What Is Mergers and Acquisitions (M&A)?
Mergers and acquisitions, or M&A, refers to transactions in which ownership of companies or business units changes hands. A merger combines two companies into one, while an acquisition involves one company purchasing another, but in practice the term M&A covers the entire market for buying and selling businesses.
M&A deals range from small private transactions worth a few million dollars to megadeals worth tens of billions, such as the large technology and media acquisitions announced in recent decades. For investment banks, advising on these transactions is one of the most prestigious and profitable lines of business.
Why Companies Pursue M&A
Companies pursue M&A to grow faster than they could organically, enter new markets, acquire technology or talent, eliminate competitors, or capture synergies by combining operations. A buyer might justify paying a 30% premium over a target's market price if it believes cost savings and revenue gains will more than offset that premium.
Sellers, meanwhile, may pursue a sale to deliver a return to shareholders, gain access to a larger parent's resources, or exit a business that no longer fits their strategy. Private equity firms are also major participants, buying companies to improve them and sell them later at a profit.
The M&A Process
A typical sell-side process starts with the bank preparing marketing materials and a valuation, then contacting potential buyers and collecting indications of interest. Serious bidders sign non-disclosure agreements, conduct due diligence in a data room, and submit final bids before the parties negotiate a definitive purchase agreement.
From first outreach to closing, a deal often takes six to twelve months, and larger transactions may require antitrust and regulatory approvals before they can close. Boards of public companies frequently obtain a fairness opinion from a bank confirming that the price is fair to shareholders.
M&A in Investment Banking Interviews
M&A is central to banking interviews, where candidates are asked why companies acquire each other, how deals are financed, and how to run an accretion/dilution analysis on a proposed transaction. Knowing a recent deal in detail, including the buyer, seller, price, multiple, and strategic rationale, is one of the most common interview expectations.
On the job, analysts in M&A groups build merger models, draft pitch books proposing acquisition ideas to clients, and manage the diligence and documentation workstreams that carry a deal to closing.
