⏱ Reading Time: 4 Minutes 8 Seconds

Happy Saturday, future bankers!

Hope everyone is doing well! Today we’re going over cases where comparables produces higher valuations than precedent transactions, how to teach a new concept, and KKR’s latest private equity buyout.

🚀 Let’s get into it.

🔢 Technical Question

“Precedent transactions usually produce higher values than that of comparable companies. What is an example of a situation where this would not be the case?”

Certainly! Let’s delve into precedent transaction analysis and explore a scenario where it might not align with the usual trend.

1. What is Precedent Transaction Analysis?

   • Precedent transaction analysis is a valuation method commonly used in investment banking, private equity, and corporate development.

   • It involves using past M&A transactions (acquisitions) to value a comparable business today.

   • Instead of relying on market prices of publicly traded securities (as in Comparable Company Analysis), precedent transactions focus on the actual prices paid for entire businesses during acquisitions.

2. Why Do Precedent Transactions Tend to Yield Higher Values?

   • Generally, precedent transactions result in higher values than comparable companies due to several reasons:

     • Control Premium: Buyers often pay a premium to gain control over the target company. This premium reflects the strategic value, synergies, and control benefits.

     • Strategic Fit: Acquirers may be willing to pay more if the target company fits well with their existing operations or growth strategy.

     • Competitive Bidding: In competitive bidding situations, multiple buyers vie for the same target, driving up the acquisition price.

     • Private Information: Buyers may have access to non-public information about the target, allowing them to assess its value more accurately.

3. When Might Precedent Transactions Not Yield Higher Values?

   • Despite the usual trend, there are exceptions:

     • Distressed Sales: If a company is in financial distress or facing bankruptcy, its precedent transaction value may be lower than its comparable company valuation.

     • Non-Strategic Buyers: Sometimes, buyers with no strategic interest (e.g., financial investors) acquire a company. In such cases, the acquisition price may not reflect the full strategic value.

     • Unique Situations: If a precedent transaction involves unique circumstances (e.g., a distressed industry), the valuation may differ from comparable companies.

     • Market Sentiment: If market sentiment is negative (e.g., during an economic downturn), precedent transactions may not command higher values.

4. Example Scenario: Distressed Company Acquisition

   • Imagine a distressed retail company facing declining sales and mounting debt.

   • A strategic buyer acquires this company at a significantly discounted price due to its financial troubles.

   • In this case, the precedent transaction value would be lower than what you’d expect based on comparable companies’ valuations.

Remember that while precedent transactions provide valuable insights, each situation is unique.

🗣 Behavioral Question

"Teach me about a concept that is new to me."

The “teach me something” interview question is a common way for interviewers to assess your knowledge, creativity, and communication skills. It is also an opportunity for you to showcase your personality and passion for learning. Here are some steps you can follow to answer this question effectively:

1. Choose a topic that is relevant, interesting, and not too complex. You want to pick something that you are familiar with and can explain clearly, but also something that is not too obvious or boring. Avoid topics that are related to finance, since the interviewer is likely to be an expert in that field and may not learn anything new from you. Instead, choose something that is related to your hobbies, interests, or experiences, such as a sport, a musical instrument, a language, a historical event, a scientific phenomenon, or a cultural practice.

2. Use examples and analogies to illustrate your points. Examples and analogies are effective ways to make your answer more engaging and understandable. They can help you connect your topic to the interviewer’s existing knowledge and show how it applies to real-world situations. For example, if you are teaching the interviewer about the concept of entropy, you can use an analogy of a messy room or a scrambled egg to explain how entropy measures the disorder or randomness of a system.

3. Check for understanding and feedback. Throughout your answer, you should check if the interviewer is following your explanation and if they have any questions or comments. You can do this by asking open-ended questions, such as “Does that make sense?” or “What do you think about that?” You can also invite the interviewer to share their own experiences or opinions on the topic, such as “Have you ever encountered this concept before?” or “How do you feel about this topic?” This will help you create a dialogue and show your interest in the interviewer’s perspective.

🗞 Industry News

KKR’s $3.8 Billion Deal 💰

Chipmaker Broadcom is getting ready to shake things up. They're close to finalizing a $3.8 billion deal to sell their remote access software unit to private equity firm KKR. This move is part of Broadcom CEO Hock Tan's plan to refocus the company after their big VMware purchase last November. KKR outbid other interested buyers, including EQT, and we might hear the official news as early as Monday.

Broadcom hinted at selling this unit back in December, and they're also looking to find a new home for VMware's Carbon Black security software. KKR knows this tech space well, having snapped up companies like BMC, Compuware, and Ensono in the past. Evercore, Deutsche Bank, and Jefferies are helping KKR with the deal, while Citigroup is on Broadcom's side. UBS Group, Jefferies, and KKR's own team are making sure the financing is all lined up.

Read more about this story below.

Refer 3 Friends ➡️ Get Access to Database of 60+ IB Career Pages

1. Refer Friends: If you manage to get three of your friends to sign up for Finterview, we have a special offer for you. We’ll send you a curated database of links to the career pages of 60+ (and growing) investment banks. This way, you can streamline your search for new internships.

2. How It Works: All you need to do is reply to this email and list the email addresses of the friends you referred. Once we receive your reply and verify the sign-ups, we’ll email you the comprehensive list.

3. Questions or Clarifications: If you have any questions or need further assistance, feel free to reply to this email. We’re here to help! 🌟

Thanks for tuning in today! Best of luck to everyone working through recruiting right now. If you sign an offer, reply to this email and let us know about it! Like seriously, do it—we’d love to hear about it!