"The Pulse" --#50 / The Art of M&A

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Banking:

Where We’re At:  

• SA 2025: U.S. Bank, Pharus, and Integrus all opened applications this week. So far ~107 banks have opened applications. We are 90% complete with the SA 2025 recruiting process. Please reach out if you’re looking for mock interviews or any coaching!

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New SA 2025 Applications:

• U.S. Bank: Large bank looking for a DCM intern (SA 2025)

• Pharus: M&A-focused boutique (SA 2025)

• Integrus: Healthcare-focused boutique (SA 2025)

New FT 2025 Applications:

• No new releases this week

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• SA 2025: 13 SA 2025 applications have been released so far. BCG and Bain offer two application deadlines - do everything possible to apply to the first round. Oliver Wyman's application has been out for a month now – if you are interested you should have already applied or be applying within the next week or so. Redstone Strategy Group, a Boulder-based boutique, released its SA 2025 application this week.

SA 2025 released apps:

• KPMG: Advisory Intern, Deal Advisory - Financial Due Diligence (SA 2025)

• PWC: Business Processes Intern (SA 2025 - Closed).

• Curtis & Co: Boutique firm (SA 2025 - Closed)

• Protiviti: Tech Consulting (SA 2025 - Closed)

• RSM: Tech, Risk, and Business Improvement Intern (SA 2025 - Closed)

• Deloitte: Business Technology Solutions Summer Scholar (SA 2025 - Closed)

• Berkeley Research Group: Associate Consultant Intern (SA 2025)

• Oliver Wyman: Summer 2025 Intern (SA 2025)

• Bain: Associate Consultant Intern (SA 2025)

• Cavi Consulting: Consulting Associate Internship (SA 2025)

• McKinsey: Summer Business Analyst (SA 2025)

• BCG: Associate Consultant Intern (SA 2025)

• Redstone Strategy Group: Consulting Intern (SA 2025)

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SA 2025: Maytech Global Investments, MacKay Shields, and Diamond Hill all opened SA 2025 apps this week. So far ~91 buyside shops have opened applications with the process being 80% complete

Released apps:

• Maytech Global Investments: Equity Research position (SA 2025)

• MacKay Shields: Credit Research (SA 2025)

• Diamond Hill: Equity Research (SA 2025)

• Highland Street Partners: RE private equity (SA 2025)

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Market Update:

The Art of M&A

M&A is arguably the sexiest area of finance. People love to talk about the possibilities of blending companies together. Today, we are going to dive into some key aspects of M&A.

• What ingredients are needed for a ripe M&A environment?

• Why does M&A happen?

• What happens after a successful M&A process?

• What are some really good acquisitive businesses?

Before proceeding, if you’re new to finance or just need a refresher of M&A, please see our ‘Learning Points’ section below for a breakdown of M&A and how it’s executed.

Now, the ingredients needed for M&A.

The M&A environment is like a good cocktail. Not as simple as a tequila soda, rum & coke, or some other dogshit “cocktail.”

Instead, M&A is like a really good jumbo margarita. The ingredients:

-The Proper Mix of Ice: Abundant and simple, but necessary for all drinks. Ice in M&A is the financing of the transaction (whether debt, equity, or cash // (See "The Pulse"--#32 for more detail on when/why to use each type of financing). Without the right financing, the transaction is doable, but it sucks! Similar to a frozen marg, the right financing makes the drink/transaction so much better

-The Mixer: You don’t just crave a margarita. You crave a strawberry marg or mango marg or peach marg, etc you get the point. The same notion of taste applies at the corporate level regarding possible synergies. Any given company may be craving some type of strategic initiative which can be fulfilled through synergies produced by M&A like product diversification, revenue expansion, supply chain consolidation, geographic expansion, etc. A company isn’t going to blindly pursue M&A just because a few bankers pitch some random synergistic opportunity. The synergy needs to align with their interests. You wouldn’t order a mango margarita if you hated mangoes.

-The Tequila: Tequila is what separates a margarita from a glass of juice. It’s the shit that fuels the night and the hangover. Management motivation is the tequila of an M&A transaction. Managers often feel the need to act in order to succeed and M&A is a great way to make some headlines.

Blend the right combination of these ingredients together and you have a fire margarita. Forget one of these ingredients and the marg won’t happen. Fuck up the balance of these ingredients and you may have a wicked hangover in your future.

As discussed in "The Pulse"--#32, 2024 is ripe for M&A activity due to the blend of the aforementioned ingredients (although the financing component is less than ideal for sponsor-backed transactions).

Now, what are the outcomes of M&A transactions? Do these ‘synergies’ ever materialize?

In the short-term, the stock of the acquirer typically falls. It often falls because investors are quick to dissect the negative effects of M&A including:

• Paying too much (spurred from management overconfidence or ease of access to capital)

• Lack of integration (cultural misfit, systems misfit, etc)

• Regulation (one of the most pressing components today, lots of drama surrounding Microsoft’s acquisition of Activision)

• Failure to recognize proposed synergies

• Loss of focus from core business operations

Meanwhile, the value of the acquired company’s stock typically rises! This is primarily due to the premium paid to acquire the business. Not easy to convince somebody to sell a company for less than it’s worth.

However, an investor shouldn’t be too wrapped up in the short-term. What happens in the long-run?

In 2-3 years post acquisition, 50% of firms fail to recognize the proposed synergies of the M&A transaction and pose negative stock returns (M&A Source).

So, M&A is a big gamble with 50-50 odds of success! What does a successful acquisitive company look like? Let’s take a glance at JPMorgan, a very familiar company to most of you.

Everyone knows what JPM is. Compared to some of its largest competitors such as Wells Fargo and BofA, JPM has been smoking the competition over the last 5 years on a total stock return.

Baked into these returns is JPM’s strong history of M&A. JPM made 16 publicly announced acquisitions or corporate investments since 2020 across mostly fintechs and smaller businesses.

However, JPM has knocked down some HUGE acquisitions as well including: First Republic in 2023, Bear Sterns and Washington Mutual in 2008, and Chase Manhattan in 2000.

JPM is an example of a really successful acquisitive company (Yes, the recent acquisition of Frank was a mistake).

Knowing the ingredients and outcomes of M&A is critical for any banking or PE interview. It is important to understand that M&A is complex, largely fueled by behavioral drivers, and isn’t always great for the companies involved!

Disclosure: Nothing written here is financial advice or should be used for investment decisions.

Mergers and Acquisitions

Yes, Patrick Bateman was an M&A guy.

But, what is M&A and how is it executed?

M&A is the broad term covering mergers and acquisitions which relates to major cross-corporate transactions.

-A merger is the combining of two businesses (typically of similar size) in a mostly mutual fashion.

-An acquisition is the combining of two businesses (usually of very different sizes) or through a hostile takeover (acquired company didn’t want to be bought).

Most acquisitions today are from a large company buying a smaller company as hostile takeovers have become really difficult to execute due to strengthened corporate governance and high costs.

If you want to work in banking or private equity, you will quickly understand that M&A is always a very large focus. Banks make huge fees by advising on M&A transactions. For PE, well, the nexus of PE is the buying and selling of businesses.

From a banking or private equity standpoint, M&A can be really different! On the banking side, you may be advising a regular-way corporation on its merger with or acquisition of another regular-way corporation which demands intense diligence on the acquirer and to-be-acquired, the creation of a merger model, and the organization of the financing.

A merger model combines the financial statements of the two businesses and attempts to project the execution of the proposed synergies over a 5-10 year period. In reality, this is a pretty intensive process since projecting line items such as run-rate adjusted EBITDA of a combined business over 10 years is not very intuitive and requires a ton of assumptions.

I couldn’t accurately tell you what the weather is going to look like next week, how the hell am I supposed to tell you what free cash flow looks like in year 7 post-acquisition of two Midwestern widget manufacturers?

From a PE standpoint, you’re likely LBO’ing a business and looking to see how little you can pay and how much leverage you can add. We covered the LBO process in "The Pulse" --#35 (beehiiv.com).

Bottom-line, M&A activity comes with really shitty timelines because of the behavioral motivations and heightened complexity (nobody really knows what the future business will look like!)

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“The Pulse” #50