Mergers & Acquisitions Transactions Flashcards
6 cards from real Series 79 – Investment Banking Representative Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Mergers & Acquisitions Transactions flashcards as text
A 'strategic buyer' in an M&A auction typically pays a higher premium than a financial buyer because:
Answer: Strategic buyers can realize operational synergies that financial buyers cannot
Strategic buyers can justify higher prices by capturing cost or revenue synergies from combining operations, whereas financial buyers (like PE firms) value the target on a standalone basis.
In M&A due diligence, what is a 'quality of earnings' (QofE) analysis designed to assess?
Answer: The sustainability and accuracy of the target's reported EBITDA and cash flows
A quality of earnings analysis scrutinizes the target's historical financials to identify non-recurring items, aggressive accounting, and whether reported earnings represent true economic performance.
What is a 'crown jewel' defense in the context of a hostile takeover?
Answer: Selling or spinning off the target's most valuable assets to make itself less attractive
The crown jewel defense involves the target divesting its most valuable business unit or asset, removing the primary incentive for the hostile bidder.
Which document initiates the formal sale process in a structured M&A auction and is sent to potential buyers?
Answer: Confidential Information Memorandum (CIM)
The Confidential Information Memorandum (CIM) is prepared by the sell-side banker and provides detailed financial and business information about the target to prospective buyers.
In an M&A transaction, 'working capital peg' adjustments at closing are designed to:
Answer: Adjust the purchase price so the buyer receives the business with an agreed normal level of working capital
The working capital peg ensures the target is delivered with an agreed 'normal' level of working capital, with dollar-for-dollar purchase price adjustments for shortfalls or excess.
What is the significance of a 'material adverse change' (MAC) clause in a merger agreement?
Answer: It gives the buyer the right to terminate the deal if a significant negative event affects the target before closing
A MAC clause permits the acquirer to walk away from a signed merger agreement without penalty if a material adverse change in the target's business or financial condition occurs before closing.
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