An M&A case asks whether a client should buy another business, and it is a question about price rather than about attractiveness. A well-run target in a growing market is a bad acquisition if the premium exceeds the value the combination creates. Candidates who assess the target and stop have answered half the question.
This guide covers the four questions an M&A case decomposes into, how to quantify synergies without inflating them, and a worked example. For a full step-by-step walkthrough, see the M&A case study guide.
The four questions
| Question | What it establishes | Where candidates go wrong |
|---|---|---|
| Why acquire at all? | The objective the deal serves | Assuming the deal is the goal rather than a route to one |
| Why this target? | Fit against that objective | Evaluating the target in isolation |
| Is the price justified? | Whether value created exceeds the premium | Treating an attractive business as a good deal |
| Can it be integrated? | Whether the value survives execution | Listing integration risk instead of pricing it |
Most cases turn on one of these. Identify which and weight the structure accordingly. A case where the client has already chosen the target is a valuation and integration case, and spending five minutes on strategic rationale wastes time the interviewer wanted spent elsewhere.
Question one: why acquire at all
Start from the client’s objective, then ask whether acquisition is the best route to it. The comparison is the point:
| Route | Speed | Cost | Control | Reversible? |
|---|---|---|---|---|
| Build | Slow | Lower, spread over time | Full | Partly |
| Partner or licence | Fast | Low | Shared | Yes |
| Acquire | Fast | High, upfront | Full | No |
| Do nothing | — | — | — | — |
Acquisition wins where speed matters and where the thing being bought cannot be built — an installed customer base, a regulatory licence, a scarce team, a manufacturing asset with a long lead time. It loses where the capability could be built for less than the premium.
Include “do nothing” explicitly. A client under pressure to act is exactly the client who should be asked what happens if they do not.
Question two: why this target
Assess the target against the stated objective, not against general quality. Four dimensions:
- Strategic fit. Does it supply the specific thing the objective requires? A target with excellent margins that does not close the gap the client identified is not a fit.
- Standalone quality. Growth, margins, market position, customer concentration. Customer concentration is worth asking about explicitly — a target where one customer is 40 per cent of revenue carries a risk that changes the price.
- Overlap. Where the businesses overlap, cost synergies live. Where they are complementary, revenue synergies are claimed. The first is more reliable.
- Availability. Is it actually for sale, is there a competing bidder, and is there an alternative target? A second option is the client’s main negotiating leverage.
Question three: does the price justify the value
This is where the case is decided, and where the arithmetic lives.
The deal creates value if the synergies exceed the premium paid over standalone value. Everything else is commentary.
Cost synergies come from removing duplication: overlapping corporate functions, redundant facilities, procurement scale, consolidated distribution. They are the ones to quantify, because they depend on decisions the acquirer controls.
Revenue synergies come from selling more as a combined business: cross-selling, wider distribution, a fuller product range. They depend on customer behaviour, arrive later, and are realised less often than they are claimed. Treat them with visible caution — a candidate who quantifies revenue synergies at full value and cost synergies conservatively has the calibration backwards.
Value every synergy net. Three adjustments, and the second and third are where candidates lose credibility:
- Gross annual benefit. The recurring saving or gain.
- Realisation factor. The share actually achieved. Applying something well below full realisation to revenue synergies, and a higher but still incomplete factor to cost synergies, is defensible and shows judgement.
- Cost to achieve. Severance, systems integration, rebranding, facility closure, retention packages. This is usually a large one-off number and it is routinely omitted.
A worked example
A regional logistics company with $400 million revenue is considering acquiring a competitor with $150 million revenue and $12 million EBITDA. The asking price is $120 million. Should they proceed?
Establish the baseline. At $12 million EBITDA, the price is a 10× multiple. If comparable businesses trade at around 8×, the standalone value is roughly $96 million and the premium is $24 million. That premium is what the synergies must cover.
Estimate cost synergies.
- Overlapping terminals. Both operate in four of the same cities. Closing four duplicate facilities at roughly $1.2 million a year each: $4.8 million.
- Corporate overhead. The target’s finance, HR and IT functions largely duplicate the acquirer’s. If those cost $6 million and 60 per cent can be removed: $3.6 million.
- Procurement. Combined fuel and vehicle purchasing on the target’s spend base: $1.0 million.
- Gross annual cost synergy: $9.4 million.
Apply a realisation factor. Terminal closures require lease exits and customer transitions; overhead reductions are slower than planned. At 70 per cent: $6.6 million a year.
Estimate revenue synergies. The target serves customers the acquirer does not. Suppose cross-selling could add $8 million of revenue at a 15 per cent margin — $1.2 million. Applied at 30 per cent realisation, and only from year three: $0.4 million a year, and say so.
Net annual synergy: roughly $7.0 million.
Subtract the cost to achieve. Severance, lease exits, systems integration and rebranding for a business this size might reasonably run to $14 million as a one-off.
Compare. $7.0 million a year, capitalised at the same 8× the market applies to earnings, is roughly $56 million of value created, less $14 million to achieve it — call it $42 million net, against a $24 million premium.
Recommendation. Proceed, at up to roughly $140 million rather than the $120 million asked, since the synergies support a higher price than the premium currently demands — which means the client has room and should not need it. State the two sensitivities: the terminal closures are 51 per cent of the synergy value and depend on lease terms nobody has seen, and the analysis assumes no customer loss during integration, which in logistics is optimistic. A 5 per cent revenue loss on the target would consume roughly a third of the annual synergy.
That final paragraph — naming what the answer depends on and quantifying the downside — is the part that distinguishes a strong M&A answer.
Question four: can it be integrated
Integration is where deals lose the value the analysis promised. In a case, the useful move is to name the specific mechanism rather than list generic risks.
- Customer overlap. Customers who buy from both may consolidate onto one supplier and take the opportunity to renegotiate. In concentrated B2B markets this is a real revenue leak.
- Key people. Where the value is in relationships or expertise, the asset can resign. Ask what retains them.
- Systems. Two operating systems, two billing platforms, two data models. Slower and more expensive than planned, reliably.
- Culture and operating model. Vaguest and most damaging. Made concrete by asking how decisions get made in each business and what happens when they conflict.
- Regulatory approval. In a concentrated market, a combined share above a threshold invites review. Flag it and note it is a matter for counsel rather than something to reason around.
Say which of these threatens the specific synergies you counted. “The $4.8 million from terminal closures assumes we retain the customers those terminals serve; if consolidation triggers renegotiation, that number is optimistic” is worth more than a list.
Practising M&A cases
The arithmetic is standard — multiples, capitalisation, netting a one-off against a recurring benefit — so drill it until the sequence is automatic and your attention is free for judgement. The case maths techniques guide covers the operations.
Then practise the discipline that M&A cases specifically reward: quantifying cost synergies confidently, revenue synergies cautiously, always subtracting the cost to achieve, and comparing the deal against building and against doing nothing.
The M&A case study guide works a full case end to end, the financial services primer covers a sector where deal cases are common, and the case interview hub sets out where M&A sits in a full preparation plan.
