CFM M&A Modeling & Deal Structuring Flashcards

Which type of due diligence focuses on evaluating the target's revenue model, market position, and competitive dynamics?

Answer: Commercial due diligence

Commercial due diligence assesses market size, competitive positioning, customer concentration, and the sustainability of the target's revenue streams.

In a leveraged recapitalization, a company takes on significant debt primarily to:

Answer: Pay a large special dividend or repurchase shares, returning capital to shareholders

A leveraged recap uses debt proceeds to make a large equity distribution, immediately returning capital to shareholders without selling the business.

What is an 'earnout' provision in an M&A deal?

Answer: Contingent consideration paid to the seller if the target achieves specified future performance milestones

An earnout bridges valuation gaps by linking additional seller payments to post-close revenue, EBITDA, or other milestones, sharing future upside.

Which regulatory body must typically review large M&A transactions in the US for antitrust concerns?

Answer: Department of Justice (DOJ) and Federal Trade Commission (FTC)

The DOJ Antitrust Division and FTC jointly review significant mergers under the Hart-Scott-Rodino Act to assess whether the deal would harm competition.

In a two-step merger, what happens in the second step after a successful tender offer?

Answer: Remaining minority shareholders are cashed out in a back-end merger at the same tender offer price

After obtaining majority control via tender offer, the acquirer executes a short-form merger to squeeze out remaining minority shareholders at the same price.

When a CFM evaluates whether to recommend a cash deal versus a stock deal, which factor most favors using stock as consideration?

Answer: The acquirer believes its stock is overvalued relative to intrinsic value

When the acquirer's stock is overvalued, using stock as currency is advantageous because the acquirer is effectively paying with inflated currency.