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REA Reinsurance
Topic Difficulty Style
Mergers & Acquisition Advanced Interviewer-led (McKinsey
style)
The first part describes more qualitative problems and includes open
questions to force the interviewee into thinking about the problem and
possible solutions.
The second part deals with quantitative calculations based on the previous
part. The interviewee should conduct his own calculations and solve the
questions.
Short Solution
Paragraphs highlighted in orange indicate hints for you how to guide the
interviewee through the case.
This is an interviewer-led case. Please share the questions outlined here with
the interviewee at the given moment.
I. What is reinsurance?
The interviewee should understand the market and ask questions to get a
good grasp of the client problem. Possible questions:
The interviewee should come up with a structured answer covering the main
issues at stake. The idea is to give an overview of the companies and the
interest of the transaction between them. It also tests the abilities of the
interviewee to create excitement and interest for the topic at hand to a third
person.
You can let the interviewee brainstorm about dimensions, on which he/she
would like to describe the transaction. As guidance, you can then propose
the following points and let him/her comment on the respective points.
1. Company
2. Market
3. Financing
Possible answer:
The first step should be the identification of the companies’ costs, relevant to
the reinsurance industry.
Possible answer:
Staff costs
Real estate
Marketing & distribution
IT costs
Travel and entertainment
Administration and logistics
It is now interesting, how the cost structures of the two companies compare.
On interviewee’s request you will provide him/her with the following
information:
The table is called v1. The percentages for the acquired company don't add
up. This seems to be a mistake!
With these numbers the interviewee can start his/her calculations in the next
section.
You can ask the interviewee for a reasonable percentage of costs that can
be saved through synergies. 30% would be a good estimation.
Headquarter costs
Eligible for synergies: Yes!
Real estate
Eligible for synergies: Arguable, assume - due to little regional overlap - not.
IT costs
Eligible for synergies: Yes!
Travel costs
Eligible for synergies: rather not.
Conclusion
The transaction does indeed allow cost savings due to synergies. Since there
is no information given on the acquisition price, at this point no evaluation can
be made regarding the potentially high acquisition costs.
Good candidates are looking for reference values and try to express the
number in terms of the total cost: