Interview questions
Merger model and accretion/dilution interview questions
A merger model, or accretion/dilution analysis, tests whether an acquisition raises or lowers the buyer's earnings per share (EPS). Interviewers ask you to walk through the steps, explain why companies buy other companies, and judge quickly whether a deal will be accretive.
Which merger model questions should you know?
The 3 below are free in Superday Room, each with a short answer, the mistake to avoid and a target time out loud.
Walk me through a basic merger model, an accretion/dilution analysis.
Project the buyer's and the seller's financials. Set the purchase price and how it's paid: cash, debt, stock or a mix. Combine the income statements, subtracting the interest income lost on cash used, adding interest on new debt, and adding synergies if you assume any. Divide combined net income by the new share count (the buyer's shares plus any shares issued) to get pro forma EPS, and compare it with the buyer's standalone EPS: higher is accretive, lower is dilutive.
Common mistake: Forgetting the interest income lost on cash used, or the new shares issued in a stock deal.
Likely follow-up: Is a deal paid with debt more likely to be accretive than one paid with stock?
Why would a company want to acquire another company?
To grow faster than it could on its own; to capture revenue or cost synergies; to gain market share or remove a competitor; to buy technology, intellectual property, talent or customers; to enter a new market or region; or because the target looks undervalued. In an interview, tie the reasons to a real deal.
Common mistake: Listing reasons without being able to apply them to an actual deal.
What's the shortcut for telling whether an all-stock deal is accretive?
Compare P/E multiples. With no synergies, an all-stock deal is accretive if the buyer's P/E is higher than the P/E it pays for the seller (purchase price ÷ seller's net income). Put another way, compare the buyer's cost of stock, its earnings yield (the inverse of its P/E), with the seller's earnings yield at the purchase price: if the cost of stock is lower, the deal is accretive.
Common mistake: Getting the direction backwards: saying a lower buyer P/E means the deal is accretive.
How do you tell if a deal is accretive or dilutive?
Compare the after-tax cost of each way of paying with the target's earnings yield at the purchase price: if paying costs less, the deal is accretive. Worked through:
The buyer earns $100 million of net income on 100 million shares, so its EPS is $1.00. Its shares trade at $20, a P/E of 20x. It buys a target with $20 million of net income for $300 million, a purchase P/E of 15x. Ignore synergies and fees.
| All stock | All debt | |
|---|---|---|
| How it's paid | 15 million new shares at $20 | $300 million at 6% interest |
| Buyer net income | 100.0 | 100.0 |
| + Target net income | 20.0 | 20.0 |
| – After-tax interest (6% × $300m × (1 – 25%)) | – | (13.5) |
| Combined net income | 120.0 | 106.5 |
| Shares outstanding (millions) | 115 | 100 |
| Pro forma EPS | $1.043 (+4.3%) | $1.065 (+6.5%) |
Both versions are accretive, and the shortcut explains why without the table. Compare the after-tax cost of each way of paying with the target's earnings yield at the purchase price, $20 ÷ $300 = 6.7%. Stock costs the buyer its own earnings yield, 1 ÷ 20 = 5.0%; debt costs 6% × (1 – 25%) = 4.5%. Both are cheaper than 6.7%, so both are accretive, and debt is the cheaper of the two here.
Which firms ask these questions?
In Superday Room's bank, candidates reported 157 merger model questions from interviews at 28 named firms. The firms with the most reports: Evercore (24), Bank of America (16), J.P. Morgan (12), Morgan Stanley (12), Moelis & Co. (11) and Guggenheim Partners (10). These are candidates' reports, counted November 1, 2026. Questions by firm →
Superday Room's full bank has more than 240 merger model questions. The 3 on this page are free to practice out loud; the rest come with the Recruiting Season Pass.