CFM CFM M&A Modeling & Deal Structuring 3

Question 1

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

Accepted Answer

Commercial due diligence

Answer

Financial due diligence

Answer

Legal due diligence

Answer

Environmental due diligence

Question 2

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

Accepted Answer

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

Answer

Fund a major acquisition of a strategic competitor

Answer

Finance a greenfield plant expansion project

Answer

Refinance existing debt at a lower interest rate

Question 3

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

Accepted Answer

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

Answer

A penalty paid by the acquirer if the deal closes late

Answer

A clawback of executive bonuses if targets are missed post-close

Answer

An escrow arrangement for environmental liabilities

Question 4

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

Accepted Answer

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

Answer

Securities and Exchange Commission (SEC)

Answer

Federal Reserve Board (FRB)

Answer

Office of the Comptroller of the Currency (OCC)

Question 5

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

Accepted Answer

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

Answer

The acquirer refinances all acquisition debt at market rates

Answer

The target's board is replaced and a new CEO is appointed

Answer

The combined company files a new S-1 registration statement

Question 6

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

Accepted Answer

The acquirer believes its stock is overvalued relative to intrinsic value

Answer

The acquirer has a low P/E ratio relative to the target

Answer

The acquirer wants to preserve cash for organic growth investments

Answer

The target's shareholders prefer immediate liquidity