Merger & Acquisition

Case Interview: Step-

by-Step Guide

Merger & acquisition (M&A) cases are a common type

of case you’ll see in consulting interviews. You are
likely to see at least one M&A case in your upcoming
interviews, especially at consulting firms that have a
large M&A or private equity practice.

These cases are fairly straight forward and

predictable, so once you’ve done a few cases, you’ll be
able to solve any M&A case.

In this article, we’ll cover:

Two types of merger & acquisition case

 interviews

The five steps to solve any M&A case

The perfect M&A case interview

framework

Merger & acquisition case interview

examples

Recommended M&A case interview

resources

If you’re looking for a step-by-step shortcut to learn

case interviews quickly, enroll in our case interview
course. These insider strategies from a former Bain
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Two Types of Merger &

Acquisition Case Interviews

A merger is a business transaction that unites two

companies into a new and single entity. Typically, the
two companies merging are roughly the same size.
After the merger, the two companies are no longer
separately owned and operated. They are owned by a
single entity.

An acquisition is a business transaction in which one

company purchases full control of another company.
Following the acquisition, the company being
purchased will dissolve and cease to exist. The new
owner of the company will absorb all of the acquired
company’s assets and liabilities.

There are two types of M&A cases you’ll see in

consulting case interviews:

A company acquiring or merging with

another company

A private equity firm acquiring a company

A company acquiring or merging with

another company

The first type of M&A case is the most common. A

company is deciding whether to acquire or merge
with another company.

Example: Walmart is a large retail corporation that

operates a chain of supermarkets, department stores,
and grocery stores. They are considering acquiring a
company that provides an online platform for small
businesses to sell their products. Should they make this
acquisition?

There are many reasons why a company would want

to acquire or merge with another company. In making
an acquisition or merger, a company may be trying to:
 Gain access to the other company’s
customers

Gain access to the other company’s

distribution channels

Acquire intellectual property, proprietary

technology, or other assets

Realize cost synergies

Acquire talent

Remove a competitor from the market

Diversify sources of revenue

A private equity firm acquiring a company

The second type of M&A case is a private equity firm

deciding whether to acquire a company. This type of
M&A case is slightly di"erent from the first type
because private equity firms don’t operate like
traditional businesses.

Private equity firms are investment management

companies that use investor money to acquire
companies in the hopes of generating a high return
on investment.

After acquiring a company, a private equity firm will

try to improve the company’s operations and drive
growth. After a number of years, the firm will look to
sell the acquired company for a higher price than
what it was originally purchased for.

Example: A private equity firm is considering acquiring a

national chain of tattoo parlors. Should they make this
investment?

There are a few di"erent reasons why a private equity

firm would acquire a company. By investing in a
company, the private equity firm may be trying to:

Generate a high return on investment

Diversify its portfolio of companies to

reduce risk

Realize synergies with other companies that

the firm owns

Regardless of which type of M&A case you get, they

both can be solved using the same five step
approach.

The Five Steps to Solve Any M&A

Case Interview

Step One: Understand the reason for the

acquisition
The first step to solve any M&A case is to understand
the primary reason behind making the acquisition.
The three most common reasons are:

The company wants to generate a high

return on investment

The company wants to acquire intellectual

property, proprietary technology, or other
assets

The company wants to realize revenue or

cost synergies

Knowing the reason for the acquisition is necessary to

have the context to properly assess whether the
acquisition should be made.

Step Two: Quantify the specific goal or

target

When you understand the reason for the acquisition,

identify what the specific goal or target is. Try to use
numbers to quantify the metric for success.

For example, if the company wants a high return on

investment, what ROI are they targeting? If the
company wants to realize revenue synergies, how
much of a revenue increase are they expecting?
Depending on the case, some goals or targets may
not be quantifiable. For example, if the company is
looking to diversify its revenue sources, this is not
easily quantifiable.

Step Three: Create a M&A framework and

work through the case

With the specific goal or target in mind, structure a

framework to help guide you through the case. Your
framework should include all of the important areas
or questions you need to explore in order to
determine whether the company should make the
acquisition.

We’ll cover the perfect M&A framework in the next

section of the article, but to summarize, there are four
major areas in your framework:

Market attractiveness: Is the market that the

acquisition target plays in attractive?

Company attractiveness: Is the acquisition target an

attractive company?

Synergies: Are there significant revenue and cost

synergies that can be realized?

Financial implications: What are the expected

financial gains or return on investment from this
acquisition?

Step Four: Consider risks OR consider

alternative acquisition targets

Your M&A case framework will help you investigate

the right things to develop a hypothesis for whether
or not the company should make the acquisition.

The next step in completing an M&A case depends on

whether you are leaning towards recommending
making the acquisition or recommending not making
the acquisition.

If you are leaning towards recommending making

the acquisition…

Explore the potential risks of the acquisition.

How will the acquisition a"ect existing customers?

Will it be di#cult to integrate the two companies?
How will competitors react to this acquisition?

If there are significant risks, this may change the

recommendation that you have.

If you are leaning towards NOT recommending

making the acquisition…
Consider other potential acquisition targets.

Remember that there is always an opportunity cost

when a company makes an acquisition. The money
spent on making the acquisition could be spent on
something else.

Is there another acquisition target that the company

should pursue instead? Are there other projects or
investments that are better to pursue? These ideas
can be included as next steps in your
recommendation.

Step Five: Deliver a recommendation and

propose next steps

At this point, you will have explored all of the

important areas and answered all of the major
questions needed to solve the case. Now it is time to
put together all of the work that you have done into a
recommendation.

Structure your recommendation in the following way

so that it is clear and concise:

State your overall recommendation firmly

Provide three reasons that support your

recommendation
 Propose potential next steps to explore

The Perfect M&A Case Interview

Framework

The perfect M&A case framework breaks down the

complex question of whether or not the company
should make the acquisition into smaller and more
manageable questions.

You should always aspire to create a tailored

framework that is specific to the case that you are
solving. Do not rely on using memorized frameworks
because they do not always work given the specific
context provided.

For merger and acquisition cases, there are four

major areas that are the most important.

1. Market attractiveness

For this area of your framework, the overall question

you are trying to answer is whether the market that
the acquisition target plays in is attractive. There are a
number of di"erent factors to consider when
assessing the market attractiveness:

What is the market size?

 What is the market growth rate?

What are average profit margins in the

market?

How available and strong are substitutes?

How strong is supplier power?

How strong is buyer power?

How high are barriers to entry?

2. Company attractiveness

For this area of your framework, the overall question

you want to answer is whether the acquisition target
is an attractive company. To assess this, you can look
at the following questions:

Is the company profitable?

How quickly is the company growing?

Does the company have any competitive

advantages?

Does the company have significant

di"erentiation from competitors?

3. Synergies
For this area of your framework, the overall question
you are trying to answer is whether there are
significant synergies that can be realized from the
acquisition.

There are two types of synergies:

Revenue synergies

Cost synergies

Revenue synergies help the company increase

revenues. Examples of revenue synergies include
accessing new distribution channels, accessing new
customer segments, cross-selling products, up-selling
products, and bundling products together.

Cost synergies help the company reduce overall costs.

Examples of cost synergies include consolidating
redundant costs and having increased buyer power.

4. Financial implications

For this area of your framework, the main question

you are trying to answer is whether the expected
financial gains or return on investment justifies the
acquisition price.

To do this, you may need to answer the following

questions:

Is the acquisition price fair?

How long will it take to break even on the

acquisition price?

What is the expected increase in annual

revenue?

What are the expected cost savings?

What is the projected return on investment?

Merger & Acquisition Case

Interview Examples

Let’s put our strategy and framework for M&A cases

into practice by going through an example.

M&A case example: Your client is the second largest fast

food restaurant chain in the United States, specializing in
serving burgers and fries. As part of their growth
strategy, they are considering acquiring Chicken Express,
a fast food chain that specializes in serving chicken
sandwiches. You have been hired to advise on whether
this acquisition should be made.

To solve this case, we’ll go through the five steps we

outlined above.
Step One: Understand the reason for the
acquisition

The case mentions that the acquisition is part of the

client’s growth strategy. However, it is unclear what
kind of growth the client is pursuing.

Are they looking to grow revenues? Are they looking

to grow profits? Are they looking to grow their
number of locations? We need to ask a clarifying
question to the interviewer to understand the reason
behind the potential acquisition.

Question: Why is our client looking to make an

acquisition? Are they trying to grow revenues, profits, or
something else?

Answer: The client is looking to grow profits.

Step Two: Quantify the specific goal or

target

Now that we understand why the client is considering

acquiring Chicken Express, we need to quantify what
the specific goal or target is. Is there a particular profit
number that the client is trying to reach?

We’ll need to ask the interviewer another question to

identify this.

Question: Is there a specific profit figure that the client is

trying to reach within a specified time period?

Answer: The client is trying to increase annual profits by

at least $200M by the end of the first year following the
acquisition.

Step Three: Create a M&A framework and

work through the case

With this specific goal in mind, we need to structure a

framework to identify all of the important and
relevant areas and questions to explore. We can use
market attractiveness, company attractiveness,
synergies, and financial implications as the four broad
areas of our framework.

We’ll need to identify and select the most important

questions to answer in each of these areas. One
potential framework could look like the following:
Let’s fast forward through this case and say that you
have identified the following key takeaways from
exploring the various areas in your framework:

Chicken Express has been growing at 8% per

year over the past five years while the fast
food industry has been growing at 3% per
year

Among fast food chains, Chicken Express

has the highest customer satisfaction score

Revenue synergies would increase annual

profit by $175M. This is driven by leveraging
the Chicken Express brand name to increase
tra#c to existing locations

Cost synergies would decrease annual costs

by $50M due to increased buyer power
following the acquisition

Step Four: Consider risks OR consider

alternative acquisition targets
At this point, we are leaning towards recommending
that our client acquire Chicken Express. To strengthen
our hypothesis, we need to explore the potential risks
of the acquisition.

Can the two companies be integrated smoothly? Is

there a risk of sales cannibalization between the two
fast food chains? How will competitors react to this
acquisition?

For this case, let’s say that we have investigated these

risks and have concluded that none of them pose a
significant threat to achieving the client’s goals of
increasing annual profit by $200M.

Step Five: Deliver a recommendation and

propose next steps

We’ll now synthesize the work we have done so far

and provide a clear and concise recommendation.
One potential recommendation may look like the
following:

I recommend that our client acquires Chicken Express.

There are three reasons that support this.

One, Chicken Express is an attractive acquisition target.

They are growing significantly faster than the fast food
industry average and have the highest customer
satisfaction scores among fast food chains.
Two, revenue synergies would increase annual profit by
$175M. The client can leverage the brand name of
Chicken Express to drive an increase in tra"c to existing
locations.

Three, cost synergies would decrease annual costs by

$50M. This is due to an increase in buyer power following
the acquisition.

Therefore, our client will be able to achieve its goal of

increasing annual profits by at least $200M. For next
steps, I’d like to assess the acquisition price to determine
whether it is reasonable and fair.

More M&A case interview practice

Follow along with the video below for another merger

and acquisition case interview example.

McKinsey Case Interview Practice #2: P…

For more practice, check out our article on 23 MBA
consulting casebooks with 700+ free practice
cases.

In addition to M&A case interviews, we also have

additional step-by-step guides to: profitability case
interviews, market entry case interviews, growth
strategy case interviews, pricing case interviews,
operations case interviews, and marketing case
interviews.

Recommended M&A Case

Interview Resources

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