"Why do companies do M&A?" is one of the most common opening questions in M&A and investment banking interviews. It looks like a soft, conceptual question — but interviewers are actually listening for two things: whether you can name the real drivers concisely, and whether you understand that strategic logic alone doesn't make a deal good. This article gives you a structure for the answer, then walks through the numeric test interviewers expect you to be able to run.

Step 1: Lead With the Reasons, Not a Definition

Don't open with "M&A stands for mergers and acquisitions." Interviewers already know that. Instead, lead with the drivers: companies acquire to move faster than they could by building organically — gaining capabilities or technology, scale, market access, or eliminating a competitor — and to capture synergies that neither company could generate standalone. Keep this part to 30–45 seconds; it's the setup, not the answer.

Step 2: Distinguish Strategic and Financial Buyers

A strong candidate immediately narrows the answer by buyer type. Strategic buyers (operating companies) can justify a higher price because they can extract real synergies from combining the target with an existing business. Financial buyers (private equity) generally can't rely on those synergies and instead underwrite the target on a standalone basis — cash flow, achievable leverage, and exit return. That's also why the same target often gets different bids from the two buyer types in a competitive process.

Step 3: Prove You Can Test Whether the Deal Actually Creates Value

This is the part that separates candidates who've memorized a list of reasons from candidates who understand the economics. Walk the interviewer through a simple value bridge:

  1. Start with the target's standalone value (e.g., EBITDA × the market's multiple for comparable companies).
  2. Subtract that from the purchase price to get the premium paid.
  3. Capitalize the expected annual synergies at the same multiple to get their present value.
  4. Net the premium and one-time integration costs against the value of synergies — a positive result means the deal is expected to create value; a negative result means it's expected to destroy it.

The case What Is M&A and Why Do Companies Do It? runs this exact calculation end to end with real numbers, including the formulas, so you can practice saying it out loud before you see it in an interview. If the interviewer pushes further and asks how you'd value the synergies more rigorously — risk-adjusting them for realization probability and taxing them — that's the subject of Synergy Valuation.

Step 4: Anticipate the Follow-Up on Premium Benchmarking

A common next question is how you'd sanity-check whether the premium being paid is reasonable in the first place. That's where Precedent Transactions comes in — looking at the premiums and multiples paid in comparable deals gives you an external reference point, rather than relying only on the acquirer's own synergy assumptions. And if the interviewer asks you to frame the price itself, revisiting "Is 20x P/E Expensive?" is a useful reminder that a multiple only means something in context — growth, industry, and rate environment all matter.

Common Ways Candidates Lose Points on This Question

The weakest answers either stop at a list of reasons without ever testing whether a deal makes financial sense, or jump straight into detailed accretion/dilution math without first showing they understand the strategic rationale. The strongest answers do both in under two minutes: name the drivers, distinguish buyer types, and show — with a quick premium-versus-synergy framework — that they know a deal has to earn back what it costs.