Merger Math Interview Walkthrough

Reviewed by Fallon Han· Updated 2026-06-01 06:06:45.972

This conversation was generated using Cook'd AI's career assistant and reviewed by Fallon Han from our editorial team for accuracy.

I'm a first-year economics student in the UK on a student visa, and I'm moving from my campus investing club into bulge-bracket summer internship prep. Can we do a classic deal-analysis prompt? I want to practice a merger question that starts simple and then gets into the assumptions behind accretion and dilution.

Absolutely. Let's use a classic interview setup: 'Company A announces it will acquire Company B for 25 per share in cash and stock. Walk me through whether the deal is accretive or dilutive.' In the interview, start by framing the key drivers: 1. Purchase price versus target earnings power 2. Financing mix, especially debt versus stock 3. Financing cost or share issuance impact 4. Synergies and integration costs 5. Tax rate and amortization of intangibles 6. Timing, because first-year EPS can differ from steady-state EPS A strong answer does not jump straight to the conclusion. It explains that accretion or dilution depends on whether the buyer's post-deal earnings contribution per share is above or below its standalone EPS. The real work is in the assumptions. For a first pass, I would say: if the buyer uses mostly cash funded with cheap debt, and the target has a lower P E than the buyer, the deal is more likely accretive. If the buyer pays with expensive stock or overpays, it is more likely dilutive.

Can you walk me through how I should structure the answer out loud, like a proper interview response? I do better when I have a clean sequence.

Yes. A clean structure is: First, state the headline logic: 'Accretion or dilution depends on whether the target's earnings contribution, adjusted for financing and deal effects, exceeds the buyer's foregone EPS or financing cost.' Then go step by step: 1. Deal terms - What is the purchase price? - Is it cash, stock, or a mix? - Is there a control premium? 2. Sources and uses - Uses: equity purchase, refinancing target debt, fees - Sources: cash, new debt, stock issuance 3. Earnings impact - Add target net income - Subtract interest expense from new debt - Add synergies - Subtract lost interest income if cash is used - Adjust for taxes and amortization 4. Share count impact - If stock is issued, new shares increase dilution pressure - If cash is used, no new shares, but debt cost matters 5. Conclusion - Compare pro forma EPS with buyer standalone EPS - If pro forma EPS is higher, accretive; if lower, dilutive A polished answer should sound like you're building the model in your head, not memorizing a definition.

Let's make it more concrete. Suppose the buyer has a higher P E than the target and pays mostly with stock. What should I say about the direction of the deal? And what are the main caveats?

If the buyer has a higher P E than the target and pays mostly with stock, the deal is often dilutive. Here's why: - The buyer is issuing its own expensive equity to buy cheaper earnings from the target. - In simple terms, it gives away more value per dollar of earnings than it receives. But the caveats matter, and interviewers love them: - Synergies: Cost savings or revenue gains can turn a dilutive deal accretive. - Financing mix: Even in a stock-heavy deal, a small cash component changes the math. - Relative margins: A lower P E does not automatically mean lower quality earnings. - Tax effects: After-tax financing costs and target taxes can change the result. - One-time items: Integration costs can suppress near-term EPS. A strong line to use is: 'On a headline basis, stock-financed acquisitions of lower-multiple targets tend to be dilutive, but the final answer depends on synergies, financing costs, and the form of consideration.'

I always get stuck when interviewers ask about the assumptions. If they say, 'What assumption would move this from dilutive to accretive?' how should I answer as a first-year student without overcomplicating it?

Keep it simple and prioritize the biggest levers. You can say: 'The deal becomes more likely accretive if the buyer either lowers the acquisition cost, increases synergies, or reduces the dilution from financing.' Then give three concrete examples: 1. Lower purchase price or smaller premium 2. Higher cost synergies, like duplicated SG and A savings 3. More debt and less stock, if the debt cost is below the buyer's earnings yield If you want to sound especially sharp, add: - Faster synergy timing helps first-year EPS - Lower integration costs help - A lower tax rate on pro forma earnings helps The key is to show you know accretion/dilution is not a fixed answer. It's a sensitivity problem. Interviewers want to see which assumptions matter most.

Could you give me a short model answer I can memorize for a prompt like: 'Company A is buying Company B for 25 per share, mostly stock. Is it accretive or dilutive?' I want something that sounds natural in a London summer internship interview.

Sure. Here's a concise answer you can memorize and adapt: 'At a high level, a mostly stock-financed acquisition is more likely to be dilutive if the acquirer has a higher earnings multiple than the target, because it is using its relatively expensive equity to buy cheaper earnings. I would then look at the key drivers: the purchase premium, the financing mix, any expected synergies, and the after-tax impact of any debt or integration costs. If the synergies are strong enough or the purchase price is low enough, the deal can become accretive. So my conclusion would depend on the relative multiples and the size and timing of the synergies, but absent meaningful upside, I would expect initial dilution.' That answer works because it is clear, structured, and shows you understand the mechanics without pretending to have a full model in your head.