Should our client acquire this company?

• That you ask for the rationale. Buying to gain market share, to acquire a technology or to establish a presence in a country is not judged by the same criteria.
• That you separate the standalone value of the target from the value created by combining. Synergies are where acquisitions are won or lost, and they are almost always overestimated.
• That you talk about price. An excellent company bought too dear is a bad acquisition.
• That you raise integration and alternatives. Could the client reach the same goal through a partnership or by growing on its own?

1. 1

   Clarify the purpose of the deal

   Ask what the client wants out of this deal and why now. That tells you what to look at first.
2. 2

   Assess the target and its market

   Is the target's market healthy and growing? Is the target well placed in it, profitable, and what does its performance rest on: a few customers, key people, a patent?
3. 3

   Quantify synergies cautiously

   Separate cost synergies (purchasing, sites, duplicated functions), which are safer, from revenue synergies (cross-selling), which are less certain. Think of losses too: customers leaving, integration costs.
4. 4

   Compare with the price and weigh the risks

   Does the target's value plus realistic synergies exceed the asking price? Finish with integration risks, alternatives, and a recommendation with its conditions.

"Our client, a group of veterinary clinics, is looking at buying a regional network of about thirty clinics. Before structuring, I would like to understand the motivation: is it mainly trying to get bigger to negotiate its purchasing better, or to establish itself in a region where it is absent?

I suggest four areas. The first is the target itself: the health of its clinics, their profitability, and what could weaken that profitability after the deal. I am thinking in particular of vets leaving, since in this business customers often follow the practitioner. The second is what the combination brings: savings on medicines and equipment, and perhaps shared services. The third is the asking price, to compare with the target's value plus those gains. The last covers integration risks and the alternative, which would be opening its own clinics in the region..."

This example is made up: it shows the tone and the construction, not a script to memorise. Your answer has to come from your own experience or from the data the interviewer gives you.

• Analysing the target as in a profitability case and forgetting the question asked, which is a decision to buy at a given price.
• Listing synergies without quantifying them or separating the likely from the hoped-for.
• Not mentioning integration. Different cultures, systems to merge, key people leaving: that is where much of the value is lost.
• Forgetting that not buying, or reaching the goal another way, is one of the options.