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Greenhill Chicago Investment Banking – Summer Analyst | GFC Technical Interview Series

Greenhill Chicago Investment Banking – Summer Analyst (All rounds)

The three ways to value a company? Is there a fourth way?

  • Easy, fourth way was LBO although could say Residual Income or DDM

What valuation techniques give the highest valuation?

  • Precedent transaction then DCF then trading comps, but also mention that all methods are dependent on assumptions

Differentiate between the discretionary vs required uses of a firm’s capital

  • Discretionary: M&A activity, dividend payouts, share buybacks

  • Required: debt payments, reinvest in business/fund needed capex, operating expenses

When would a deal be accretive/dilutive (question asked only because of M&A experience on resume)?

  • If P/E of target higher than P/E of buyer, buyer has to pay more for each dollar of earnings and issue more shares

  • Need to consider financing mix and synergies to compute EPS

When would you use stock vs cash vs debt to acquire a company?

  • Cash usually leads to accretion, especially in current economic environment when the foregone interest on cash is low

  • Debt should also lead to accretion, especially in current economic environment when interest rates can be low

  • Stock depends but accretive if P/E of buyer is higher, best to use if buyer stock is overvalued

  • Also said that bottom line is to look at each financing mix and compute pro forma EPS to see if it increases. Also consider changes to line items/synergies as they affect IS

What is the risk free rate now? If the risk free rate is falling, is it a good time to raise debt?

  • Read the news

  • Yes, debt is good because of low interest rate environment—lending is cheap. Lower risk free rate also means that your WACC falls.

What levers to pull if valuation is too low?

  • Mainly look at terminal value (higher growth rate) and WACC (lower)

  • Also went into detail into the components of WACC, need to look at capital structure and beta, etc.

Warren Buffet EBITDA quote: “Every dime of depreciation expense we report, however, is a real cost. And that's true at almost all other companies as well. When Wall Streeters tout EBITDA as a valuation guide, button your wallet.” What do you think he means?

  • Adding back depreciation for certain businesses/industries understates costs

  • Consider if company has a lot of long-term assets on BS

  • Better to use EBIT/Interest expense, etc.

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