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

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

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

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

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

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

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

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

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

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

CFM - Certified Financial Modeler Practice Test

CFM - Certified Financial Modeler Practice Test

CFM CFM M&A Modeling & Deal Structuring 3