EY M&A Consulting Interview
What is a financial sponsor?
A financial sponsor is a buyer who is interested in making an investment in a company and eventually sell it to get a financial return. (Typically PE shops)
What is a recent M&A deal that has interested me?
A recent deal I was interested in was Square's acquisition of Afterpay. Here is a bit of background on the deal. Square is an American fintech company that offers point-of-sale systems and payment hardware to businesses to use for day-to-day operations. It had an EBITDA of about $474 million in 2020. Afterpay is an Australian buy-now-pay-later lender that allows customers to pay purchases over a fixed period with no interest. Square acquired Afterpay through an all-stock transaction for $29 billion, making it the largest merger in Australian history. The rationale behind this acquisition is fairly sound. For starters, Afterpay has a global presence. Square can now leverage that international presence to integrate cash app in Europe and Australia. They can also provide POS systems to Afterpay's large enterprise customers. On the flipside, Afterpay can now tap into the US market. A majority of Afterpay's revenues come from larger enterprises, and now its presence in the U.S will allow it to capitalize on Square's small to medium-sized customer base. A valuation of almost $30 billion seems high, however, it is consistent with comparable companies such as Affirm which was valued at $32 Billion recently. Square paid about $126.21 per share of Afterpay which is about a 30% premium from the share price just before the acquisition. This premium percentage is consistent with other financial services m&a deals. With online shopping becoming such a strong force due to the pandemic, this deal leaves plenty of room for Afterpay to thrive.
What is strategic buyer?
A strategic buyer is a company that buys another company to achieve synergies because they believe combing the two will make it more valuable than the sum of its parts. (Horizontal or Vertical)
Who will pay more for a company, a strategic buyer or a financial sponsor? Why?
A strategic buyer would pay more because the strategic acquirer can realize revenue and cost synergies that the private equity firm cannot unless it combines the company with a complementary portfolio company. Those synergies boost the valuation.
What is precedent transactions method?
A valuation method in which you value a company by looking at the amount buyers have paid for acquiring similar companies in the recent past (Relative Valuation)
What is the trading comps method?
A valuation methodology where you compare a business's metrics to other public businesses of similar size in a similar industry. Metrics include share price, market cap, EV/EBITDA, EV/Sales, etc. You should try to find metrics that are consistent with the industry you are observing.
What is accretion and dilution?
Accretion is a positive change in value of an asset. Dilution is the inverse of that. A Merger is accretive if the combined EPS is higher than the Acquirers standalone EPS. It is dilutive if the combined EPS is smaller.
What is an LBO valuation?
An LBO (Leverage Buyout) is when you acquire a company primarily through debt and little equity and then use the companies expected future cashflows to pay off that debt. (similar to buying a house with a mortgage and then renting out the house and using the rental income to pay off the house. Once you pay off the house, you know own the house and your equity has increased by the difference of the value of the house minus your initial equity investment.)
A disruptive/innovative idea to implement
An innovative idea was to find a better way to digitize our student org events during covid. I created a QR code to track attendance and had results submit to a google sheet. I Wanted to keep members engaged so i recommended we created weekly ZoomTalks where we all joined the Zoom call to talk about anything and everything. We also did other fun stuff like virtual Kahoot nights with eGift card prizes. Overall this helped keep members engaged, and besides the graduating seniors, we had 100% member retention for the following year.
What are cost-saving synergies?
Cost-saving synergies are the cast-saving benefits of combining the two businesses. Examples: -Supply chain efficiencies -Shared information technology -R&D -Lower wages/salaries
Walk me through a DCF
DCF Steps: 1. Project a companies financials for 5-10 years using assumptions 2. Calculate free cash flow (NI + depr/amort - change in NWC - CapEx) 3. Discount the cash flows for each year using the WACC to get to the PV of the cash flow. 4. Calculate the terminal value of the firm by dividing the FCF of an extra year by the WACC minus the growth rate 5. Sum up the present value of future cash flows and add the terminal value to get to company's enterprise value
A time you worked with a difficult teammate
During my previous internship, we had to work on an internship long case. We had a teammate that was very inactive with the group and was not contributing to the group and seemed to be a bit reserved. We need to get some deliverables out soon and we need participation from this teammate. I messaged this person personally and asked what was going on if they needed help. It turned out that this person was taking 2 online classes during the summer and the full time internship was having time dealing with the two. After speaking with this person we came up with a plan to balance both the internship and the classes. This person felt more comfortable handling the two and became an important part of our team. We placed 4th nationally in our case presentation.
Why is M&A so popular this year?
Every sector of the economy was greatly affected my COVID-19 and some are still recovering from this impacts. Many companies are going on the offensive to take advantage of this time to get a competitive edge over their competitors and make some sort of M&A move. Because of the pandemic, companies are also looking to make deals that would make them immune to these kinds of events by making moves to digitize their business.
How do you calculate unlevered FCF?
FCF = EBIT x (1-Taxes) + Depreciation - Capex - Net Working Capital
Disagreed on a project
For a recent case presentation, we had to analysis a case and do analyze. Many of the people in my group wanted to just sum up the case and get it over with. However I was worried about the case and wanted to get full points. I had to convince my teammates to revisit the project syllabus and explain how we need to provide personal analysis. I did some analysis and then gave them a pathway to create their own analysis. After our presentation our professor told everyone that they should model their case presentations after ours.
A time you stepped up as leader
I am part of the ALPFA chapter at my university. Every spring we host a diversity symposium where we have companies join us to talk about their D&I initiatives and conclude the event with a networking session. This past spring our president had to fly home to bolivia to take care of some personal responsibilities and we were in the midst of hosting the event. I decided that to take on the role of serving as the acting president in addition to my current role. I was in charge of reaching out to the companies we wanted to host, and then also was in charge of delegating work for others. I introduced the companies at the event and moderated the whole two day event. The event was a great success and many companies noted that they would love to participate in the event again because of how well it was executed.
Why EY M&A Consulting?
I participated with EY as a freshman through Discover EY, now known as Expedition EY. Since then, I have maintained a great relationship with Purdue's campus recruiter when collaborating on events and he's given me a good perspective on what the people at EY are like. In addition to this, EY's M&A consulting practice is ranked amongst the top firms in the world so I know I will be working with the best of the best with the plethora of resources from SaT practice as well as the entire EY Network.
What is my proudest moment?
My proudest moment thus far was earlier this semester when I was selected as 1 of 2 business students to participate in panel discussion in front of 50 companies to talk about the university recruitment process. This was meaningful because after the event I found out that the reason I had been selected was because 6 professors that i previously had nominated me to participate. This meant a lot considering the path I had gone through and where I am from. I am from a low class community where only a small percentage of students pursue a college education. I was one of few that decided to attend and when I go to Purdue I was really sure what I wanted to student. I decided I wanted to do business, and through lots of trial and error and I ended up where I am now. Going from a kid who wasnt even supposed to make it college to being selected to represent my college in front of some great companies was something I will value forever.
Idea not taken well
Plante Moran group call where we could present final presentations
What are revenue synergies?
Revenue synergies are the benefits to the top-line of the business by combing their businesses together. Examples: -Access to more customers to achieve higher sales -Sell products that compliment the merged businesses -Access to patents which allows the merged business to create more products **Revenue synergies are harder to control**
Strengths & Weaknesses
Strengths: -Extremely motivated because of the chip on my shoulder -Very hard working and determined Weakness: -I am a perfectionist and I may over-prepare -I take on a lot of responsibilities
What are synergies? What kind of synergies are there?
The belief that the combined value of two companies are greater than the sum of its parts. There are revenue synergies and there are cost saving synergies.
What are the four main valuation methods?
The four main valuation methods are DCF method, trading comps method, precedent transaction method, and LBO analysis
How do I deal with a busy schedule?
The outlook calendar is my new bff. After doing two internships and working with staff at various companies, I realized that the world revolves around calendars. Every week, I schedule in my class times, i add reminders for my assignments, and add breaks for when I need some time to relax. Playing soccer has helped deal with the work load. I always go play at least twice a week to decompress and have fun.
Why would a company want to acquire another company?
There are several reasons to engage in an M&A deal. 1.The buyer believe they can achieve significant synergies and make the deal accretive for the shareholders. 2. To gain market share by buying a competitor 3. Buyer wants to grow and sees an acquisition as way to do so. 4. The buyer believes the seller is undervalued.
What does EY M&A Consulting primarily do?
They help clients with their goals on achieving a growth strategy through primarily buy-side M&A (PE shops, etc). EY helps clients understand what businesses to buy, how to value it, and how to integrate it into your company.
Why M&A Consulting over IB?
This role is very unique and gives me a different perspective on M&A. In an IB role you are acting as a salesman where your focus is getting the deal done, whereas in M&A consulting you understand the full scope of the deal and are consulting your client step by step as to why or why not they should pursue a deal and how to go about doing so. The aspect of being an actual consultant and a value provider to the client is much more rewarding than being the salesman of the deal.
What is WACC? How is calculated?
WACC is the weighted average cost of capital. It is used to discount the cash flows of a projection. WACC= (Cost of debt x (1-tax) x debt/debt+equity) + (Cost of equity x equity/debt + equity)
What is DCF Valuation?
What is DCF Valuation?
