How to Talk About M&A Deals in an Investment Bank Interview

Hello and welcome back to the Market Maker podcast. And we have a bit of a special mini-series that we're going to be running throughout the next several weeks and months. And I'm going to be joined by Silvia, who's on the call, and she's going to be guiding us through lots of different topics around M&A and corporate finance. First thing is application season is just around the corner. And given that in mind, what we thought would be a really good first episode to get up and running was how to talk about M&A and M&A deals in an interview. And so everything from frameworks, how to use live deals or recent deals, how to kind of lift your transferable skills to implement them into a way that you're explaining to really tie to the role and some potential pitfalls also that are quite common that you can avoid. So, Silvia, great to have you with us. Where, where do you want to begin?

Thank you, Ant. Yeah, I think it's like a really good topic to begin with because reality is like, if you are thinking about applying for an investment bank or like anyway, a banking-related type of role, something which will 99.999% came up at your interview is like, talk to me about the deal you're interested in. And like, reality is that I think it's like really easy to go down the route of like pretending you have previously worked on a deal, but reality is like, if you are like like interviewing for your first job, maybe for an internship opportunity or a grad opportunity, you may not have that experience. And reality is like, not even your interviewer would necessarily be requesting that. So, you can like do it a bit more like in a smart way, like not pretending you've done something similar, but just like having in mind a good structure framework so that your interviewer understands, you know what you're talking about, but still like without faking any previous experience.

Can I just ask, when does this talk about a deal question come up in the context of an interview? What I mean is when someone says, explain to me like discounted cash flows or a three-statement model, like where does the deal part come in? Is it typically at the end or the beginning?

Yeah, I would say like it depends from bank to bank how your assessment center or final stage interview works, but usually you will get like an interviewer which is much more focused on the technical side of things. So, Based on my experience and what I see live from chats with students is like usually they start a bit more with those questions like you mentioned, like walk me through a DCF, how do you value a company? And then they will probably ask you like, do you have like some experience like working on something similar, maybe through university projects or something like that? And at that point, they will start asking you about like, okay, what's a deal that interested you a lot?

Okay, I see. And so rather than just read the front cover of the FT or the kind of various newsletters that people get, what's a— I know that obviously an interview technique is used, the STAR method, a quite common one. Is there something similar on how to present what otherwise can be quite lengthy, complicated transactions in a much more structured way?

Yeah, absolutely. I think like the main thing is like we could talk about a deal for like 1 hour. We could be like here, me and you and just like start rambling, but like your interviewer is not there for that. If you just like start talking and just like diving to details, which are not really the key point, that will not be a really good start. So like what you may want to do instead is like having a little bit of framework and be just like a step-by-step kind of like infrastructure in your head about like, okay, these are the things I need to tick off and like mention because these are like the key elements of a deal. I think like once you have that, like that is like your way of thinking about it and you can just like prepare one, two deals in your mind, which also I think like one good advice for any student is like, this is a little bit like CVs or like your cover letters. You don't just write one and send that to any investment bank you're applying for. If you want to be really smart, you may want to look up like any deals in which the investment bank you are applying for has been involved, like as the key advisor or as like one of the advisors, because like that will just make you do like that step up in terms of like, I did my research, I'm really keen to work for this investment bank. And then know, like, for example, what is like the key sector, like this investment banking smashing, like from a product perspective. So.

And whenever there is a big deal, just as a bit of guidance, and correct me if I'm wrong, but when the actual deal is announced, you can go on the investor relations press release part of either of the companies involved. And typically there's like a very short kind of announcement. And at the bottom in the footnotes, it has the advisors on the deal, right? So you can kind of like Okay, there's a new deal. Who's on it? Does it align with who I'm applying to? Or just build out, if anything, a bit of a library, because normally it's JP, it's Citi, it's Bank of America, and so on.

Yeah, exactly. That's exactly correct. And like that, you can start like really having this key information that you need to build in your mind structure, thinking about when you want to like expose this to your interviewer.

So, so talk, talk to me a little bit more then about this, the framework, like what are the points within it? What needs to be included? And is there a specific order?

Yeah, I would say that like, first of all, like, whenever we're talking about like M&A, already in saying this, there are like two things involved. It can be a merger, it can be an acquisition. These are like two separate things. So like, first of all, I think you need to be like, to know what type of deal you're talking about. It can be an acquisition, a company's just acquiring another one outright, or it can be a merger, two companies are combining together in a new single entity. You can have things like a spin-off or like divestiture, you're basically kind of like separating one side of your business. Or again, you can have like an LBO, a leveraged buyout, specifically interesting if you are interviewing, for example, for a private equity company, because here we will have some PE involvement. So first feel like this is like your, okay, I know what I'm talking about because I can like categorize these in one of these different types. Then I think like On top of that, one key thing is like understanding, okay, why is this happening? So basically there can be like so many different reasons behind a transaction. Like two companies can decide to integrate for like synergies. They can decide, I can decide to buy another company because I want to acquire the technology of this company, or it can be vertical integration. It can be like so many different reasons and reality is like no real world deal. You will have a few of these things that you can achieve with a transaction if you're acquiring a company, but there will always be like one of these, which is the key reason why the company decides to go ahead. And it's like, that is something else like you need to be like really clear in your mind and talk about.

And I guess a big role of an advisor in a real-world sense is like, okay, so here's how you're performing, here's how they're performing, here's how we could work together for the benefit of both. But then isn't there— here's also the risks associated with, well, what's the downside here so we can make the most informed decision about a potential value of a transaction? Is that right?

Yes, that's correct. Like with any banking role, you are acting as the advisor of your client. So reality is like you can list like all the pros or like the beautiful things you can achieve with the transaction, but there are always many risks. Like you can have integration risks in an acquisition. So maybe like the culture, the processes, the operations of the two companies are just like really misaligned. And they cannot like get together. Think about like a really legacy type of company. Everyone like goes to the office like 5 days a week, everyone in person, like no holidays, if not like Christmas time. So if you're thinking about integrating this with a really kind of like junior, like really kind of like startup phase, flexible company, like it just becomes really difficult. Like it cannot work. Maybe like all like the good things are there, maybe you could have like some great like revenue synergies, but if the two companies cannot work well together, like there's something to bear in mind. And on top of that, there are like many other type of risks, like you can have regulatory scrutiny, you can have like some financing risk, just like in raising debt or equity to pay for this transaction. There can be some retention risk, maybe putting two companies together or like getting acquired to a parent, which is a bigger company. Your key staff is no more happy or like your key clients may go away. So these are all things also to bear in mind and like make sure to like list when you're talking about a transaction.

Okay, so just to, to summarize then, there's kind of 4 key things to go in the framework then. There's the type of deal we're talking about. You said merger, acquisition, LBO, so on. The strategic rationale, the financial headlines to do with the deal, like the key big numbers, value, premium, multiples. And then the risk and challenges. So is that the order you'd kind of go in?

Yeah, probably I would do this. Like, I would not like leave the numbers to the end probably, but just like bring that up, like either kind of like second or third of my steps because like that is important. Like at the end of the day, finance is about numbers.

So do you think that, um, a question I had, so like our former colleague Steven, uh, he was great at say the strategic rationale. And actually, I don't know, correct me if I'm wrong, but it feels like when it comes to valuation techniques and modeling, most people can probably learn and do that. And I find it hard to find a differentiator. If I was at like a whole bunch of candidates I was interviewing, it's like, well, can you do this technical task? Yes, yes, yes, yes, yes. So is it actually a lot of the leverage comes from whether you can stand out? Is it on that? Strategic rationale side.

Yeah, I think like at the end of the day, when we were talking about like technicals, like being able to like work on a model or like being able to do some forecasts, reality is like, it's an art, but it's something you can learn and then you will develop throughout your career, of course. And like the better you will be at like making your assumptions for your model, for example, the better analyst you will be able to be. But then like you need to bring this into context also, because when you're talking with your client, you will need to be able to generate ideas. Like many times, like the idea could be like, oh yes, I just see my office, clients will come and I will just, and they will just ask me what they're interested in me to do and to work on and I will do that. No, reality is not really like that, especially as you like become more senior in your career, like you will spend less and less time just like sitting at your desk and like crunching numbers and instead more time out there kind of like talking with potential clients and pitching new ideas that you need to generate. So like there is all that kind of like generating process that's where like all that strategic rationale is so important. So like that will be super key in like making making you stand out as being able to even like anticipate your client's needs as well.

So, so reading between the lines of what you're saying then, in an application process, you might get grilled on the technicals by the analyst or associate, and the MD is more bigger picture, seeing what you're really thinking in that strategic kind of way. Would that be right?

Yes, yes, that's correct. And I think like, again, when you are asked to talk about like a specific deal, something important will be like, don't just listed the facts, like you have that structure in your mind, but not just think about it as a checkbox, because like your interviewer will want to understand, okay, why is this interesting? Of all the deals that are happening right now, why is it the one you're talking about? And it can really be because it's something like really interesting from like a specific deal perspective. Like, I don't know, for example, anyone probably is really aware of the Microsoft and Activision deal. And that was like also really interesting from a regulatory perspective, for example, there was like immense regulatory scrutiny, but also like it can be just because it's something you're relatable to, like you're really interested in that sector, like you're really passionate about it. Like this is something exciting you because it's something also tangible that like makes sense for you. And so you're really interested to like talk about it and also work in that type of sector, perhaps.

I would love to know for any of our listeners who maybe are in their early careers, maybe doing some of these jobs, maybe using some of the tools about, you know, AI and how that comes into how it's going to potentially change the way of the working methods of a lot of the modeling techniques. I wonder if in the long term a superpower does become the rationalizing of the deal where you can use tools like with most AI tools, it's more about productivity and efficiency, whether you could accelerate things. So yeah, if anyone has any thoughts on that, I'd love to know. But let's talk about using live and recent deal examples because That's what you're kind of told to do. So, is it you just can't go into the past and use an old one? Is it better to just go with like, oh, this happened last week and that shows that you're following things, or how would you approach it?

Yeah, it's a good question. I would say like, it doesn't necessarily need to be like that recent, kind of like a couple of days ago, this popped out. Also because like reality is, so when like you are so like at the very early stages of a deal, you may not really have like also all the information, all the understanding to like properly talk about it. It might be just like a bit too early on, but I would say, well, rather than going back a couple of years and analyzing something from a couple of years ago, you may want to look at something from like this current year, perhaps. But again, like you want to like find the balance on it and also like match it with that kind of like, is this a deal where the bank I'm interviewing for, like, has been like actively involved? Is that something like really interesting to talk about or is it just recent, but it's kind of like a pretty like vanilla type of deal that has nothing really that much interested in it.

And deals are happening all the time, almost every day. So where do you start? Like, how do you, how do you like go, right, okay, yeah, that's the one I'm going to invest my time in? Because you can't study at the depth we're talking about every single transaction. So what advice would you give on like, how do you, how do you pinpoint the specific deal to focus on?

Yeah, I would do it like a bit of like step by step again, like look at like you're interviewing from, maybe focus on like the sector you're interested in or something that like you are genuinely involved with. Again, it can be, I don't know, maybe you really like video games. It can be like some tech type of companies or kind of like in the AI spectrum, because it's something that is really hot at the moment and really interesting to talk about. And like that also gives you that rationale in like, okay, why did you pick this specific deal with respect to like something else? And then, yeah, I would say like another advice is like try to talk about like companies that you know about. Or if you don't know about the company, maybe you know the company which is acquiring, but not the target, you have never heard about that company, but like, do your research, like make sure to be ready to talk about it because you don't want to run the risk of like talking about the company in a really naive, like way in which maybe your interviewer knows a lot and is going to ask you a question you don't really know how to answer.

So if you, if you kind of distill down then the whole interview and everything we've discussed, what is it that they're actually looking for? Like what? What are the core skills that they're trying to unearth by having this conversation about a deal?

Yeah, that's a good question. I think like, again, there will be all the technical elements and again, you may be a bit more lucky or not, depending on like the interview in front of you. They may grill you more or less, but you want to get there with like that basic kind of like finance understanding. And like, you may have not studied finance, like that is not needed. You may not have like some previous experience, like job-wise, but you want to be able to answer some questions like, walk me through a DCF, how can you value a company, and similar, because like, these are really the basics. And like, reality is, if you would like to work in M&A, probably it's something new you have ever like read into or kind of like researched on. And then I would say it's a lot about like transferable type of skills as well. Like, you want to leverage what you have done in the past in order to be able to like show to your interviewer why they should pick you with respect to another person, because indeed you have those skills that you can really leverage for the job. And that can depend, like, maybe you have no previous experience, like nothing at all. To be, like, fair, when I did my first internship and I was interviewing, I didn't have, like, some previous experience, like, in a bank. I didn't do, like, spring weeks. Spring weeks were not really a thing when I was interviewing. And then, like, I didn't have a previous internship in another place. So, I just, like, talked about what I was familiar with, like, Amplify Simulations, because I'd done them in the past and those, like, at uni. For example, I was doing, like, a CFA research project. Which was like a team-based type of task over a few months. And I talked about that because like, as part of that, I had done some modeling, I had done some pitching, some teamwork. And so like, these are all elements that I've been able to bring up. But maybe then you have like a past work in history, maybe you've been in audit. And then in that case, you can like leverage more the due diligence risk side of things. Or again, you may have been in consulting and in that case, it becomes more like your strategic thinking. Again, I think it's all about like showing you have those skills. Skills that are needed for the job. You have your basic understanding of the finance elements, and you are interested enough in the field and curious enough. Curiosity is really important, I think, to show that, okay, you've done your research, you are on top of what is happening in markets, you are aware of, like, really interesting deals that are happening right now. You are, like, if you count, like, all these things and you put them together, like, it generates a really good profile that the bank should 100% be interested Anthony Cheung.

So with all the students you mentioned right at the top of the conversation, you talk to lots of students, interact with them all the time about this very topic. What are some of the most common mistakes or pitfalls that you see them when they're doing this thing in reality?

Yeah, I would say again, like, you don't need to pretend you have previous work experience. Like, we all feel like we should have had some previous work experience. If it's not there, Just don't fake it. Like, again, talk about something different, like leverage what you have done. That doesn't need to be like another experience in another bank. It can be like your work with finance societies at uni, for example, or like some other projects you worked on at uni. I think like genuinely talking about that as something that was really interesting for you and brought you to thinking about a career in M&A or in banking is much more powerful than pretending to have like worked on some deals in the past, because like the interviewer will be able to understand that that is not the case. So like, Don't fake it, would be like first advice. And then I think, again, don't think about it as like, just like checking some boxes, like understand why something is really interesting, why is something you really want to talk about. And like always link back to the why M&A or why this specific bank. These are like the scariest questions usually, like every student's like comes to me and they're like, how do I answer the why M&A? Like, it's a bit of a scary question because like it's so wide. But you want to kind of like link back what you're talking about when you are dissecting a deal, when you're talking about your previous experience to, okay, this is why I'm interested really in working here for this type of job. Because like, to be fair, if you have a passion for it, it's something really exciting for you. It means that you would just enjoy more and more the job. And so eventually, like naturally, you will also perform better. And actually, you're also like more likely to be sticky at the bank because like, Why should you go away if you really love that job?

Yeah, I always say to students in any interview situation, it's like I get them to do like an exercise. I'm like, okay, tell me about a very technical market term terminology or something. And they'll explain it to me and they give me the correct answer. And then I'll say, tell me about something like a hobby that you do. And the delivery difference between A and B is like night and day. And it's like, look, I know you're not going to like love it. At least at the very beginning, to the point that you love, let's say, tennis or something like that. But the lesson being the observation of how you're storytelling and using your body, your voice, your eyes, you know, the interaction, you know, that's super important. So goes back to, like you said, got to choose something you're genuinely interested in. And it starts from there, like gaming, you mentioned, like if you're, if you love gaming, like lean into that, embrace and that's your superpower to talk about, uh, is great. So yeah, Silvia, amazing stuff. I know this is the first of actually lots that we're going to do and try and hopefully release one every week in the future. So don't forget to subscribe to the channel, hit the bell icon so you get notified every time that these drop, and hopefully it's not only going to be hopefully interesting, but also educational and will help with your applications that are up and coming. Thanks. Thank you, Silvia.

Perfect. Thanks, everyone.