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Happy Thursday, future bankers!

Hope everyone is doing well! Today we’ll be going over the ins and outs of earnouts, how to talk about a time you had difficulty working with a team, and how a typo led to a 66% surge in Lyft’s stock price.

🚀 Let’s get into it.

🔢 Technical Question

“What is an earnout? Why would a buyer be a proponent of it in an acquisition?”

Understanding earnouts and their significance is crucial. Let’s break it down:

1. What is an Earnout?

   • An earnout is a legal provision included in a merger or acquisition agreement.

   • It outlines potential future payments from the acquiring company (buyer) to the shareholders of the acquired company (seller).

   • These payments are often considered “earned” when specific financial or other benchmarks are achieved by the acquired company after the acquisition is finalized.

2. Why Would a Buyer Be a Proponent of Earnouts?

   • Buyers may advocate for earnouts for several reasons:

     • Risk Mitigation: Acquisitions involve uncertainty. By structuring an earnout, the buyer can align interests with the seller and reduce risk.

     • Performance-Linked Payments: Earnouts allow the buyer to defer part of the purchase price and link it to the acquired company’s future performance.

     • Integration Challenges: If the acquired company operates in a different industry or has unique operations, earnouts can help bridge the gap during integration.

     • Contingent Value: Buyers may believe that certain aspects of the acquired business (e.g., new product launches, customer retention) will drive additional value over time.

     • Win-Win Scenario: Earnouts can create a win-win situation: If the acquired company performs well, both parties benefit; if not, the buyer’s risk exposure is limited.

Remember, earnouts can be complex, and their terms vary. But demonstrating a sound knowledge of them can be vital, especially during times like today when companies are uncertain how potential acquisitions may perform.

🗣 Behavioral Question

"Tell me about a time you had difficulty working with a team."

Certainly! During an investment banking internship interview, when asked about a time you faced team-related challenges, it’s essential to demonstrate self-awareness, problem-solving skills, and collaboration. Here are some key principles to consider:

1. Choose a Relevant Example:

   • Select an instance where you genuinely encountered team difficulties. It could be from a group project, work experience, or extracurricular activity.

2. Structure Your Response Using the STAR Method:

   • Situation: Briefly describe the context and the team you were part of.

   • Task: Explain your specific role or responsibility within the team.

   • Action: Detail the steps you took to address the challenge or conflict.

   • Result: Share the outcome and any lessons learned.

3. Highlight Positive Traits:

   • Adaptability: Show how you adjusted your approach to work effectively with others.

   • Communication: Emphasize active listening, clear communication, and empathy.

   • Leadership: Discuss how you influenced the team positively.

Now, let’s create an example response using the STAR method:

Example Response:

• Situation: During my this past semester, I participated in a consulting project with a team of five students. Our task was to analyze a real-world business case and propose recommendations.

• Task: As the team leader, I was responsible for coordinating our efforts, ensuring everyone contributed equally, and meeting project milestones.

• Action:

  • Early on, we faced challenges. One team member consistently missed deadlines, affecting our progress.

  • I scheduled a team meeting to address the issue. I listened to their perspective and discovered they were overwhelmed due to personal commitments.

  • We collectively decided to redistribute tasks, allowing the struggling team member to focus on areas they excelled in.

  • I also implemented a weekly check-in to monitor progress and provide support.

• Result:

  • The team member regained confidence and became more productive.

  • Our project quality improved, and we delivered a comprehensive analysis on time for our end-of-semester project.

  • I learned the importance of adaptability, communication, and empathy in team dynamics.

Remember, authenticity matters. Use your own experiences to craft a compelling response that showcases your ability to navigate team challenges effectively.

🗞 Industry News

Lyft Shares Jump 66% Due to Typo 🚕

Lyft's rollercoaster ride in the stock market took an unexpected turn when a typo in its earnings report sent shares skyrocketing by a whopping 66% in after-hours trading. The blunder led traders to believe in a fairy-tale-like increase in profitability, envisioning a 500 basis points expansion in Lyft's adjusted EBITDA margin for 2024. However, reality hit hard when it turned out the forecasted growth was more of a modest hike, at just 50 points or 0.5%, as clarified in the company's earnings call.

While the typo initially stole the show, Lyft's underlying performance still shone through. Despite the mix-up, the company reported a respectable 4% year-over-year increase in revenue to $1.2 billion. More importantly, Lyft showcased commendable progress in trimming its losses, with fourth-quarter net losses dropping significantly to $26.3 million from a jaw-dropping $588 million in the same period of 2022. Looking ahead, Lyft aims to maintain its momentum, expecting to exceed analysts' expectations in the first quarter with projected gross bookings of up to $3.6 billion and eyeing positive free cash flow in 2024 for the first time.

In the wild world of ride-hailing, where even a typo can send stocks on a thrill ride, Lyft's journey toward profitability continues. While the exaggerated hype may have caused a brief stir, the company's dedication to financial improvement remains steadfast, contrasting with its rival Uber's recent triumph in turning a profit.

Read more about this story below.

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!