M&A Accounting Interview Guide
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I am a one-year MBA student in Australia moving from corporate banking into transaction advisory, and I have PR so I want to target Big Four advisory teams. Can we do a technical mock interview on M&A accounting? I keep getting stuck on how working capital, debt-like items, and purchase accounting affect valuation.
Absolutely. For your background, the interviewer will expect you to explain the mechanics clearly, not just define terms. Start with this framework: in an acquisition, enterprise value is usually adjusted for debt, cash, and debt-like items to reach equity value. Then you look at net debt and normalized working capital to ensure the buyer gets a business with ordinary operating needs, not a hidden cash drain or windfall. In purchase accounting, the buyer remeasures assets and liabilities to fair value, which can change depreciation, amortization, and goodwill. A strong answer links these accounting adjustments directly to the price the buyer pays.
If they ask me what counts as debt-like items, how should I answer without sounding too generic?
Give concrete examples and explain the logic. Debt-like items are obligations that reduce the value of the business economically even if they are not booked as debt under accounting rules. Examples include unpaid taxes, bonuses, lease liabilities depending on the deal, pensions, deferred revenue in some structures, supplier financing, and provisions for claims or restructuring. The key test is whether the item behaves like debt by requiring a future cash outflow tied to pre-closing operations. In interviews, say that these items are typically netted against equity value or captured in a purchase price adjustment so the seller does not leave behind an obligation the buyer must fund.
How do I explain working capital in a deal context, especially the difference between normalized and actual working capital?
Say that working capital in M&A is usually a target level based on the company’s normal operating cycle, not just a balance sheet snapshot. Actual working capital is what the business has at closing. Normalized or target working capital is set using historical averages, adjusted for seasonality, one-offs, and unusual movements. If actual working capital is below target, the seller effectively strips value out of the business and the buyer pays less through a post-close adjustment. If it is above target, the seller may receive more. The point is to preserve the operating condition of the business, so the buyer is not overpaying for a temporarily inflated balance sheet.
What is the best way to talk through purchase accounting if they ask how it affects the deal model?
Walk them through the sequence. On acquisition, the buyer allocates the purchase price to identifiable assets and liabilities at fair value. That often creates step-ups in asset values, especially for inventory, fixed assets, and intangibles like customer relationships or brands. The excess paid over fair value becomes goodwill. From a modeling standpoint, the step-up changes future depreciation and amortization, which affects post-deal earnings and cash taxes. If you can mention deferred tax effects as well, that is even better. The interviewers want to see that you understand purchase accounting is not just an accounting entry, it changes forecasted financial statements and therefore valuation.
Can you give me a strong sample answer if they ask: why can two buyers pay different prices for the same target even when EBITDA is the same?
Yes. A strong answer is: two buyers can pay different prices because EBITDA is only one input. The purchase price depends on how each buyer views synergies, debt-like items, working capital needs, tax attributes, and the post-close accounting impact of the transaction. One buyer may underwrite larger synergy savings or have lower financing costs, so they can justify a higher price. Another may require a bigger discount if the target has heavy working capital needs, significant lease liabilities, or large purchase accounting amortization that reduces near-term earnings. So even with the same EBITDA, the economic value to each buyer can differ materially.