Q&A Hero

Q: What is the correct order for a precedent transaction analysis? E. Select the universe of comparable acquisitions F. Benchmark the comparable acquisitions G. Locate the necessary deal-related and financial information H. Spread key statistics, ratios, and transaction multiples I. Determine valuation A. E, H, F, G, I B. E, G, H, F, I C. I, H, G, E, F D. F, G, H, I, E

Q: What is NOT a reason why transaction comps generally provide a higher multiple range than trading comps? A. Buyers pay control premiums B. Buyers often have the opportunity to realize synergies C. Buyers receive the right to control decisions D. Transaction comps are more accurate than trading comps

Q: Calculate COGS given the following information. Sales: $800.0m SG&A: $250.0m EBITDA: $300.0m D&A: $50.0m A. $250.0m B. $200.0m C. $500.0m D. $300.0m

Q: Given the following information, calculate a companys EBITDA margin. Operating income: $250.0m Sales: $800.0m D&A: $50.0m Gross profit: $500.0m A. 40.0% B. 37.5% C. 31.25% D. 68.75%

Q: What happens to enterprise value if a company raises $100.0m debt and holds it on its balance sheet as cash? A. EV remains the same B. EV increases by $100.0m C. EV decreases by $100.0m D. EV decreases by $200.0m

Q: Which of the following is both a pro and a con of performing a comparable companies analysis? A. It is quick to perform B. It is current data C. It is relative to other companies D. It is market based

Q: For what company would a valuation metric like EV / Sales be helpful? A. A company with high gross margins B. A company with no earnings C. A company with low gross margins D. A company with no debt

Q: What is a common multiple to use in a comparable companies analysis for a retail company? A. EV / Subscribers B. EV / Reserves C. EV / Square footage D. EV / Production

Q: If a merger or acquisition is not immediately accretive, should the acquirer go through with the transaction? Why or why not? A. No, the transaction will dilute the EPS and destroy shareholder value B. Yes, accretion/dilution is not important C. It depends; expected synergies and growth prospects may make the deal accretive and therefore create shareholder value D. No, once a deal is dilutive it cannot become accretive

Q: An all-debt financing structure is typically: A. The most dilutive B. The most accretive C. Optimal D. Balanced

Q: Which is the most common form of M&A deal structure? A. Stock sale B. Asset sale C. Section 338 election D. Cash on hand

Q: Which of the following is a negative feature of debt financing? A. Tax deductibility B. ROE C. Covenants D. EPS accretion

Q: Which of the following is the cheapest form of financing? A. Cash on hand B. Debt financing C. Equity financing D. Stock sale

Q: All of the following are intangible assets EXCEPT: A. Brand B. Patents C. PP&E D. Copyrights

Q: Which section of the Internal Revenue Code allows an acquirer to treat the purchase of the targets stock as an asset sale for tax purposes? A. Section 225 election B. Section 338 C. Section 338(h)(10) election D. There is no such revenue code

Q: Acquirer share price volatility after a deal is announced is a reason why a targets shareholders may find: A. Equity financing less desirable B. Debt financing less desirable C. Equity financing more desirable D. A mix of debt and equity financing is less desirable

Q: Which type of corporation is taxed separately from its shareholders? A. S corporation B. C corporation C. LLC D. All corporations

Q: When is goodwill created? A. Purchase price exceeds the net identifiable assets B. Acquirers P/E is higher than targets C. Purchase price exceeds the net identifiable assets D. Acquirers P/E is lower than targets

Q: When is a merger accretive? A. Acquirers pro forma EPS is lower B. Targets P/E is higher than acquirers C. Acquirers P/E is lower than targets D. Acquirers P/E is higher than targets

Q: Assuming this is a stock deal, calculate the goodwill created in the M&A transaction given the following details. Details: Shareholders equity: $5,000.0m Existing goodwill: $1,500.0m Equity purchase price: $6,600.0m Tangible and intangible asset write-ups: $1,200.0m Deferred tax liabilities: $800.0m A. $2,000.0m B. $1,500.0m C. $2,700.0m D. $3,200.0m

Q: Which of the following in a buy-side M&A transaction employs analysis at different prices to help analyze and frame valuation? A. Football field B. AVP C. Contribution analysis D. Consequences analysis

Q: In a football field graphic for an M&A transaction, which of the following is a proxy for what a financial buyer would be willing to pay for the company? A. Precedent transactions analysis B. DCF C. LBO D. Comparable companies analysis

Q: Which of the following generally provides the highest valuation on a football field graphic display? A. DCF B. LBO C. Comparable companies analysis D. Precedent transactions analysis

Q: Given the following details, what is the difference in seller net proceeds between the asset sale and the stock sale? Details: Corporate tax rate: 38% Capital gains rate: 20% Stock Sale: Purchase price: $4,000.0m Stock basis: $1,000.0m Asset Sale: Purchase price: $4,000.0m Asset basis: $1,000.0m A. $1,520.0m B. $912.0m C. $372.0m D. $518.0m

Q: Calculate a targets deferred tax liability given the following details. Details: Tangible asset write-up: $100.0m Intangible asset write-up: $50.0m Total asset write-up: $150.0m Tax rate: 38% A. $57.0m B. $19.0m C. $114.0m D. $76.0m

Q: Which of the following is NOT a benefit of debt financing from the acquirers prospective? A. EPS accretion B. Tax deductibility C. Lack of covenants D. Return on equity

Q: Which of the following M&A scenarios tends to use an all-stock consideration? A. Horizontal integration B. Vertical integration C. Merger of equals D. Forward integration

Q: A company that brings together a broad range of businesses is considered: A. Horizontally integrated B. A conglomerate C. An oligopoly D. Vertically integrated

Q: If a computer manufacturer purchases a semiconductor company, what form of integration is this? A. Horizontal integration B. Vertical integration C. Backward integration D. Forward integration

Q: Which form of integration expands an acquirers geographic reach, product lines, services, or distribution channels? A. Horizontal integration B. Geographic integration C. Vertical integration D. Transitional integration

Q: Revenue synergies tend to be more _______ than cost synergies. A. Safe B. Speculative C. Dependable D. Conservative

Q: All of the following are considered cost synergies EXCEPT: A. Head count reduction B. Consolidation of facilities C. Lower cost of capital D. Economies of scale

Q: When an acquirer buys a target in the same or a closely related business, synergies tend to be: A. Nonexistent B. Greater C. Lower D. Unknown

Q: In many instances, growth through acquisition is _________ than building a new business from scratch. A. Cheaper B. More time consuming C. Faster D. Both A and C

Q: For day-to-day execution in an M&A process, appointed member(s) of the investment banking advisory team communicate(s) with: A. A point person B. The CEO C. Investor relations D. The CFO

Q: All of the following are reasons why M&A activity tends increase in strong economic times EXCEPT: A. High management confidence B. Financing is readily available C. Companies have excess cash D. Companies focus on fortifying their balance sheets

Q: All of the following are valuation methodologies used by financial sponsors EXCEPT: A. LBO model B. Precedent transitions analysis C. Comparable companies analysis D. Accretion/(dilution) analysis

Q: Where is a data room typically set up? A. In the target company's headquarters B. Online C. In Switzerland D. In M&A advisors headquarters

Q: All of the following are advantages of a negotiated sale EXCEPT: A. High degree of confidentiality B. Fastest timing C. Less disruptive to the business D. Potential to leave money on the table

Q: A(n) __________ is often initiated by the buyer. A. Asset sale B. Negotiated sale C. Targeted auction D. Broad auction

Q: In which type of sale process does a seller have the least leverage? A. Negotiated sale B. Stock sale C. Targeted auction D. Broad auction

Q: What happens in a two-step tender process if the buyer fails to acquire enough of the targets shares within 20 business days? A. The merger is busted B. The buyer gets additional time C. A shareholders meeting must be completed D. None of the above

Q: In an M&A transaction, when is a tender offer made to the public shareholders? A. Stock sale B. One-step transaction C. Two-step tender process D. Asset sale

Q: Who decides to approve or reject a transaction in a one-step merger transaction for a public company? A. CEO B. Board of directors C. Target shareholders D. CFO

Q: Which act requires that both parties in a large M&A transaction file notifications and report forms to the FTC and the DOJ? A. Jones Act B. Glass-Steagall Act C. Sarbanes-Oxley Act D. Hart-Scott-Rodino Act

Q: The targets board of directors typically requires __________ before making a recommendation on whether to accept the offer and approve the execution of a definitive agreement. A. Additional due diligence B. A fairness opinion C. A sum of the parts analysis D. All of the above

Q: In a(n) __________, the target survives the transaction and may choose to either continue operations or dissolve after distributing the proceeds from the sale to its equity holders. A. Asset sale B. Stock sale C. Fire sale D. None of the above

Q: When is an issues list used in the M&A sale process? A. After the potential buyer submits the revised definitive agreement B. Before the seller send the revised definitive agreement C. If the buyer does not want to submit a revised definitive agreement before it is informed it won the auction D. At the beginning of the M&A sale process

Q: Which document has the purchase price details as well as the exact date and guidelines for an M&A process? A. CIM B. Bid procedures letter C. Confidentiality agreement D. Final bid procedures letter

Q: Which of the following buyers could potentially have limited access to the data room? A. Direct competitor B. Strategic buyer C. Financial sponsor D. All have equal access

Q: Which of the buyers can limit the scope of their due diligence? A. Financial sponsor B. Strategic buyer C. Direct competitor D. They are all equal

Q: Stapled financing is a(n): A. Optimal financing structure B. Customized financing structure C. Pre-packaged financing structure D. None of the above

Q: A comprehensive set of information relevant to buyers can be found where? A. Data room B. CIM C. Teaser D. Confidentiality agreement

Q: Key conditions to signing and closing are found on which of the following documents? A. CIM B. Bid procedure letter C. Teaser D. Confidentiality agreement

Q: What marks the formal launch of the bidding process? A. Drafting the CIM B. The confidentiality agreement C. Contacting prospective buyers D. Receiving initial bids

Q: Which of the following should be one of the first documents presented to a potential buyer? A. Confidentiality agreement B. Teaser C. Bid procedures letter D. None of the above

Q: The confidentiality agreement includes provisions for all of the following EXCEPT: A. Restrictions on financing B. Standstill agreement C. Permitted disclosure D. Restrictions on clubbing

Q: In the M&A sales process, projected financial information can be found in which document? A. 10-K B. 8-K C. CIM D. 424B3

Q: The teaser and CIM are both part of the: A. Financial exhibits B. Marketing materials C. Confidentiality agreement D. Contract

Q: Which of the following may be an advantage of a pursuing a strategic buyer in the M&A process? A. Less financing risk B. Operating leverage C. Ability to realize synergies D. Both A and C

Q: Which of the following criteria should be considered when evaluating a potential financial sponsor buyer? A. Investment strategy B. Fund size C. Synergies D. Both A and B

Q: When evaluating strategic buyers, which of the following should be taken into consideration? A. Financial capacity B. Sector expertise C. Investment strategy D. Both A and B

Q: Which of the following is performed during the final stage of the auction process? A. Select winning bidder B. Distribute final bid procedures letter and draft definitive agreement C. Financing D. Contact prospective buyers

Q: Which of the following is performed during the first stage of the auction process? A. Prepare confidentiality agreement B. Contact prospective buyers C. Receive board approval D. Conduct management presentation

Q: All of the following are advantages of which auction type? Heightens competitive dynamics Limits potential buyers negotiating leverage Reduces potential business disruption A. Broad auction B. Targeted auction C. Negotiated sale D. None of the above

Q: All of the following are disadvantages of which auction type? Potential to leave money on the table May afford buyers more leverage in negotiations Lesser degree of competition A. Broad auction B. Targeted auction C. Negotiated sale D. Silent auction

Q: Which type of auction should be used when speed of execution is a priority? A. Broad auction B. Targeted auction C. Negotiated sale D. Both B and C

Q: In which of the following scenarios would a sell-side advisor consider running a broad auction? A. Seller is flexible regarding timing B. Seller is flexible regarding potential business disruption C. Confidentiality is not a priority D. All of the above

Q: All of the following are deal considerations that sell-side advisors seek to achieve EXCEPT: A. Value maximization B. Speed of execution C. Dilution D. Certainty of completion

Q: Which part of the pro forma balance sheet is affected by the debt schedule? A. Long-term liabilities B. PP&E C. Short-term assets D. Goodwill

Q: What is needed to build the pro forma balance sheet once the pre-LBO model is finished? A. CIM B. Proxy statement C. Sources and uses of funds D. 10-K

Q: When building a pre-LBO model, a banker builds the cash flow statement through what point? A. Operating activities B. Financing activities C. Investing activities D. The cash flow statement is not built in the pre-LBO model

Q: Which of the following provides an overview of the LBO analysis in a user-friendly format? A. CIM B. Transaction summary C. Sensitivity analysis D. Debt schedule

Q: In a traditional LBO analysis, it is common practice to assume an exit multiple that is: A. Below the entry multiple B. Above the entry multiple C. Equal to the entry multiple D. Both A and C

Q: What is a key credit risk management concern for underwriters in an LBO? A. Ability to pay annual interest expense B. Ability to repay a substantial portion of bank debt C. Optimal financing structure D. All of the above

Q: Given the following information, calculate the cash that will flow to the balance sheet, assuming a 100% cash flow sweep. Details: Free Cash Flow: $65.0m TLB amortization: $5.0m Optional debt repayment: $70.0m A. $60.0m B. $70.0m C. $65.0m D. $0.0

Q: Calculate net interest expense given the following information. Details: Total interest expense: $25.0m Interest income: $2.0m Non-cash deferred financing fees: $3.0m A. $23.0m B. $20.0m C. $26.0m D. $30.0m

Q: Use the average interest expense approach to calculate the annual interest expense given the following details. Details: Beginning TLB: $300.0 Ending TLB: $250.0 Interest rate: 4% A. $11.0m B. $12.0m C. $10.0m D. $9.0m

Q: Which of the following do/does not require a set amortization schedule? A. Revolving credit facility B. Term loan A C. Term loan B D. Senior notes

Q: Given the following information, what is the total amount that has been drawn from the revolver? Details: Revolver: $100.0m Term: 3 years Annual commitment fee: 30 bps Cash available for optional debt repayment: Year 1: $40.0m Year 2: $35.0m Year 3: $32.0m A. $100.0m B. $30.0m C. $107.0m D. Revolver remains undrawn