Investment Banking Interview Questions

Walk me through the different acquisition currencies in an M&A deal

By January 29, 2022No Comments

The investment banking interview question we’re going to go over today is “Walk me through the different acquisition currencies in an M&A deal.” Here’s what you can say.

Interview Answer

“In general, there are three acquisition currencies in an M&A deal: Cash, Debt, and Stock. 

The acquirer can use the cash it has in its bank account to pay for the acquisition. This is usually the most attractive because it’s the cheapest form of capital. In addition to the cash the acquirer has in the bank, it can also borrow debt. Debt comes with interest expense and covenants, which is less attractive than using the company’s own Balance Sheet cash. And finally, the acquirer can also pay with its stocks. This is oftentimes the most expensive form of capital and we see this used pretty often in mergers of equals.”

Additional Tip

That’s what you can say for this interview question: “Walk me through the different acquisition currencies in an M&A deal”. Notice the order of the currencies. We ordered it in a very specific way: Cash, Debt, and then Stocks. We ordered them from the cheapest source of financing to the most expensive. Investment bankers care a lot about ordering. This is one way to show the interviewer that you’re thoughtful and well organized.

More IBD Interview Questions

What are the exit strategies in an LBO?

Why would a company want to acquire another company?

Tell me about a recent M&A deal that you followed.

By using Lumovest, you agree to our use of cookies, Privacy Policy and Terms of Service.