How to answer this Technical interview question about Company Valuation for Mid-Level Investment Banking?

How would you value a company for a potential acquisition?

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Investment Banking

Technical

Asked at

Morgan Stanley

Difficulty :

Hard

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Explanation

This question evaluates your knowledge of valuation methods and your ability to apply them in a practical scenario. Recruiters are looking for your understanding of DCF (Discounted Cash Flow), comparable company analysis, and precedent transaction analysis. Common pitfalls include focusing on only one method or failing to explain why a method is appropriate for the scenario. A strong answer demonstrates a structured approach and an understanding of nuances in valuation. Preparation involves reviewing the core valuation techniques and practicing their application.

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Answer Example

To value a company for acquisition, I would use three main approaches: DCF, comparable company analysis, and precedent transaction analysis. I’d start with DCF, projecting the company’s cash flows and discounting them using the appropriate WACC. Then, I’d identify similar companies and analyze their trading multiples, such as EV/EBITDA. Lastly, I’d review past transactions in the sector to understand acquisition premiums. For example, in a financial modeling project, I applied these methods to value a tech company at $500M, aligning with the client’s acquisition budget and market trends.

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