Aeris Partners Interview Questions

Step 1. Reframe the problem. A DCF does not require positive cash flows. The question is whether losses are temporary (cyclicality or growth investment) or structural (bad unit economics). State which case your analysis assumes.

Step 2. Forecast through the turn. Project revenue, operating costs, working capital, capex, taxes and funding needs year by year until the business reaches credible steady economics. Worked example with stated assumptions (hypothetical numbers, millions): UFCF of -10 in Year 1, -5 in Year 2, +5 in Year 3, +10 in Year 4, then 3% growth forever, WACC 15%.

Step 3. Terminal value on normalized cash flow, never on a loss. TV at end of Year 4 = 10 x 1.03 / (0.15 - 0.03) = 85.8.

Step 4. Discount every piece. -10/1.15 = -8.7; -5/1.15^2 = -3.8; +5/1.15^3 = +3.3; +10/1.15^4 = +5.7; TV/1.15^4 = 85.8/1.749 = +49.1. EV = -8.7 - 3.8 + 3.3 + 5.7 + 49.1 = 45.6.

Step 5. Check the answer holds together. The terminal value is 49.1/45.6 = over 100% of EV, which tells you the valuation is entirely a bet on the turnaround - say that out loud and show sensitivity to WACC and the Year 4 level rather than defending one number. Cross-check with EV/Revenue if sales exist, conditioned on margin path. If profitability is never credible, value liquidation or optionality instead of forcing a positive perpetuity.

Common mistake: refusing to DCF a loss-maker, or worse, putting a growth perpetuity on a negative cash flow year. Both lose the point.

Step 1. Define the terms. Operating NWC = non-cash operating current assets minus non-debt operating current liabilities: AR + inventory + prepaids - AP - accrued expenses - deferred revenue. Deferred revenue (a contract liability) is cash collected before the service is delivered - a liability because you owe the work.

Step 2. Year 0, collection. State assumptions: $120 cash collected upfront for service delivered evenly over 12 months, no service costs, 20% tax paid on book revenue. Journal view: cash +120, contract liability +120, revenue 0. Income statement unchanged; CFO +120 (a liability increase is a cash source); balance sheet balances.

Step 3. Year 1, delivery. Revenue recognized 120 as the service is delivered; contract liability falls 120 to zero. EBT 120, tax 24, net income 96. CFO = NI 96 - 120 liability decrease = -24. No new customer cash arrives.

Step 4. Check the two-year picture. Cumulative cash = +120 - 24 = +96. Retained earnings = +96. Cash change equals retained earnings because there are no other asset or liability movements - the balance sheet ties, which is the interviewer's real test.

Common mistakes: recognizing revenue at collection (it is a liability until earned), and forgetting that the Year 1 cash outflow is just the tax. Mention that if tax were instead due on cash collected, Year 0 would show cash tax and a deferred tax asset - one sentence shows range without derailing the walk-through. For a SaaS interviewer, connect it: upfront annual billing is why software companies can run negative working capital.

Step 1. Set the frame before naming anything. State that any answer is a hypothetical strategic archetype, not a rumor: pick a target whose cash flows Amazon can measurably improve, then prove the deal creates value with numbers.

Step 2. Name one archetype and the synergy logic. Example: a small logistics-scheduling software provider. Amazon's delivery density improves, and the software can be sold to its merchant base. Two synergy sources, one cost, one revenue - already ahead of most answers.

Step 3. Value it with stated hypothetical numbers (millions). Standalone value 100. Incremental pretax savings 20 per year, taxed at 25% = 15 after tax; recurring integration and capex 3 per year, so net synergy FCF = 12 per year. Ten-year horizon at a 10% discount rate: annuity factor 6.14, synergy PV = 12 x 6.14 = 73.7. Upfront integration cost 15, so net synergy value = 58.7.

Step 4. Turn value into a bid ceiling. Maximum justified price = standalone 100 + net synergy 58.7 = 158.7. A 130 bid keeps 28.7 of created value for Amazon's shareholders; a 160 bid destroys value no matter how good the strategic story sounds.

Step 5. Stress the thesis. Are the savings realizable? Do merchant customers churn if they see Amazon-owned software? Data and privacy limits? Antitrust review? Compare building the tool or signing a vendor contract - acquisition is only justified if it beats those alternatives.

Common mistake: listing big names and 'synergies' with no arithmetic. One small, quantified, defensible target beats five famous ones.

Step 1. Name the three real playbooks. (1) Add-on products to cross-sell into an installed customer base. (2) Adjacent-vertical entry to reuse the same product on new customers. (3) Consolidation of fragmented point-solution vendors. Middle-market software is usually too small for transformational bets, so deals are bolt-ons judged on cross-sell math.

Step 2. Work the cross-sell math with stated hypothetical numbers. Buyer has 1,000 customers. Target has a $10m ARR product. Realistic cross-sell: 100 customers adopt at $10,000 each = $1m of new ARR - that is the revenue synergy, and it is 10% penetration, not the 50% sellers pitch.

Step 3. Convert ARR to value honestly. At 80% gross margin the $1m ARR adds $0.8m gross profit. Incremental sales and support cost $0.3m, so recurring EBITDA synergy is $0.5m - not the $1m headline. Deduct integration, data migration and required R&D before capitalizing anything.

Step 4. Check what could kill it. Customers may reject bundles or churn at migration; the target's ARR may not renew (diligence renewal rates, not just bookings); overlapping customers mean the combined revenue is less than the sum. Buying ARR that disappears at renewal is not growth.

Step 5. Tie it back to value creation. A deal clears the bar when the capitalized, risk-adjusted $0.5m synergy plus the target's standalone cash flows exceeds the purchase price and integration cost - same discipline as a large-cap deal, smaller numbers.

Why this lands at Aeris: this is exactly the analysis behind most software bolt-on sell-sides, so it shows you understand the firm's actual deal flow.

Step 1. State the verified facts first. Announced July 2022: approximately $3.9bn all-cash including net debt, $18 per share. The stated ambition was to reinvent primary care - better experience through technology, in-person care and access. Completed February 2023.

Step 2. Give the strategic logic. Amazon gets a physical healthcare front door, employer contracts and clinical data workflows; One Medical gets Amazon's logistics, technology and balance sheet. Plausible thesis - but note that medical referrals, patient data and clinical decisions are not unrestricted retail cross-selling channels, so be careful how much synergy you assume.

Step 3. Run the reality-check math. The $3.9bn includes net debt, so it is an enterprise value and should be compared with unlevered after-tax free cash flow, not equity earnings. As an illustration with a hypothetical 10% required return and no growth, a perpetuity needs $390m of unlevered after-tax free cash flow to justify $3.9bn of enterprise value (390 / 0.10 = 3,900). $300m would support only $3.0bn. So the price embeds either substantial growth, synergies, or strategic option value - say which one you believe and why.

Step 4. Name what has to be true. Clinician capacity scales without quality loss; reimbursement economics hold; member retention survives the ownership change; claims and privacy exposure stay contained.

Step 5. Close with judgment, not summary. Example close: 'The deal only works if primary care becomes a retention engine for a broader Amazon health offering; as a standalone cash-flow purchase the math is thin at $3.9bn.' Close with a clear verdict and the assumptions behind it.

Common mistake: reciting the press release with no view on whether the price made sense.

Sources for the deal facts: Amazon announcement, July 21, 2022 and One Medical completion notice, February 22, 2023. The cash-flow figures are hypothetical teaching numbers.