Corporate Development Interview Prep

Company A (P/E of 18x) acquires Company B at a P/E of 12x in an all-stock deal. Is it accretive or dilutive?

Accretive. In an all-stock deal, if the acquirer's P/E is higher than the target's effective purchase P/E, the deal is accretive to EPS, because you're issuing expensive shares to buy cheaper earnings. The yield on the target's earnings (1/12 ≈ 8.3%) exceeds the cost of the acquirer's stock (1/18 ≈ 5.6%), so combined EPS rises.

Walk me through the key drivers of accretion in a cash-financed acquisition.

In a cash deal, accretion depends on the after-tax yield the target's earnings provide versus the foregone interest on cash (or the after-tax cost of debt if financed). If the target's earnings yield exceeds the after-tax cost of the cash or debt used, the deal is accretive. Cheap financing, a low purchase multiple, and durable target earnings all push toward accretion.

Does EPS accretion prove the deal creates value?

No. Accretion is an accounting outcome, not a value test. An all-stock deal can be accretive simply because of a P/E mismatch while still destroying value if you overpay relative to what the asset is intrinsically worth. Value creation depends on whether the price paid is below the present value of the target's standalone cash flows plus realistic, net-of-cost synergies.

How do you think about synergies in a corp dev case?

Apply four filters: source clarity, timing realism, cost-to-achieve, and named ownership. Cost synergies (headcount overlap, procurement, facility consolidation) are more defensible and easier to quantify. Revenue synergies depend on customer and channel behavior, so phase them in slowly and haircut them hard. Always net out dis-synergies and integration costs.

How would you decide between buying a company and building the capability in-house?

Frame it as capital allocation: is acquiring a better use of capital than reinvesting in existing lines? Buy when speed, talent, customers, or a defensible technology lead would take too long or cost too much to replicate, especially if a smaller competitor could disrupt you. Build when the capability is core, cheaper to develop, and you can do it on an acceptable timeline. Compare risk-adjusted returns and time-to-value of each path.

How should a corporate buyer set its maximum bid?

The ceiling is the highest price that still clears the buyer's return threshold after synergies, integration costs, financing, and downside risk, not simply where peers trade. Triangulate intrinsic value with a DCF, sanity-check against precedent multiples, and then back into the price at which the deal still hits your hurdle rate. Disciplined buyers know the walk-away price before they negotiate.

Why corporate development instead of staying in investment banking?

Frame it as wanting to own outcomes, not just execute transactions. In corp dev you commit to one company's long-term strategy, see deals through integration, and make capital allocation calls rather than advising and moving on. Tie it to genuine interest in the company's industry and a desire to build deep operating and strategic knowledge over time.

How does ASC 805 purchase accounting affect the combined company?

Under ASC 805, you record acquired assets and liabilities at fair value, which can mean inventory step-ups, identifiable intangible assets that get amortized, and deferred revenue written down. The excess of purchase price over net identifiable fair value becomes goodwill, which is tested for impairment rather than amortized. These adjustments (extra D&A, intangible amortization) reduce post-deal earnings and matter in your accretion/dilution math.