Page | 1
M&I 400 QUESTIONS - MERGER
MODEL 2026 LATEST QUESTIONS
AND ANSWERS| ACE YOUR GRADES.
Walk me through the most important terms of a Purchase
Agreement in an M&A deal. - correct answer -There are dozens,
but here are the most important ones:
1. Purchase Price: Stated as a per-share amount for public
companies.
2. Form of Consideration: Cash, Stock, Debt...
3. Transaction Structure: Stock, Asset, or 338(h)(10)
4. Treatment of Options: Assumed by the buyer? Cashed out?
Ignored?
5. Employee Retention: Do employees have to sign non-solicit or
non-compete
agreements? What about management?
6. Reps & Warranties: What must the buyer and seller claim is
true about their respective businesses?
, Page | 2
7. No-Shop / Go-Shop: Can the seller "shop" this offer around and
try to get a
better deal, or must it stay exclusive to this buyer?
What's an Earnout and why would a buyer offer it to a seller in an
M&A deal? - correct answer -An Earnout is a form of "deferred
payment" in an M&A deal - it's most common with private
companies and start-ups, and is highly unusual with public sellers.
It is usually contingent on financial performance or other goals -
for example, the buyer might say, "We'll give you an additional
$10 million in 3 years if you can hit $100 million in revenue by
then."
Buyers use it to incentivize sellers to continue to perform well and
to discourage management teams from taking the money and
running off to an island in the South Pacific once the deal is done.
How would an accretion / dilution model be different for a private
seller? - correct answer -The mechanics are the same, but the
transaction structure is more likely to be an asset purchase or
338(h)(10) election; private sellers also don't have Earnings Per
Share so you would only project down to Net Income on the
seller's Income Statement.
, Page | 3
Note that accretion / dilution makes no sense if you have a private
buyer because private companies do not have Earnings Per
Share.
How would I calculate "break-even synergies" in an M&A deal and
what does the number mean? - correct answer -To do this, you
would set the EPS accretion / dilution to $0.00 and then back-
solve in Excel to get the required synergies to make the deal
neutral to EPS.
It's important because you want an idea of whether or not a deal
"works" mathematically, and a high number for the break-even
synergies tells you that you're going to need a lot of cost savings
or revenue synergies to make it work.
Normally in an accretion / dilution model you care most about
combining both companies' Income Statements. But let's say I
want to combine all 3 financial statements - how would I do this? -
correct answer -You combine the Income Statements like you
normally would (see the previous question on this), and then you
do the following:
1. Combine the buyer's and seller's balance sheets (except for the
seller's Shareholders' Equity number).
M&I 400 QUESTIONS - MERGER
MODEL 2026 LATEST QUESTIONS
AND ANSWERS| ACE YOUR GRADES.
Walk me through the most important terms of a Purchase
Agreement in an M&A deal. - correct answer -There are dozens,
but here are the most important ones:
1. Purchase Price: Stated as a per-share amount for public
companies.
2. Form of Consideration: Cash, Stock, Debt...
3. Transaction Structure: Stock, Asset, or 338(h)(10)
4. Treatment of Options: Assumed by the buyer? Cashed out?
Ignored?
5. Employee Retention: Do employees have to sign non-solicit or
non-compete
agreements? What about management?
6. Reps & Warranties: What must the buyer and seller claim is
true about their respective businesses?
, Page | 2
7. No-Shop / Go-Shop: Can the seller "shop" this offer around and
try to get a
better deal, or must it stay exclusive to this buyer?
What's an Earnout and why would a buyer offer it to a seller in an
M&A deal? - correct answer -An Earnout is a form of "deferred
payment" in an M&A deal - it's most common with private
companies and start-ups, and is highly unusual with public sellers.
It is usually contingent on financial performance or other goals -
for example, the buyer might say, "We'll give you an additional
$10 million in 3 years if you can hit $100 million in revenue by
then."
Buyers use it to incentivize sellers to continue to perform well and
to discourage management teams from taking the money and
running off to an island in the South Pacific once the deal is done.
How would an accretion / dilution model be different for a private
seller? - correct answer -The mechanics are the same, but the
transaction structure is more likely to be an asset purchase or
338(h)(10) election; private sellers also don't have Earnings Per
Share so you would only project down to Net Income on the
seller's Income Statement.
, Page | 3
Note that accretion / dilution makes no sense if you have a private
buyer because private companies do not have Earnings Per
Share.
How would I calculate "break-even synergies" in an M&A deal and
what does the number mean? - correct answer -To do this, you
would set the EPS accretion / dilution to $0.00 and then back-
solve in Excel to get the required synergies to make the deal
neutral to EPS.
It's important because you want an idea of whether or not a deal
"works" mathematically, and a high number for the break-even
synergies tells you that you're going to need a lot of cost savings
or revenue synergies to make it work.
Normally in an accretion / dilution model you care most about
combining both companies' Income Statements. But let's say I
want to combine all 3 financial statements - how would I do this? -
correct answer -You combine the Income Statements like you
normally would (see the previous question on this), and then you
do the following:
1. Combine the buyer's and seller's balance sheets (except for the
seller's Shareholders' Equity number).
