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Happy Sunday, future bankers!

Hope everyone is doing well! Today we’re covering acquisition premiums, a project you enjoyed, and the noncompete ban.

🚀 Let’s get into it.

🔢 Technical Question

Why does a company pay a premium when making an acquisition?

An acquisition premium is the difference between the estimated real value of a company and the actual price paid to acquire it during a merger and acquisition (M&A) transaction. Here are the key reasons why companies pay an acquisition premium:

1. Closing the Deal and Warding Off Competition:

   • Companies often pay a premium to eliminate rival bidders and secure the acquisition.

   • By offering a higher price, they can outbid competitors and ensure the deal goes through.

2. Synergy and Value Creation:

   • Acquirers pay a premium if they believe that the synergy created from the acquisition will be greater than the total cost of acquiring the target company.

   • Synergy refers to the benefits gained by combining the two companies, such as cost savings, increased market share, or improved operational efficiency.

3. Strategic Objectives:

   • Companies may pay a premium to achieve specific strategic goals, such as expanding into new markets, gaining access to proprietary technology, or diversifying their product portfolio.

   • The premium reflects the value of achieving these objectives through the acquisition.

4. Market Dynamics and Competition:

   • The size of the premium depends on factors like industry competition, the presence of other bidders, and the motivations of the buyer and seller.

   • If multiple companies are interested in the same target, the acquirer may need to offer a higher premium to win the bid.

5. Perceived Value and Investor Confidence:

   • Paying a premium can signal confidence in the target company’s future prospects.

   • Investors may view the premium as an indication that the acquirer expects strong performance and growth from the combined entity.

While not every acquisition requires a premium, companies strategically use it to achieve their goals and create value through M&A transactions.

🗣 Behavioral Question

Tell me about a work project that you enjoyed.

Here are a couple of best practices for responding:

1. Highlight relevant skills: Don't just talk about any project you enjoyed. Choose a project that showcases skills valuable in investment banking. This could be:

• Financial modeling: Did you build a financial model for a class project or competition?

• Research and analysis: Did you research a specific industry or company for a school paper or club?

• Teamwork: Did you collaborate on a project that required effective communication and problem-solving?

• Communication: Did you present a project or research findings in a clear and concise way?

2. Structure your answer using the STAR method:

• Situation: Briefly describe the project, its purpose, and your role.

• Task: What specific tasks were you responsible for?

• Action: Explain the actions you took and the skills you used to complete the tasks.

• Result: Highlight the outcome of your work and what you learned from the experience.

🗞 Industry News

🚫 The Noncompete Ban

The Federal Trade Commission (FTC) recently issued a final rule that effectively bans noncompete agreements nationwide, marking a significant shift in US law. This decision aims to protect workers’ freedom to change jobs, foster innovation, and encourage new business formation. Under the rule, millions of US workers will find it easier to leave their existing jobs to work for competitors or start their own ventures. However, companies express concerns about their ability to safeguard trade secrets and confidential information.

The rule applies to employees and independent contractors across various industries, from doctors and engineers to fast-food workers and salespeople. While it generally applies retroactively, there are exceptions. For instance, existing noncompete agreements with senior executives—representing less than 0.75% of workers—will remain enforceable, but new agreements with them will not be permitted. Notably, the rule does not cover all industries; certain banks and nonprofits, such as health care providers and stockyards, are exempt. The FTC also allows non-compete agreements to protect a company’s interests in the event of a sale.

However, the rule faces legal challenges. The US Chamber of Commerce and others argue that the FTC lacks authority to strip workers and companies of contractual rights, asserting that only states can regulate such agreements. Some states, like California, have already banned noncompete agreements due to concerns about worker mobility and innovation. As lawsuits unfold, experts anticipate potential court battles and even a possible Supreme Court review.

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!