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💃 Rent the Runway’s Big Gain

💃 Rent the Runway’s Big Gain

What are breakeven synergies?

April 11, 2024

⏱ Reading Time: 2 Minutes 29 Seconds

Happy Thursday, future bankers!

Hope everyone is doing well! Today we’re covering breakeven synergies, a time you helped out in your community, and Rent the Runway’s big gain.

🚀 Let’s get into it.

🔢 Technical Question

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In an M&A transaction, what are breakeven synergies?

Breakeven synergies in M&A refer to the level of cost savings or revenue increase required from the merger or acquisition for the combined company to justify the acquisition price. It's essentially the point where the benefits of the deal (synergies) offset the costs (acquisition price and integration expenses).

Here's how it works:

Companies looking to merge or acquire another company often estimate potential synergies. These synergies can be cost savings (e.g., eliminating duplicate back-office functions) or revenue increases (e.g., selling products to each other's customer base).
The acquirer pays a premium to buy the target company. This premium reflects the anticipated future value of the combined entity, including the expected synergies.
Breakeven synergy analysis helps determine how much synergy is needed to make the deal financially worthwhile. It considers the acquisition price, ongoing costs, and the time it takes to achieve the synergies.

🗣 Behavioral Question

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Tell me about a time that you helped out in your community.

Best Practices:

Focus on skills, not just the activity: While the community service itself is important, interviewers are more interested in how your participation demonstrates qualities transferable to investment banking. Some relevant skills include:
- Leadership
- Teamwork
- Initiative
- Problem-solving
- Commitment
The STAR method: Structure your answer to tell a compelling story:
- Situation: Briefly describe the context of your community involvement.
- Task: Outline your specific role and responsibilities.
- Action: Explain the actions you took to contribute.
- Result: Quantify and highlight impact – what was the result of your efforts?
Be Passionate: Demonstrate genuine enthusiasm for community work. Investment Banking is long hours and challenging, so banks seek individuals who can find fulfillment beyond the job itself.

🗞 Industry News

💃 Rent the Runway’s Big Gain

Rent the Runway, the apparel rental firm, is making a strong comeback after a challenging 2023. The company’s shares tripled recently, thanks to its strategic bet on artificial intelligence tools to drive growth. The firm anticipates a revenue growth of 1% to 6% this fiscal year, a significant improvement from the 0.6% rise in 2023. It’s also forecasting a breakeven free cash flow. To attract customers, the company is leveraging AI models to enhance its search and product tools, ensuring customers find the perfect fit. As Michael Ashley Schulman, Chief Investment Officer at Running Point Capital Advisors, puts it, Rent the Runway has become the poster girl for investors who believe in the power of AI to boost not just large corporations, but small businesses as well.

In other strategic moves, the company announced a one-for-20 reverse stock split last week to meet the minimum bid price requirement for continued listing on the Nasdaq. This move resulted in a free float of about 2.6 million shares. The company’s shares were trading at $18.94, giving it a market capitalization of approximately $67 million. Despite past challenges with product quality and assortment, the company, which went public in 2021 and specializes in selling designer brands, is seeing a resurgence in demand. CEO Jennifer Hyman reported a 10% year-over-year increase in customer loyalty rate in the fourth quarter, and the company is planning new designer launches for 2024. This boost in loyalty, Schulman speculates, could help the company use its digital tools to reengage old customers and attract new ones, thereby reinvigorating growth.