
bankers particular industry ? Like if your interviewing with someone from TMT you
shouldn’t discuss a recent tech deal since they are probably extremely
knowledgeable on all aspects of the deal?

2. I’ve been having difficulty finding multiples and numbers for acquisitions of
specific divisions as opposed to whole companies. For example in the recent IBM
Lenovo deal. Where would you recommend finding that data as EBIT numbers don’t
seem to be in the mainstream media or finance articles. Is it ever okay to not have
specific multiples handy?

Reply
1.
M&I - Brian
January 26, 2014
1. I agree somewhat, but this doesn’t matter as much as people say because
chances are they did not work on the deal. And if it’s outside their sub-sector
focus they probably won’t know much about it.

2. It’s really hard to find information on divestitures unless you have Capital
IQ or PrivCo. For something like Lenovo / IBM they did disclose revenue but
IBM doesn’t give EBIT figures by division. So in this case you could just
estimate it and say something like “At a 5% estimated EBIT margin (the
company doesn’t disclose figures, but that’s the average margin for similar
companies in this business), it’s a multiple of…”

If you don’t have at least one multiple to point to, don’t use the deal.

Reply

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 13.
Bob
January 23, 2014
There is great information on some databases such as Zephyr (which a lot of
universities have access to). I used it for interviews since you can narrow down and
filter deals by industry, size, region, and more importantly by the
underwriters/advisers so that you talk about a deal the same bank you are
interviewing at has completed.
You can get a short description, multiples and often pro-forma financials.
It’s not free, but if you have access its a great resource!

Reply
1.
M&I - Brian
January 23, 2014
Yeah that is a good point, though not everyone has access to those.

PrivCo is another good source for private companies, but it’s expensive and
less common than Capital IQ.

Dealbook will often list the financial and legal advisers for bigger deals as well.

Reply
14.
Rohan
January 22, 2014
Good topic to touch on and its not that difficult to get info on past deals of Banks
you are going to interview for , its just that most of those sites where info is
uploaded you have to bloody PAY for them. Even to read articles of newspapers like
WSJ,FT,leveragedfinancenews etc you need to subscribe.
It is worth paying for but still annoying

Reply
1.
M&I - Brian
January 23, 2014
True, but you can still get a lot of information for free from mainstream news
articles.

Reply

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