Mergers and Acquisitions
To many in the finance industry and the general population, mergers and acquisitions work can seem very glamorous and high profile. The mergers and acquisitions group (known as M&A) provides advice to companies that are buying another company or are themselves being acquired.
At the same time, the work leading up to the headline-grabbing multibillion-dollar acquisition can involve a great effort to crunch all the numbers, perform the necessary due diligence, and work out the complicated structure of the deal. The guide noted that one insider said, “You have to really like spending time in front of your computer with Excel.”
Often, the mergers and acquisitions team will also work with a Corporate Finance industry group to arrange the appropriate financing for the transaction (usually done through a debt or equity offering).
In many cases, all this may happen on a very tight timeline and under extreme secrecy and pressure. Mergers and acquisitions is often a subgroup within corporate finance; but in some firms, it is a stand-alone department. Mergers and acquisitions can be one of the most demanding groups to work for.
What do Mergers and Acquisitions Groups do?
- Advise firms on merger and acquisition strategies
- Determine target company valuations using a number of different valuation techniques
- Help the target of a hostile acquisition arrange a defensive strategy where appropriate
- Conduct due diligence on a target or acquiring company (this includes examining the financial results and other business factors that will affect the value of an acquisition)
- Negotiate price, terms, and conditions of an acquisition or merger
- Work with the other company’s advisory team and the lawyers to structure the deal
A Career in Mergers and Acquisitions; Who Does Well?
Like corporate finance, mergers and acquisitions requires detail-oriented thinking, a knack for using numbers to understand business patterns, problem-solving skills, an ability to think critically about the numbers you’re working with. Add to this, excellent communication and people skills and you have a potential mergers and acquisitions candidate.
Also like corporate finance, lawyers, MBAs, and experience candidates with specific industry knowledge make good mergers and acquisitions candidates. Many entry-level candidates try to get an internship to increase their chances of eventually getting full-time offers and the guide discusses methods of attaining these internships. Selection is competitive to say the least.
Mergers and Acquisitions Job Tips
The M&A department usually recruits under the Corporate Finance or investment banking umbrella, although within the group you may find further specialization along industry lines. The work here tends to be intense and very deal-focused, and the hours are unpredictable.
“You might be staffed on five transactions and not much is happening. Then one turns live, and you have to cancel your weekend plans,” says an insider. “Or you could be very busy, and the next day something happens and work gets pushed back a week and suddenly your weekend is free.”
The job provides an excellent introduction to the high-stakes, power centric movement of the corporate world. It is common for insiders to report that personal ambition is a big success factor in mergers and acquisitions.
“You can learn the technical skills like accounting and modeling,” says one first-year associate. “It’s not so easy to learn how to be driven and to take responsibility, to own the deal.”
If you are the type of person to be depressed by the thought of spending 3 or more weeks of your life crunching numbers for a deal that may never happen, the guide suggested that there may be better alternatives in Corporate Finance.
Example of a Mergers and Acquisitons Deal
IBM Corporation decides it has an opportunity to strengthen its hardware business by acquiring an innovative developer of communications software. It approaches an investment bank to get advice on the potential deal. The bankers help IBM secretly value the target company’s assets and the potential value of its products to IBM (which may be higher than their current value because of the opportunities to link with IBM hardware and because of Big Blue’s marketing muscle).
The mergers and acquisitions group then develops IBM’s acquisition strategy and makes contact with the target company. Once the offer is made, the target company will consult its own investment bankers. They help the target evaluate IBM’s proposal, determine various strategies for defending against or negotiating with IBM, and work out a deal that will be in the best interest of the company’s shareholders. After some back and forth, the sides agree on a price (usually a combination of equity and debt), sign the documents, and merge.
I have sourced the majority of the information above from the Wetfeet Insider Guide to Careers in Investment Banking; click here to read about what is involved in a career in investment banking.