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Happy Monday, future bankers!

Hope everyone is doing well! Today we’re covering long-term growth rates, explaining a complicated concept, and Salesforce’s M&A talks cooling down.

🚀 Let’s get into it.

🔢 Technical Question

In the Gordon Growth model, what is usually considered an appropriate growth rate? Why?

In the Gordon Growth Model (GGM), the appropriate growth rate is typically considered to be a rate that is similar to or lower than the economy’s growth rate. This is because the GGM assumes that dividends grow at a constant rate in perpetuity.

If a company’s earnings growth rate is above the growth rate of the economy, it is improbable that such a high rate of growth is sustainable into perpetuity. Therefore, for the model to provide a realistic and reliable valuation, the growth rate should ideally reflect a rate that the company can maintain over the long term.

This is why the GGM is most suitable for companies with steady growth rates, particularly mature companies in established markets. These companies are more likely to have predictable and stable dividend growth rates, making them ideal candidates for valuation using the GGM.

It’s important to note that the chosen growth rate significantly impacts the valuation produced by the GGM. Therefore, it’s crucial to use a realistic and justifiable growth rate when applying this model.

🗣 Behavioral Question

Tell me about a time that you had to explain a complicated concept. What did you do to make your explanation simple?

Here are some best practices to follow when responding to this question:

1. Choose a Relevant Example: Select a situation where you had to explain a complex concept, preferably related to finance or investment banking. This will demonstrate your ability to simplify complex financial concepts, which is a crucial skill in investment banking.

2. Describe the Situation: Clearly outline the context. Who were you explaining the concept to? Why was it necessary for them to understand it? This sets the stage for your story.

3. Explain the Concept: Briefly describe the complex concept you had to explain. This gives the interviewer an idea of the complexity of the situation you were dealing with.

4. Detail Your Approach: Explain the steps you took to simplify the concept. Did you use analogies, diagrams, or break down the concept into smaller parts? This shows your problem-solving skills and your ability to adapt your communication style to your audience’s needs.

5. Discuss the Outcome: Talk about the result of your explanation. Were they able to understand the concept? Did it lead to a successful outcome in the larger context (e.g., a project or a deal)? This helps to highlight the effectiveness of your communication skills.

6. Reflect on the Experience: Discuss what you learned from the experience and how it has influenced your approach to explaining complex ideas since then. This shows your capacity for self-improvement and learning.

Remember, the goal is to demonstrate your communication skills, your ability to empathize with your audience, and your capacity to adapt complex information to different audiences. Be concise, clear, and focus on the actions you took and the impact they had.

🗞 Industry News

🧊 Salesforce M&A Deal Cools

Informatica has publicly denied being involved in any acquisition discussions, following reports of cooled takeover talks with Salesforce. Despite Informatica’s policy of not commenting on market rumors or speculation, the company felt compelled to clarify that it is not currently engaged in any discussions to be acquired. Meanwhile, a representative for Salesforce declined to comment on the matter. The Wall Street Journal had earlier reported that the deal talks were fizzling out.

The negotiations between Salesforce and Informatica reportedly cooled due to disagreements over the terms, particularly the price. This news impacted the stock market, with Informatica’s shares falling 9.5% to $31.85, while Salesforce’s shares rose 2.7% to $277.55. If the deal had gone through, it would have been one of Salesforce’s largest acquisitions, second only to its 2021 takeover of Slack Technologies for more than $27 billion and its purchase of Tableau Software in 2019 for over $15 billion.

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!