M&A Advisory Case: Should MegaRetail Acquire QuickMart?
After diagnosing EBITDA, working capital, and cash flow levers in a profitability improvement case, the next finance interview jump is to test whether a transaction improves the acquirer’s per-share earnings. MegaRetail Ltd is considering acquiring QuickMart, and the interview task is to walk through accretion/dilution analysis cleanly. This matters because a deal can look attractive on EPS, but the final investment banking judgement depends on whether synergies justify the premium paid.
- MegaRetail Ltd has ₹15,000 Cr mkt cap and trades at 8x EV/EBITDA, while QuickMart has ₹3,000 Cr mkt cap and trades at 10x EV/EBITDA.
- The deal would be financed with 50% stock + 50% debt at 7% interest.
- MegaRetail standalone EPS is ₹2.06, based on PAT of ₹1,031 Cr and 500 Cr shares.
- QuickMart EBITDA is ₹300 Cr, PAT is ₹180 Cr, and deal Enterprise Value is ₹4,000 Cr.
- Post-deal EPS is ₹2.19, which is accretive +6.3% after accounting for debt interest, new shares, and Year 1 synergies.
- Accretion ≠ value creation - synergies must justify the premium paid.
Big Picture: Accretion / Dilution Analysis
Accretion/dilution analysis in an M&A context primarily measures the impact on the acquirer’s post-transaction EPS relative to standalone EPS. EPS means earnings per share, EV means Enterprise Value, EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization, D&A means Depreciation and Amortization, EBIT means Earnings Before Interest and Taxes, PBT means Profit Before Tax, and PAT means Profit After Tax.
MegaRetail - QuickMart Situation
MegaRetail Ltd (₹15,000 Cr mkt cap, 8x EV/EBITDA) is considering acquiring QuickMart (₹3,000 Cr mkt cap, 10x EV/EBITDA). The deal would be financed with 50% stock + 50% debt at 7% interest. The key question is whether MegaRetail should proceed.
Step 1: Calculate Acquirer EPS
MegaRetail EBITDA = ₹1,875 Cr; Less D&A ₹300 Cr = EBIT ₹1,575 Cr; Less Interest ₹200 Cr = PBT ₹1,375 Cr; Tax @25% = PAT ₹1,031 Cr; Shares = 500 Cr - EPS = ₹2.06.
Step 2: Calculate QuickMart and Financing Impact
QuickMart EBITDA = ₹300 Cr; PAT = ₹180 Cr. Deal Enterprise Value = ₹4,000 Cr. Debt = ₹2,000 Cr @ 7% = ₹140 Cr interest. New shares issued = 1,000 Cr / ₹30 per share = 33 Cr shares.
In IB interviews, "Is a deal accretive or dilutive?" means: does the acquiring company's EPS increase (accretion) or decrease (dilution) post-acquisition?
Synergy Estimation Framework
The EPS walkthrough should not stop at the mechanical accretion result. The synergy estimate matters because accretion ≠ value creation - synergies must justify the premium paid. NOL means net operating loss, and tax synergies in this case are shown through NOL utilisation.
Reading the Case Decision
On the EPS math, the transaction is accretive: EPS moves from ₹2.06 to ₹2.19, or accretive +6.3%. The interview answer should still flag the core M&A judgement: accretion does not automatically mean value creation, because the premium paid must be supported by synergy delivery.
Structuring a Case Interview Answer
"Walk me through an accretion/dilution analysis for MegaRetail acquiring QuickMart. Should MegaRetail proceed?"
The strongest answer separates the EPS result from the investment conclusion: the deal is accretive in the model, but MegaRetail should proceed only if the synergies justify the premium paid.
The most frequent error is treating EPS accretion as automatic approval for the acquisition. That costs points because accretion ≠ value creation - synergies must justify the premium paid.
Conclusion
The MegaRetail - QuickMart case is an EPS accretion/dilution walkthrough: start with combined earnings, subtract incremental interest net of tax, account for new shares, compare EPS, and then test whether synergies justify the premium paid.