Sample Deal Discussions: Sell-Side Divestiture Discussion & Analysis

Okay, in this lesson Im going to be walking you through this first sample deal discussion
transcript, which is for a sell side divestiture transaction, as I have listed right here. Now keep in
mind a couple things. First off that even though this is for a divestiture specifically, it doesnt
necessarily have to be for a divestiture. Many of the strategies that were going to see here and
many of the points that the interviewee raises, could easily be applied to any other type of sell
side M&A transaction.
The other important thing to note here is that even though this is for a sell side M&A deal,
many of the points here could also be applied to a number of different deals. Capital raises and
IPO, a secondary offering, debt raises, perhaps, so keep that in mind as well. That you are not
exclusively limited to M&A deals when youre discussing transaction experience in interviews. I
do think that when push comes to shove and you have to make a choice about what you want
to talk about, if you actually have M&A deals or even quasi-M&A deals that did not really result
in anything happening but you still made some progress, you researched buyers or sellers or
other criteria like that. Its better to talk about that most of the time than to talk about IPOs or
to talk about even debt related deals. The reason is that generally M&A deals tend to have
more modeling involved. You have more quantitative work you can talk about, versus IPOs, for
example. Where theres really not too much aside from the valuation that you do. But most of
the work that you do is relating to drafting the S-1 Prospectus if youre in the U.S. or the
appropriate registration statement for the company if youre elsewhere; and to conduct in
customer due diligence.
So there is some good qualitative stuff you can talk about, but generally if youre interviewing
for private equity or for other banking jobs, theyre testing your modeling skills and your
quantitative ability. So its usually better to bias your discussions toward M&A deals, if at all
possible. The way I think you should think about discussing any type of transaction like this is to
think about the who, why, how, and what. So to kind of think like a reporter here, and focus on
these key criteria. The when and the where could also be appropriate in many cases. Although I
think when all is said and done, the who, why, how and what part of it is probably more
important. When and where can be significant if the market is especially volatile at a certain
point and time or if its especially hot or cold or something majors going on in the market. Or if
youre in a region of the world thats especially significant. So, if youre talking about a deal
thats taking place in some region and then a regional conflict or civil war or something like that
broke out, then when and where become highly relevant. But most of the time you want to be
thinking about the who, why, how and what, when youre thinking about how to present these
deals.

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I think the best way to think about this is to kind of pretend that youre a story teller, as I say
here. With any kind of story, you want to have an introduction, rising action, a climax and then
a conclusion. Now theres more to a story than that, but those are kind of the basic parts and
the way that I would think about it. Now looking at your resume and the experience that you
had, what you want to do is figure out the best two or three deals to talk about and then go
through them, figure out what your introductions going to be. Now usually for sell side deals,
whether its an M&A deal or IPO or anything else like that, that involves you selling the
company to other people, the introduction is going to be very simple. Its going to be a brief
description of the company, their financials, how theyre doing, what theyre looking to do.
Then you want to get into the rising action part of the story. Which is why they were looking to
do something and the process that they were going to use to do it. Now in an IPO, for example,
this is relatively straightforward. The process is they want to raise money to expand or to buy
another company or to pay back investors or whatever the case may be. And the process is that
they go out, find the most appropriate institutional investors, and then raise funds from them.
For an M&A deal, this gets to be more diverse, because you have a choice over which types of
which types of investors specifically you want to go out to. So maybe you only approached
strategic buyers, maybe you only approached financial sponsors, and so there gets to be more
variety with that. You can talk more about the fit with the different buyers. So theres more
that comes into play like that.
Now once youve kind of described that, then you want to get into the crux of the deal. So what
did the deal really come down to? Most of the time with M&A deals, theres usually one or two
major issues that everything revolves around. In the case of major M&A deals, often its simply
price. Theres a big disagreement over price, and the buyer and seller cant come to terms.
Sometimes theres more to that. Sometimes with energy deals, for example, one big issue is
regulatory issues. So when KKR was buying TXU, for example, for $45 billion, years ago, one of
the big issues that came up, it was that TXU is a major Texas utilities company; one of the major
issues that came up was that all these environmentalists were protesting because KKR wanted
to build a bunch of new power plants and they didnt want to have anything to do with it. So,
there was a giant regulatory mess with the state legislators getting involved, with
environmental activists getting involved and all of these other parties. So that was a major issue
in that deal. If you were an analyst working on it, a lot of your work might come down to what
the deal looks like if those power plants dont actually get built, and thats the major issue for
your deal.
Now most of the time with deals, theres a major issue like that to talk about. If you dont have
something like that, then I would try to make lemonade out of lemons, and just go into what
you can talk about. Either talk about the valuation and how maybe the company was in an
unusual situation, or something else like that. Or maybe the issue was that the market was just
too bad and so that was the crux issue, that was really what prevented anything from
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happening or made it difficult for anything to happen. So you have to kind of stretch in a lot of
cases, and really think hard about what the major issue was that was either going to enable to
deal to happen or to prevent it from happening. If you dont have something like that, then just
use your spin tactics and just talk about the issue that you know the best, or thats going to
impress them the most. In a lot of cases, that comes down to valuation or modeling, if that was
what was involved with your deal.
And then finally at the end, once youve been through the rising action and then the climax, you
want to get into what the conclusion of the deal was. In a lot of cases, this is you dont know.
Especially if you were an intern, a lot of times its simply impossible to know. But if youre
working full time, its better to talk about what the actual conclusion was. If a deal didnt
happen, thats fine, theres nothing wrong with that. You should just say that it was delayed,
even if it fell apart, unless it was very public. So Microsoft Yahoo in 2008 falling apart, that
would be very public. You cant lie about something like that. But if its a lesser known deal
where it was never publicly announced, nothing was every publicly known, just pretend its still
happening. Just say oh, we dont know yet. Its still progressing. Were in final stages of the
discussion, just leave it like that. It sounds better to say its still in progress versus admitting
that the deal fell apart.
So thats how I would think about structuring your deal experience. Im just giving this
preamble, this introduction, before we actually get into this transcript because there was no
overview video for this course. I felt it was better to just jump into the transaction discussions
right here. So thats just kind of how to think about it overall and the planning that I would do
when youre thinking about how to present whats on your resume and how to talk about it in
interviews with investment banks, private equity firms, hedge funds.
So lets go into this transcript now. The first thing to note here is that this transcript, the audio
clip for it only runs for about ten minutes, which is accurate. In most interviews, if theyre 30
minutes, theyre not going to spend 30 minutes talking about one transaction. More common
to spend maybe ten minutes, 15 minutes on one transaction, then to move onto another, or to
talk about different altogether. In this case the interviewee here worked at a local boutique,
and the interviewer asked him to discuss one of the deals listed on his resume. Its important to
note here, that this is actually what happens in interviews in many cases. Theyll just say tell me
about one of the deals listed on your resume. And the interviewee chooses to talk about his sell
side M&A deal. Again, my recommendation is to always talk about M&A deals, or restructuring
deals if you have them versus other types. Within M&A deals, its better usually to talk about
sell side deals rather than buy side deals simply because you usually do more quantitative work
for sell side deals, although there are exceptions. So thats how I would try to make the
selection process. Divestitures are good, restructuring distressed deals are good. Any type of
deal with an unusual outcome or an unusual process, something that you dont see all the time
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is better to talk about than a plain vanilla type of deal. Where youre not really doing too much
unique. Youre not doing too much different from any other type of deal that you would
normally see.
In this case, nothings been announced yet. So hes being careful to avoid giving specific names
or dollar amounts. This is an important point. Ive gotten a lot of questions on what to do if you
cant talk about the buyer and seller and their names. Short answer is its fine. It doesnt really
matter. Just describe their industry, describe how big they were. If youre really paranoid then
keep it very very general. Instead of saying they were an accounting firm, say they were a
professional services firm. Instead of saying they were saying theyre a software company, just
say theyre a technology company. Or just say they were a Technology, Media and Telecom
company, if you want to be even more general. So be as general as possible. If the size of the
company makes it obvious who it is, then I would just try and make it even more vague so they
really cant tell. Or use possibly slightly different numbers so they really cant tell.
Now here he gives a description of the company, big four accounting firm, wanted to divest a
division of itself that sold litigation forensic services and then he gives the size here, $300
million revenue, $50 million EBITDA, growing 10% -15% each year with margins in the 10% -15%
range as well. This is a good overview of the company. Ive gotten a lot of questions about how
to kind of present this, and start the discussion. I would do it something like this. Talk about
generally what industry theyre in. In this case it was a divestiture, so theres really two
companies, the parent company and then the division they wanted to sell. But talk about it like
this. Give a one sentence description. Tell the revenue of company, the EBITDA obviously
EBITDA does not apply for all industries. So maybe you use EBITDAR or maybe you use the EPS
for the company, if its a financial institution, for example. Maybe instead of revenue, you give
the assets under management or the net assets of the company if its a financial institution, for
example. But pick the relevant metric based on your industry. In this case, since its a
services/software company, revenue and EBITDA are the commonly used metrics. Growing 10%
- 15% each year, good to give some indication of this; just so they know what size the company
was and how quickly it was growing.
Now this next part here about going through a shift from services to web based software. Not
completely necessary to name this but if you have a situation like this where the business
models undergoing a fundamental shift, again I would give a one sentence description here in
the beginning, so that you can frame your discussion so the interviewer has a better idea of
whats going on here.
Now the next question that comes up is why they want to sell this. Because it seems like this
divisions doing pretty well, $300 million revenue, growing 10% -15%, which is pretty good for a
mature company, like a big four accounting firm, even if its just one division of that firm. So the
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next question that comes up is why do they want to do this? Whats their motivation for
selling? Its important to address this in any kind of deal discussion. You dont need to say up
front, and I actually recommend not saying everything up front, simply so you have more to talk
about and so youre not rambling on for five minutes here, but its really important that you
address this. Common reasons that you want to sell, what you see listed here, that the business
had expanded beyond the services focused, the accounting firm was not in their core area of
expertise anymore because they were getting into software. They had a lot of regulatory issues.
These are very common reasons for wanting to sell, that the division was beyond their core
focus, their core area of expertise, they had a lot of regulatory issues.
Then here, we see another very common reason to sell, inbound interest from other countries,
and they were giving very attractive potential purchase prices. These are all common reasons to
sell. Other reasons might be that maybe the PE firm has decided that it wants to sell, and
maybe the markets doing really well, maybe the markets hot. When Google bought YouTube,
that was the primary reason, that the market was just on fire. Anything web-related, web 2.0
related, social media related was just very hot at the time. So thats what created a market
where YouTube created this bidding war, and they had all these other companies trying to get
them as well.
Now if youre working on an IPO or a debt raise or something like that, instead of saying
something like this exactly, you probably want to say something more like they were trying to
raise funds for a specific purpose. So maybe expanding, buying a new company, buying another
company, getting a new factory, making some kind of CapEx investment, something like that,
expanding their business into a different area. Name something like that, if youre working on
more of a financing type deal rather than M&A deal, and you should be fine. But its important
to always have in mind the rationale for wanting to do this. So its really important to know why
they wanted to raise capital, buy another company, sell part of themselves, regardless of what
it was. If you dont know this then the interviewer is going to assume that you were not that
involved with the deal. So its really important to have a good grasp over this.
Then here the interviewer starts getting into the process now. So this is starting to get into the
rising action of the story that the interviewee is telling. It starts out here by talking about the
process being pretty broad, over 50 firms, both strategic and financial. So, strategic buyers
would be other big four accounting firms, software firms, anything thats a real normal
company. Financial sponsors, financial buyers, would be private equity firms, hedge funds,
anyone else that makes investments into these types of companies, and buys divisions of
companies and then spins them off into real stand-alone companies. Then here, he mentions
exactly this. Private equity firm specialize in divestitures. Which is true. A lot of PE firms do
actually specialize in divestitures and turning divisions into strong stand-alone companies.

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Then here he mentions the type of strategic buyers, the technology and legal companies. So if
youre doing, if youre working on a sell side M&A deal, its important to mention the number
of firms, whether or not they were strategic and financial, and then within strategic and
financial, what types they were. You dont need to go into a ton of detail here, but the level of
detail the interviewee gives here is just about perfect. Where he gives maybe one or two
sentences describing this. For a buy side M&A deal, well get into that in the second transcript,
and youll see exactly what to do there. But for a debt raise or an IPO, then the process
description here is different because youre not going out to specific buyers. The process in this
case would have more to do with your drafting of the investor memorandum, or the S-1
registration statement / prospectus, the issues that went into that, and the key issues that you
had to present there and your discussion of how to present them. You would talk about
customer due diligence here, and instead of talking about the process going out to investors,
you would talk about the process speaking with customers of the company, the companys
main customers, and what they said, the feedback they gave you and how that affected the S-1
prospectus and how that affected the marketing of the offering. Whether it was an equity
offering or a debt offering.
Then here, the interviewer gets into now the major selling points of this software division. Now
even though, again, this is for a divestiture, you need to talk about the major selling points of
the company, regardless of whether its a sell side M&A or a debt or equity financing as well.
Then here, the pitch was focused on the changing business profile, and how they would have
higher margin revenue, a recurring revenue model because they had subscription software
now. Then he talks about the market and how there were a lot of incidents of SarbanesOxley,
and how they need to, this SarbanesOxley is referring to legislation that was passed in the U.S.
about the controls of the company, the internal accounting and auditing controls; and how
after Enron and all those other scandals, there was a lot more of this, and companies were
placing a lot of emphasis on this. It was incurring a huge expense to many of these companies,
and then management team here. So these are all good points to raise. The protracted profile
going forward, anything you can say about the finances of the company, like maybe they were
growing really fast, they had really high margins, they were in an untapped market and they
dominated in that market.
The management team, this ones a little more questionable to talk about here. Simply because
its very difficult to quantitatively say with any certainty why the management team was so
good. Now, if theres an exception, if you have someone famous, lets say, coming in to run the
company and the interviewer would recognize the person, then talking about the management
team would have a little more credibility. Here the interviewee gets away with it, but its not
really the best thing to mention. I would probably try to avoid mentioning this, and lean toward
other things instead. But its not really a mistake. Its just something to be aware of.

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Again, if youre working on an equity deal or a debt deal, you can talk about pretty much the
same exact types of things here. You can reference specific customers youve spoken with, and
things that they have told you about how good it was to work with the company or about how
theyve told a lot of other customers about the company, they get a lot of referral business. So
there are a number of different things you can talk about here. You generally want to focus on
either the finances of the company. How its going to be attractive in future years because of
investments theyve made now. You talk about the market, favorable market trends, products,
customers, the management team, those are all good points to raise here.
Then he gets into weaknesses. Now again, even in an equity deal or a debt deal, youre still
going to have to talk about weaknesses for the company. For the financial sponsors here, this
one is unique to selling this division to the financial sponsors, but theres an issue of setting up
infrastructure and administration because it was operating as its own entity. So clearly its not
going to have the resources of the parent company anymore, which means that they expense
profile is going to be higher. So theyre going to have to model that separately and look at that
separately.
For the strategic buyers, theyre more concerned about making this transition. You can see how
with a lot of the more conservative buyers, they might be skeptical over whether or not this
company could really transition from a services based company to a real software company. We
see here for over ten years it was all services based. So naturally, strategic buyers are going to
be skeptical over this. Then finally many of the companys customers were in financial services,
so in light of all this recent market turmoil, in light of everything that was going on, if they were
going through a depression or financial crisis at the time, there might be concern over how well
the company would actually be doing then given that so many of its customers are
concentrated in one area. These are all good weaknesses to list.
Again weaknesses, you can go back to a couple different areas. Financials are always a point of
contention. Whether or not the company really believes the projections, whether or not buyers
actually believe the projections. The market is always a concern. Is it going to be worse going
forward? Better going forward? Are oil prices going to stay high? Commodity prices, are they
going to stay high? Energy companies are very sensitive to those types of things. The companys
customers all being concentrated in one vertical, like financial services, thats another common
weakness for a company going forward like this. So these are all good things to talk about.
Customers, market, financials, those are probably the best things to name here, in terms of
potential weaknesses for any type of company. Whether its an equity, deal, a debt deal, or a
sell side M&A deal like this.
Then he gets into this discussion of the process, this is more of the rising action. Now here the
interviewee talks about how they got interest from about ten potential buyers and then
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narrowed down the list based on purchase price. And then they had a strategic buyer and a
financial sponsor who were both willing to pay about $400 million. They had pluses and
minuses. The strategic was more likely to stick to the price, but the financial sponsor could
move more quickly. Then we see here, asset purchase agreements. Asset purchase agreements
because this is a divestiture so theyre not going to use a stock purchase here. The transaction
structures going to be an asset purchase. Because theyre only acquiring one division, which
means theyre only acquiring certain assets from the big four accounting firm here.
So this is a pretty good description for a sell side M&A deal like this. For a debt raise or an IPO,
then you would talk about the road show, for an IPO specifically. Talk about the types of
investors you went to, the concerns they raised, their reaction, and then finally the indications
of interest they gave and what the deal ultimately priced at, based on their feedback. For a
debt deal, its a little more hands off because youre usually not as involved with the actual
process of raising debt for the company and going out and marketing the offering. So in that
case youd have to talk more about your process communicating with the leverage finance
team at your bank, and what they told you the company could raise in terms of debt. The
concerns they had over them being able to raise that much debt. So, those are the types of
process issues youd talk about in the case of a debt deal like that.
So then we get into this next part which kind of continues the rising action here, and then the
interviewer asks about who ultimately came out the winner. And here the interviewee gets into
a very important portion, which is the unique aspect of the deal. He talks about how the
strategic got really hung up on the IP issues, and he did some research on it, on some of the
questionable or controversial patents here. And then how the financial sponsor was concerned
about how they would operate as a standalone entity, and whether or not the expense
structure would be dramatically different. Obviously its going to be higher if theyre operating
as a stand-alone entity. The question is how much higher? Second question is how is this going
to affect the purchase price? This is a major issue with divestiture transactions like this.
So this is important to note, because any type of deal, I dont care whether its a buy side deal
or a sell side deal or an equity raise or a debt raise or a restructuring type deal, its always going
to have some type of key issue like this that the company has to be concerned with. Now in an
M&A deal like this, usually the key issue, the crux issues emerges near the end of the process,
when youre negotiating and trying to lock down the final purchase agreement, and get all
those details ironed out. Sometimes it can occur earlier on, but usually you want to focus on
something like this. Something about the negotiation between the buyer and seller, when
youre talking about the crux issue in a deal.
For an equity raise or a debt raise, usually the crux issue will come out when youre talking to
customers, or when youre creating the memo in the first place; and youre communicating
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with the leverage finance team and trying to figure out how much debt they can raise. When
youre thinking about the crux issue to present in a discussion like this, you want to think about
how it affected the deal. Is it going to have a major impact? And then also how it affected the
work that you did and your own contribution. I get a lot of questions on what you can talk
about if the deal was standard or if you didnt do that much. The answer is dont worry about it.
Just focus on your own contribution, what you actually did, and if the crux issue is actually
linked to some work you did, thats really good. You should definitely talk about it, as the
interviewee goes on to do here, but its not essential. You just want to be thinking about this
because again, you want to be thinking about your discussion of any deal in terms of a story.
A story has a beginning, an introduction, rising action, a climax, and then resolution at the end.
This crux issue is basically the climax, most of the time. So thats why in a lot of discussions in
investment banking and private equity interviews, youre going to be very focused on the crux
issue, whatever it is. So when youre looking through your resume and figuring out which deals
youre going to present, its really important to figure out what this crux issue is going to be
exactly.
Now, the interviewer continues with it here. Then they get into this discussion about how they
created this different expense model, what the interviewee did here, and found the PE firm was
really conservative, the expenses were around 10% lower than what they suggested. Then they
get into this discussion of the bottoms up expense model that the interviewee made here. He
went through and started with the basics, employee salaries, bonus payments, option
expenses, and then added 15% overhead for this new infrastructure that they needed. He
researched the cost of office locations. So theres a lot of detail here. To be honest, most of the
time in investment banking, you dont even go into this much detail, because its well beyond
the scope of what you do. But sometimes it does happen. In this case, there was this level of
detail involved. Then finally the cost of hiring a management team.
So in this case the person goes into a fair amount of detail on the actual models that they
created for this. Again, I get a lot of questions on how to present any kind of modeling work
that you did. If its a standalone operating model, this is exactly how you want to talk about it.
Now if youre working on a leverage buyout, lets say, then in that case youd go into more
detail on the tranches of debt, for example, that were involved. If you were working on
something that was more of a traditional merger between two companies, then maybe you talk
about the exchange ratio, or maybe you talk about the synergy calculations and how you
arrived at the revenue synergy and expense synergy numbers. If youre talking about something
that was more of a pure valuation scenario, then you go into the tricky parts of the valuation.
Was it difficult to pick the public company comparables? Was it difficult to find good
transaction comparables? Was the DCF or dividend discount model difficult for certain reasons?
So you always want to look at what you did in terms of valuation work, modeling work, the deal

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process itself, and figure out what was unique, what was different, and what made it different
from these plain vanilla deals that you see all the time.
Then you want to focus on that when you get to the climax of your story, the crux of the deal.
What really had the biggest impact and everything? And you might be wondering what you do
if you worked on an equity or debt deal and you didnt have any crux issue like this. In that case,
dont worry about it. If you really have nothing to talk about, dont worry about it too much.
But I would say you still want to go through and think about it, and think about the key issue.
With debt, for example, often the covenants can be a key issue. Can a company really maintain
a coverage ratio above a certain amount? Can it really maintain a leverage ratio under a certain
amount? So those can be the key issues in a lot of cases. So you can sort of frame that as the
crux issue, even if it wasnt really. You still want to be thinking about the key issue for any deal
that youve worked on like that.
For equity deals, it gets a little bit more difficult because usually its more qualitative in nature.
But talk about any feedback you received from customer due diligence calls, for example. Use
that for your example of what the key issue in the deal was. Then finally here we just get into
more of the scenario, what was going on. He talks about here how PE firm thought that they
were being too conservative, and they were willing to settle with them and agree to an EBITDA
number that was around 5% higher. So it actually affected the purchase price quite a bit,
because obviously a PE firm is going to be buying the company based on the EBITDA multiple.
Then, the strategic here was stalled and the PE firm was still moving forward. Here at the end of
the deal, it was still up in the air, he says, and they were in final negotiations. Nothing has been
announced yet.
A couple of important points here. So, when you get to the conclusion as this interviewee did
here, you dont actually need to have a real conclusion. In this case, the deal could have fallen
apart. If the deal fell apart, unless it was very public, then I think its still better to say that it
was still up in the air and that they were in final negotiations. I think its dangerous to say that it
fell apart completely because it might leave the interviewer with the impression that you are
not going to come back to this and youre not going to really get the deal experience of having
closed a real deal. So its usually better to say its still up in the air if it hasnt closed yet.
Absolutely not essential to have real closed deals on your resume to work in private equity, for
example. Its helpful, but you dont need it. You need to have good experience actually doing
modeling and technical work, but you dont need to actually have closed deals in a resume. So if
something just never got out to market for equity or debt deals; rather than saying that it fell
apart, just say that its still ongoing and that theres some legal issue thats preventing you from
going out right now but everything will be set right soon, and youre on track to have a
successful offering. So always pretend that its up in the air unless it was very public, that it got
delayed, or that it fell apart of that investors backed out at the last minute.
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So thats a quick overview of how to talk about a sell side M&A deal like this. Hopefully you
have a better idea now of how to structure your story when youre talking about deals like this.
And also in particular, how to talk about sell side M&A deals, the key issues with sell side deals
with divestitures, and as I was going through, I also walked you through examples of how to
modify this when youre talking about IPOs, debt deals, secondary offerings, for example. So
hopefully you have a better idea of how to do that as well. Coming up in the next sample deal
discussion transcript, were going to be getting into a buy side M&A deal, and Im going to be
walking you through that. Youll see how the language is different, how the person describes
the deal a little differently, and some of the key points to be aware of; and how to impress the
interviewer to the fullest extent possible, without exaggerating or without overstepping your
bounds.

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