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Investment Banking Case Studies – Job Application

By Ivy Wang |

November 21, 2022

What are Investment Banking Case Studies

Candidates will normally encounter case studies at the final stage of the application process, likely during an assessment or final-stage interview. Investment banking roles are highly competitive, and candidates must be properly prepared.

Investment banking case studies are commonly used to assess how a job candidate would perform in a real situation by presenting them with a theoretical scenario similar to those encountered on the job.

Most investment banking case study questions center on acquisitions, raising capital, or company expansion. The case may be given to you ‘blind’ on the day of your assessment with only a short amount of time provided for preparation. If the case is likely to involve deep analysis, financial modeling, or a company valuation, you will likely be given the case in advance to give you more time to work on it before the assessment day.

Key Learning Points

• Investment banking case studies are often used to assess how job candidates would perform in a real situation by presenting them with a theoretical scenario like one they would encounter on the job.
• While general questions give the interviewer a superficial impression of the candidate’s skills and fitness, case study questions allow the interviewer to assess the candidate’s ability to handle multiple levels of analysis and problem-solving.
• Case study questions test reasoning and communication skills as well as analytical skills. They are useful for assessing how candidates approach complex issues, make critical judgments, and deliver recommendations.
• With many case study problems, there will be more than one path to success and more than one possible solution.
• Investment banks are looking for decisive candidates who can articulate and logically present their solutions and defend their decisions under scrutiny.

What are the Types of Investment Banking Case Studies?

In general, there are two types of case studies during an investment banking assessment, the decision-making case, and the financial modeling case.

Decision-Making Investment Banking Case Studies

Decision-making case studies appear more frequently than modeling case studies. In this type of case study, the candidate must make decisions for their client and provide advice. The client case studies could be based on finding funding sources, or whether a proposed merger should proceed and why or why not.

You should expect these questions to be given to you at the interview. Therefore, you must analyze and present the case within a given time frame. Throughout, you will have 45-60 minutes of preparation time and a 10-minute presentation, followed by a round of Q&A.

These case studies do not involve in-depth analysis of the case, given the short amount of time available.

Decision-Making Case Study Example

One of your clients is a global corporation that manufactures and distributes a wide range of perfumes. They are contemplating ways to expand their business. They may either introduce a new range of fragrances with their current distribution channels or start a completely new company with different stores.

You need to determine which solution is better for the business. To do so, you need to compare the return on investment and decide on a solution. Be ready to support your reasoning.

Modeling Investment Banking Case Studies

Modeling case studies are usually take-home assignments where you must do financial modeling and a simple valuation. Thus, it is more of a modeling test than a case study. The Investment Banker provides an introduction to building models, developing multiple techniques for a comprehensive and practical understanding of the topic.

The modeling case study will either employ a free cash flow to the firm (FCFF) valuation on a company or require a simple merger or leveraged buyout model. You would be expected to analyze the corporations’ valuation multiples to determine whether they are undervalued or overvalued.

Generally, you will be given a few days to complete your analysis. Then, you need to spend 30-45 minutes on the day of the interview presenting your case to the bankers. The analysis will go much deeper than a client case study because you will have more time to work on it.

Modeling Investment Banking Case Study Example

A pharmaceutical company wishes to make an acquisition. It has identified the target company and approached you to determine how much they should pay. You will be provided with the necessary financial information, metrics, and multiples, as well as the buyer and seller company profiles.

To complete the case study, you need to determine if the acquisition is feasible. Second, what would be the structure and synergies of the deal if the buyer has access to capital? You need to use multiples and valuation metrics to determine the price range for the transaction.

Access the three-statement case study example to practice a modeling case study.

How to Prepare for Investment Banking Case Studies

Regardless of which type of case study a candidate is presented, the thought process and deliverables are the same. The best way to prepare is to:

• Ensure that key business concepts are well understood and that you can use the associated terminology comfortably in a conversation.
• Learn about various valuation techniques, how to employ them, and how to interpret them. Prepare for case studies by mastering valuation for investment banking with the online investment banker course . Learn how and when to utilize key valuation methodologies and the supporting calculations
• Make sure you read business news regularly and focus on discussing the details of banking transactions in the news.
• Read as many case studies as possible so you get the knack of understanding business scenarios and analyzing Especially for modeling and valuation-based case studies, you must be prepared to format your work using PowerPoint and Excel.
• Check company websites to see if sample case studies are available for reference. Investment banks do not tend to publish case study questions for practice. However, it is possible to formulate your own questions by looking at business scenarios involving possible mergers, valuations, or capital raises.
• Candidates must practice streamlining their thought process so judgments can be made under time pressure.
• Read through the scenario carefully before beginning to form an opinion on how the problem should be tackled. This will ensure that no intricacies are missed, and your response addresses all facets of the case.
• Learn how to stand out from the crowd in your interview with the investment banker interview skills course , designed to prepare you for your interviews and enable you to make a great impression.
• Investment Banking Case Study Example

1.     Scenario

A magazine publisher is evaluating whether it should sell, continue to grow organically, or make small “tuck-in” acquisitions to maximize shareholder value. It is selecting an investment bank to advise on its options and has requested a presentation from your bank.

2.     Task

Review the company’s financial and market information and create a 30-minute presentation analyzing its options. Recommend a specific course of action – selling the company, continuing to grow organically, or making smaller acquisitions.

3.     Solution

The answer to this case study is rather subjective. You should take a stand and support it with well thought out reasons. Here’s how you should approach it:

• First, read through everything and get a sense of the industry, where it’s heading, and how much this company might be worth based on comparables. If they don’t give you much information on comparable public companies or precedent transactions, you’ll have to do your own research.
• Complete a brief valuation using public comps, precedent transactions, and a DCF.
• Weigh the numbers the valuation gives you, the company’s organic growth prospects, and whether there are any good companies to acquire.
• Make a decision-it’s usually best to say “sell” unless the industry is growing quickly (over 10% per year), the company is extremely undervalued, or there are acquisition targets that would boost revenue or profit by at least 20-30%.
• Keep this simple and straightforward-the numbers should back up your reasoning, not take over the entire presentation.
• You could get much fancier with the analysis and look at the company’s valuation now, 5 years from now, and if it acquires 1 or 2 companies, but that isn’t necessary and it may just make your presentation more confusing.

4.     Sample Answer

If you decide to sell, you can write:

Slide 1: Recommendation to sell and the three key reasons why.

Slide 2: Industry overview – Is it growing?  Shrinking?  Stagnant?

Slide 3: Company’s position in the industry – Leader?  Tier 2 player?  Where is it strong / weak?

Slide 4: What organic growth would look like 5 or 10 years in the future – how much bigger / more highly-valued would the company be?

Slide 5: Potential tuck-in acquisition candidates.

Slide 6: Why neither organic growth nor acquisitions are the answer.

Slide 7: Why selling now produces the greatest shareholder value.

Slide 8: Valuation – Show public comps and precedent transactions.

Slide 9: Valuation – Show DCF output and sensitivity table.

Slide 10: Conclusion – Reiterate that selling now is the best option and that neither organic growth nor acquiring smaller companies will result in a higher valuation 5-10 years from now.

If you come to a different conclusion – for example, that acquisitions are the best strategy, you would reverse the order and list the solutions you’re not recommending first, concluding with the one you are suggesting.

Investment banking case studies are an important element in the interview process, it is an opportunity to showcase your skills and talent to investment bankers. In general, there are two types of case studies, the decision-making case study and the financial modeling case study. Candidates will need to be confident in their valuation skills. They will also need to display a good level of commercial awareness. Presentation skills are also critical.

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Investment Banking Case Studies: Real-Life Examples and Lessons Learned

• June 10, 2023

Last updated on April 5th, 2024 at 10:49 am

Investment banking is a highly sought-after area in the money market . The current investment banking industry is valued at 80.54 trillion USD .

Wondering how an investment banking course can help learners? It gives them cutting-edge competition and ensures that they are equipped with both traditional and modern solutions along with solution-based technologies. 

To crack an investment banking hiring process, a candidate needs to access efficient ways in which they can handle the company’s investments.

With Imarticus’s investment banking essentials, one can tread the paths just as smoothly and achieve their goals. 

In this article, we will find out about the investment banking market while looking at some real-life examples surrounding case studies in various areas.

Reasons for case studies 

One of the top reasons why investment banking studies can benefit learners is in terms of making well-thought decisions on investments. Apart from this, here are some more reasons why one should learn from investment banking case studies. 

• Experience: Since investment banking isn’t fairly new and has been in the business since the 19th century, it is a well-explored branch. Due to this, enthusiasts can learn from prior cases and gain experience with time. This includes gaining experience and skill sets in all the primary aspects including banking, interpersonal, and analytical skills.
• Skills: When it comes to skills that an investment banker is supposed to have, IB skills often differ from that of a general banker. These include being able to analyse frequently and carrying on with an analytical mindset throughout their job. This also involves being able to work in a team as this job requires a certain level of interpersonal communication and team morale.
• Financial complexity: To be able to make good financial decisions in seconds is a good part of the job for an investment banker. As an IB, the primary task is providing a financial outlook into complex financial transactions. An investment banker can offer insight into the risks associated with such high-valued investments. Simultaneously, one can devise expert solutions for growing financial challenges in the money market.

Real-life examples 

Before venturing into the case studies, it is important to note that there are two types of investment banking studies taking centre stage.

These are primarily modelling and decision-making studies. Let’s look at how both are distinct and can be utilised for the best solutions.

Case study - Modeling

A prominent investment bank is looking to efficiently price financial derivatives using improved models. Currently, the bank is utilising the Black-Scholes model for pricing their investments. On the other hand, it isn't quite successful in measuring the losses made in the bank’s derivatives market trading book. 

Challenges presented

The bank needs to come up with more efficient models for handling their accounts. This includes being able to better their money market dynamics.

Solutions implemented

The bank can utilise more sophisticated models in work such as Monte Carlo, Stochastic Search, and even Regressive models. These models can present the bank with a more refined way of handling their finances as well as ensuring accuracy with the highest quality. 

Atop the investment models already at work, they would have to come up with a risk management system with the expertise of an investment banker. 

Case Study 2 - Decision making

An investment banking firm is currently consulting a client seeking a new investment option. At the same time, the nature of investment is high-risk and high-return making it a viable option for investment banking consultancies.

Challenges presented 

Since the firm is seeking a solution for a high-return investment, it is due to include several risks. These include increased volatility, a chance of blind gambling, and other risks such as systemic, regulatory, and counterparty risks.

Solutions implemented 

The first and foremost thing that investment bankers can focus on is the assessment of desired outcomes. One can do so by conducting an independent check and comparing the risks and benefits associated with the proposed venture. 

Simultaneously, they can focus on ongoing market trends and mark the potential implications that come with the new venture. 

Additionally, the firm can utilise potential strategies that are highly effective and maximise their returns on the new investment. These involve working with a comprehensive model including predictive models, and researching alternatives for yielding the best outcomes.

Lessons learned

While we have already discussed the case studies before this, it is essential to note that investment banking studies can only serve as examples. However, the lessons learned over here are vital to the future of identifying trends and making careful decisions. Here are some of the pointers for following the correct route for investment banking.

• Emphasise coming up with strategic instead of traditional solutions.
• Focus on structured solutions along with the strategic counterpart. This helps in devising a potential solution before making an educated guess.
• Equip oneself with Excel and PowerPoint for better accessibility to the figures and potential outcomes.
• Do a thorough assessment of all available figures before presenting them to a team.
• Although it is completely acceptable to present previous figures and the solutions associated with them, it is advisable to look for future implications regarding a particular solution. 
• As most cases can be critical to the outcome, it is best to find a strong logical understanding of the same to predict favourable outcomes.
• Enrich the project with all relevant news and practices for the best outcome.
• Go over a question twice before interpreting them and presenting a solution.
• Lastly, apply professional logic to the problem before moving forward with the solution/s.

Conclusion 

Investment banking studies and their case examples provide valuable insight into the market and the trends that are currently ongoing. At the same time, they also offer a clear cognizance of the future, thereby marking a trend into the future of the investments currently in question. 

Furthermore, they allow students and practitioners to come up with more effective solutions to complex banking problems, which makes it all the more essential. Imarticus Learning’s 150-hour investment banking certification enables learners to opt for a clear-cut course and venture into the world of investment banking in no time.

As it is a highly rewarding field with salaries ranging anywhere between 125,000 to 10 million USD , the investment banking career is a lucrative option. 

Sign up for the programme today! A Certified Investment Banking Operations Professional course can bestow individuals with the required skill set and experience for cracking the investment banking position.

Besides being one of the top courses catering to investment banking enthusiasts, it is also a flexible option for online learners. 

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Investment Banking Case Studies: Preparation & Strategies for Success

Discover the key strategies and preparation techniques required for success in investment banking case studies.

Posted May 11, 2023

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Investment banking case studies are an essential part of the investment banking recruitment process. These studies enable investment banks to assess the ability of aspiring investment bankers to analyze complex business situations and develop innovative strategies to solve them. So, if you're preparing to enter the world of investment banking, you need to master the art of preparing for and tackling these studies.

Introduction to Investment Banking Case Studies

Investment banking case studies typically involve analyzing a real-life business situation, evaluating critical financial and operational data, and developing a comprehensive strategy to help the company achieve its goals. These case studies allow investment banks to understand the prospective banker's ability to think critically, analyze data, and develop creative solutions to complex problems.

Importance of Studying Investment Banking Case Studies

If you're looking to pursue a career in investment banking, it's essential to develop a deep understanding of investment banking case studies. Studying them will provide you with a unique perspective that can help you formulate effective strategies in your future role. A strong foundation in case studies can also enhance your problem-solving skills and equip you with the analytical tools necessary for success in the industry.

Moreover, studying investment banking case studies can also help you understand the complexities of the industry. You'll learn about the different types of financial instruments, such as stocks, bonds, and derivatives, and how they are used in various investment strategies. This knowledge can be invaluable when working with clients and making investment decisions.

Additionally, investment banking case studies can provide you with insights into the ethical considerations that arise in the industry. You'll learn about the importance of transparency, accountability, and responsible investing. This knowledge can help you navigate the ethical challenges that you may face in your career and make informed decisions that align with your values.

Types of Investment Banking Case Studies

There are two main types of investment banking case studies: financial analysis and valuation and strategic analysis. Financial analysis and valuation case studies involve assessing the company's financial statements and financial data to determine the company's worth. Strategic analysis case studies typically require analyzing the business's operations and identifying strategies that can help it grow and succeed in the market.

Another type of investment banking case study is the industry analysis case study. This type of case study involves analyzing the industry in which the company operates, including its competitors, market trends, and regulatory environment. This information can help investment bankers advise their clients on potential mergers and acquisitions, as well as other strategic decisions.

Additionally, investment bankers may also conduct due diligence case studies. These case studies involve a thorough investigation of a company's financial and operational history, as well as its legal and regulatory compliance. Due diligence case studies are often conducted when a company is considering a merger or acquisition, to ensure that there are no hidden risks or liabilities that could impact the deal.

Real-life Examples of Successful Investment Banking Case Studies

Investment banking case studies are based on real-life situations that have been solved by investment bankers. Some of the most well-known and successful investment banking case studies include the Red Bull GmbH case study and the Alibaba IPO case study. These studies demonstrate the effectiveness of investment banking strategies in real-life business situations and showcase the importance of case studies in the industry.

Another example of a successful investment banking case study is the acquisition of WhatsApp by Facebook. Investment bankers played a crucial role in facilitating the acquisition, which was valued at $19 billion. The investment bankers advised Facebook on the best approach to acquire WhatsApp and negotiated the terms of the deal. This case study highlights the importance of investment bankers in facilitating mergers and acquisitions and showcases their ability to create value for their clients.

Understanding the Preparation Process for Investment Banking Case Studies

The preparation process for investment banking case studies is critical to ensure your success. It involves identifying the objective of the case study, conducting extensive research, evaluating financial and operational data, and developing creative solutions to solve complex problems. However, it's essential to approach the case study's preparation systematically and logically to ensure your strategy is comprehensive and effective.

One important aspect of the preparation process for investment banking case studies is to practice presenting your solutions. This can be done through mock presentations with peers or mentors, or by recording yourself and reviewing your performance. Practicing your presentation skills will help you communicate your ideas clearly and confidently during the actual case study presentation. Additionally, it will help you identify any areas where you may need to improve, such as speaking too quickly or not providing enough detail. By practicing your presentation skills, you can increase your chances of success in the case study and impress potential employers.

Tips for Conducting Effective Research for Investment Banking Case Studies

Conducting effective research is a critical component of the preparation process for investment banking case studies. It allows you to gain a deep understanding of the business's operations, objectives, strengths, weaknesses, and opportunities. Some tips for conducting effective research include conducting primary and secondary research, analyzing market trends, and considering industry-specific factors that may affect the company's performance.

Another important tip for conducting effective research is to gather information from a variety of sources. This can include financial reports, industry publications, news articles, and interviews with industry experts. By gathering information from multiple sources, you can gain a more comprehensive understanding of the company and its industry.

It is also important to stay up-to-date on current events and trends that may impact the company's performance. This can include changes in government regulations, shifts in consumer behavior, or advancements in technology. By staying informed, you can better anticipate potential challenges and opportunities for the company.

Analyzing Data and Applying it to your Investment Banking Case Study

The ability to analyze data effectively is crucial in developing innovative and effective investment banking strategies. Analyzing financial and operational data can provide critical insights into the business's current position and future potential. Therefore, it's imperative to approach data analysis systematically and logically, using industry-specific benchmarks to evaluate the business's performance.

Furthermore, data analysis can also help identify potential risks and opportunities for the business. By analyzing market trends and competitor performance, investment bankers can develop strategies that capitalize on emerging opportunities and mitigate potential risks. Additionally, data analysis can also aid in identifying areas where cost-cutting measures can be implemented, leading to increased profitability for the business.

The Importance of Creativity in Developing Investment Banking Strategies

Creativity is an essential ingredient in developing effective investment banking strategies. It enables you to think outside the box and develop innovative solutions to complex problems. Therefore, it's crucial to cultivate your creativity by developing unique and original strategies that can set you apart from your competitors.

Moreover, creativity can also help you identify new opportunities and potential risks that may not be immediately apparent. By thinking creatively, you can uncover hidden value in assets and identify new markets that may have been overlooked. This can give you a competitive advantage and help you stay ahead of the curve in a constantly evolving industry.

Developing a Comprehensive Investment Banking Strategy

Developing a comprehensive investment banking strategy involves identifying the problem, conducting research, analyzing financial data, and developing a creative solution that aligns with the business's objectives. It is essential to ensure that your strategy is comprehensive, relevant, and innovative to maximize its effectiveness.

The first step in developing a comprehensive investment banking strategy is to identify the business's financial goals and objectives. This involves understanding the company's current financial situation, its strengths and weaknesses, and its long-term goals. Once you have a clear understanding of the business's financial objectives, you can begin to develop a strategy that aligns with these goals.

Another important aspect of developing a comprehensive investment banking strategy is to stay up-to-date with the latest industry trends and market conditions. This involves conducting ongoing research and analysis to identify emerging opportunities and potential risks. By staying informed about the latest developments in the industry, you can ensure that your strategy remains relevant and effective over time.

Key Components of a Successful Investment Banking Strategy

Successful investment banking strategies typically include identifying key performance indicators, conducting a competitive analysis, developing a viable financial plan, assessing potential risks, and preparing a detailed execution plan. Integrating these key components into your strategy can help ensure its effectiveness and maximize your chances of success.

In addition to these key components, it is also important to establish strong relationships with clients and maintain a deep understanding of market trends and industry developments. This can involve regularly networking with potential clients and staying up-to-date on the latest news and changes in the market. By staying informed and building strong relationships, investment bankers can better position themselves to identify and capitalize on new opportunities.

Implementing Your Strategy: Best Practices for Success

Implementing your investment banking strategy can be challenging and requires careful planning and execution. Some best practices for success include ensuring everyone on the team is aligned with the strategy, monitoring performance regularly, adjusting the strategy as needed, and developing contingency plans to mitigate potential risks. These practices can help ensure that your strategy yields the best possible results for your business.

Another important aspect of implementing your strategy is effective communication. It is crucial to communicate the strategy clearly and consistently to all stakeholders, including employees, investors, and clients. This helps to build trust and confidence in the strategy and ensures that everyone is working towards the same goals. Additionally, it is important to provide regular updates on the progress of the strategy and any changes that may occur. This helps to keep everyone informed and engaged in the process, which can lead to better outcomes.

Measuring the Success of Your Investment Banking Strategy

Measuring the success of your investment banking strategy is critical to ensuring its effectiveness. It's essential to establish key performance indicators and regularly monitor them to determine whether your strategy is yielding the expected results. This data can provide critical insights that can help you adjust your strategy and improve its effectiveness in achieving the business's goals.

Common Pitfalls to Avoid in Your Investment Banking Case Study

There are several common pitfalls that aspiring investment bankers must avoid when tackling investment banking case studies. These include failing to understand the business's objectives, relying too heavily on financial data, neglecting creativity in developing the strategy, and developing a strategy that is too generic to be effective. It's essential to avoid these pitfalls to maximize your chances of success.

Conclusion: Key Takeaways and Actionable Steps for Success

Investment banking case studies are an essential part of the recruitment process and require careful preparation and execution to ensure success. Understanding the preparation process, developing effective research techniques, analyzing data systematically, and cultivating creativity are key components of effective investment banking strategies. Integrating these components and avoiding common pitfalls can help maximize your chances of success and set you apart from the competition. By following these actionable steps, you can become a successful investment banker and achieve your professional goals.

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The Private Equity Case Study: The Ultimate Guide

If you're new here, please click here to get my FREE 57-page investment banking recruiting guide - plus, get weekly updates so that you can break into investment banking . Thanks for visiting!

The private equity case study is an especially intimidating part of the private equity recruitment process .

You’ll get a “case study” in virtually any private equity interview process , whether you’re interviewing at the mega-funds (Blackstone, KKR, Apollo, etc.), middle-market funds , or smaller, startup funds.

The difference is that each one gives you a different type of case study, which means you need to prepare differently:

What Should You Expect in a Private Equity Case Study?

There are three different types of “case studies”:

• Type #1: A “ paper LBO ,” calculated with pen-and-paper or in your head, in which you build a simple leveraged buyout model and use round numbers to guesstimate the IRR.
• Type #2: A 1-3-hour timed LBO modeling test , either on-site or via Zoom and email. This is a pure speed test , so proficiency in the key Excel shortcuts and practice with many modeling tests are essential.
• Type #3: A “take-home” LBO model and presentation, in which you might have a few days up to a week to pick a company, research it, build a model, and make a recommendation for or against an acquisition of the company.

We will focus on the “take-home” private equity case study here because the other types already have their own articles/tutorials or will have them soon.

If you’re interviewing within the fast-paced, on-cycle recruiting process with large funds in the U.S. , you should expect timed LBO modeling tests (type #2).

If the firm interviews dozens of candidates in a single weekend, there’s no time to give everyone open-ended case studies and assess them.

You might also get time-pressured LBO modeling tests in early rounds in other financial centers, such as London .

The open-ended case studies – type #3 – are more common at smaller funds, in off-cycle recruiting, and outside the U.S.

Although you have more time to complete them, they’re significantly more difficult because they require critical thinking skills and outside research.

One common misconception is that you “need” to build a complex model for these case studies.

But that is not true at all because they’re judging you mostly on your investment thesis , your presentation, and your ability to answer questions afterward.

No one cares if your LBO model has 200 rows, 500 rows, or 5,000 rows – they care about how well you make the case for or against the company.

This open-ended private equity case study is often the final step between the interview and the job offer, so it is critically important.

The Private Equity Case Study, in Parts

This is another technical tutorial, so I’ve embedded the corresponding YouTube video below:

Table of Contents:

• 4:32: Part 1: Typical Case Study Prompt
• 6:07: Part 2: Suggested Time Split for a 1-Week Case Study
• 8:01: Part 3: Screening and Selecting a Company
• 14:16: Part 4: Gathering Data and Doing Industry Research
• 22:51: Part 5: Building a Simple But Effective Model
• 26:32: Part 6: Drafting an Investment Recommendation

Files & Resources:

• Case Study Prompt (PDF)
• Private Equity Case Study Slides (PDF)
• Cars.com – Highlighted 10-K (PDF)
• Cars.com – Investor Presentation (PDF)
• Cars.com – Excel Model (XL)
• Cars.com – Investment Recommendation Presentation (PDF)

We’re going to use Cars.com in this example, which is one of the many case studies in our Private Equity Modeling course:

The full course includes a detailed, step-by-step walkthrough rather than this summary, an additional advanced LBO model, and many other practice models and case studies.

Part 1: Typical Private Equity Case Study Prompt

In some cases, they’ll give you a company to analyze, but in others, you’ll have to screen for companies yourself and pick one.

It’s easier if they give you the company and the supporting documents like the Information Memorandum , but you’ll also have less time to complete the case study.

The prompt here is very open-ended: “We like these types of deals and companies, so pick one and present it to us.”

The instructions are helpful in one way: they tell us explicitly not to build a full 3-statement model and to focus on the market and strategy rather than an “extremely complex model.”

They also hint very strongly that the model must include sensitivities and/or scenarios:

Part 2: Suggested Time Split for a 1-Week Private Equity Case Study

You have 7 days to complete this case study, which may seem like a lot of time.

But the problem is that you probably don’t have 8-12 hours per day to work on this.

You’re likely working or studying full-time, which means you might have 2-3 hours per day at most.

So, I would suggest the following schedule:

• Day #1: Read the document, understand the PE firm’s strategy, and pick a company to analyze.
• Days #2 – 3: Gather data on the company’s industry, its financial statements, its revenue/expense drivers, etc.
• Days #4 – 6: Build a simple LBO model (<= 300 rows), ideally using an existing template to save time.
• Day #7: Outline and draft your presentation, let the numbers drive your decisions, and support them with the qualitative factors.

If the presentation is shorter (e.g., 5 slides rather than 15) or longer, you could tweak this schedule as needed.

But regardless of the presentation length, you should spend MORE time on the research, data gathering, and presentation than on the LBO model itself.

Part 3: Screening and Selecting a Company

The criteria are simple and straightforward here: “The firm aims to find undervalued companies with stagnant or declining core businesses that can be acquired at reasonable valuation multiples and then turn them around via restructuring, divestitures , and add-on acquisitions.”

The industry could be consumer, media/telecom, or software, with an ideal Purchase Enterprise Value of $500 million to $1 billion (sometimes up to $2 billion).

Reading between the lines, I would add a few criteria:

• Consistent FCF Generation and 10-20%+ FCF Yields: Strategies such as turnarounds and add-on acquisitions all require cash flow. If the company doesn’t generate much Free Cash Flow , it will have to issue Debt to fund these strategies, which is risky because it makes the deal very dependent on the exit multiple.
• Relatively Lower EBITDA Multiples: If the company has a “stagnant or declining” core business, you don’t want to pay 20x EBITDA for it. An ideal range might be 5-10x, but 10-15x could be OK if there are good growth opportunities. The IRR math also gets tougher at high EBITDA multiples because the maximum Debt in most deals is 5-6x.
• Clean Financial Statements and Enough Detail for Revenue and Expense Projections: You don’t want companies with 2-page-long Cash Flow Statements or Balance Sheets with 100 line items; you can’t spare the time required to simplify and consolidate these statements. And you need some detail on the revenue and expenses because forecasting revenue as a simple percentage Year-Over-Year (YoY) growth rate is a bad idea in this context.

We used this process to screen for companies here:

• Step 1: Do a high-level screen of companies in these 3 sectors based on industry, Equity Value or Enterprise Value, and geography.
• Step 2: Quickly review the list of ~200 companies to narrow the sector.
• Step 3: After picking a specific sector, narrow the choices to the top few companies and pick one of them.

In software , many of the companies traded at very high multiples (30x+ EBITDA), and others had negative EBITDA , so we dropped this sector.

In consumer/retail , the companies had more reasonable multiples (5-10x), but most also had low margins and weak FCF generation.

And in media/telecom , quite a few companies had lower multiples, but the FCF math was challenging because many companies had high CapEx requirements (at least on the telecom side).

We eliminated companies with very high multiples, negative EBITDA, and exorbitant CapEx, which left this set:

Within this set, we then eliminated companies with negative FCF, minimal information on revenue/expenses, somewhat-higher multiples, and those whose businesses were declining too much (e.g., 20-30% annual declines).

We settled on Cars.com because it had a 9.4x EBITDA multiple at the time of this screen, a declining business with modest projected growth, 25-30% margins, and reasonable FCF generation with FCF yields between 10% and 15%.

If you don’t have Capital IQ for this exercise, you’ll have to rely on FinViz and use P / E multiples as a proxy for EBITDA multiples.

You can click through to each company to view the P / FCF multiples, which you can flip around to get the FCF yields.

In this case, don’t even bother looking for revenue and expense information until you have your top 2-3 candidates.

Part 4: Gathering Data and Doing Industry Research

Once you have the company, you can spend the next few days skimming through its most recent annual report and investor presentation, focusing on its financial statements and revenue/expense drivers.

With Cars.com, it’s clear that the company’s “Dealer Customers” and Average Revenue per Dealer will be key drivers:

The company also has significant website traffic and earns advertising revenue from that, but it’s small next to the amount it earns from charging car dealers to use its services:

It’s clear from this quick review that we’ll need some outside research to estimate these drivers, as the company’s filings and investor presentation have little.

Fortunately, it’s easy to Google the number of new and used car dealers in the U.S. and estimate the market size and share like that:

The company’s market share has been declining , and we expect that trend to continue, but it’s not clear how rapid the decline will be.

Consumers are increasingly buying directly from other consumers, and dealers have less reason to use the company’s marketplace services than in past years.

We create an area for these key drivers, with scenarios for the most uncertain one:

You might be wondering why there’s no assumed uptick in market share since this is supposed to be a “turnaround” case study.

The short answer is that we think the company is unlikely to “turn around” its core business in this time frame, so it will have to move into new areas via bolt-on acquisitions .

For example, maybe it could acquire smaller firms that sell software and services to dealers, or it could acquire physical or online car dealerships directly.

Another option is to acquire companies that can better monetize Cars.com’s large and growing web traffic – such as companies that sell auto finance leads.

As part of this process, we also need to research smaller companies to acquire, but there isn’t much to say about this part.

It comes down to running searches on Capital IQ for smaller companies in related industries and entering keywords like “auto” in the business description field.

In terms of the other financial statement drivers , many expenses here are simple percentages of revenue, but we could also link them to the employee count.

We also link the website traffic to the sales & marketing spending to capture the spending required for growth in that area.

Finally, we need to input the financial statements for the company, which is not that hard since they’re already fairly clean:

It might be worth consolidating a few items here, but the Income Statement and partial Cash Flow Statement are mostly fine, which means the Excel versions are close to the ones in the annual report.

Part 5: Building a Simple But Effective Model

The case study instructions state that a full 3-statement model is not necessary – but even if they had not, such a model would rarely be worthwhile.

Remember that LBO models, just like DCF models , are based on cash flow and EBITDA multiples ; the full statements add almost nothing since you can track the Cash and Debt balances separately.

In terms of model complexity, a single-sheet LBO with 200-300 rows in Excel is fine for this exercise.

You’re not going to get “extra credit” for a super-complex LBO model that takes days to understand.

The key schedules here are:

• Transaction Assumptions – Including the purchase price, exit assumptions, scenarios, and tranches of debt. Skip the working capital adjustment unless they specifically ask for it. For more on these nuances, see our coverage of Enterprise Value vs. purchase price and cash-free debt-free deals .
• Sources & Uses – Short and simple but required to calculate the Investor Equity.
• Revenue, Expense, and Cash Flow Drivers – These don’t need to be super-complex; the goal is to go beyond projecting revenue as a simple percentage growth rate.
• Income Statement and Partial Cash Flow Statement – The goal is to calculate Free Cash Flow because that drives Debt repayment and Cash generation in an LBO.
• Add-On Acquisitions – These are part of the “turnaround strategy” in this deal, so they’re quite important.
• Debt Schedule – This one is quite simple here because the deal is not dependent on financial engineering.
• Returns Calculations – The IPO vs. M&A exit options add a bit of complexity.
• Sensitivity Tables – It’s difficult to draft the investment recommendation without these.

Skip anything that makes your life harder, such as circular references in Excel (to avoid these, use the beginning Cash and Debt balances to calculate interest).

We pay special attention to the add-on acquisitions here, with support for their revenue and EBITDA contributions:

The Debt Schedule features a Revolver, Term Loans, and Subordinated Notes:

The Returns Calculations are also simple; we do assume a bit of Multiple Expansion because of the company’s higher growth rate by the end:

Could we simplify this model even further?

I don’t think the M&A vs. IPO exit options mentioned above are necessary, and we could also drop the “Growth” vs. “Value” options for the add-on acquisitions:

Especially if we recommend against the deal, it’s not that important to analyze which type of add-on acquisition works best.

It would be more difficult to drop the scenarios and Excel sensitivity tables , but we could restructure them a bit and fold the scenario into a sensitivity table.

All investing is probabilistic, and there’s a huge range of potential outcomes – so it’s difficult to make a serious investment recommendation without examining several outcomes.

Even if we think this deal is spectacular, we must consider cases in which it goes poorly and how we might reduce those risks.

Part 6: Drafting an Investment Recommendation

For a 15-slide recommendation, I would recommend this structure:

• Slides 1 – 2: Recommendation for or against the deal, your criteria, and why you selected this company.
• Slides 3 – 7: Qualitative factors that support or refute the deal (market, competition, growth opportunities, etc.). You can also explain your proposed turnaround strategy, such as the add-on acquisitions, here.
• Slides 8 – 13: The numbers, including a summary of the LBO model, multiples vs. comps (not a detailed valuation), etc. Focus on the assumptions and the output from the sensitivity tables.
• Slide 14: Risk factors for a positive recommendation, and the counter-factual (“what would change your mind?”) for a negative one. You can also explain the potential impact of each risk on the returns and how you could mitigate these risks.
• Slide 15: Restate your conclusions from Slide 1 and present your best arguments here. You could also change the slide formatting or visuals to make it seem new.

“OK,” you say, “but how do you actually make an investment decision?”

The easiest method is to set criteria for the IRR or multiple of invested capital in each case and say, “Yes” if the deal achieves those numbers and “No” if it does not.

For example, maybe the targets are a 30% IRR in the Upside case, a 20% IRR in the Base case, and a 1.0x multiple in the Downside case (i.e., avoid losing money).

We do achieve those numbers in this deal, but the decision could go either way because the deal is highly dependent on the add-on acquisitions.

Without these acquisitions, the deal does not work; the IRR falls by 10%+ across all the scenarios and turns negative in the Downside case.

We need at least 5 good acquisition candidates matching very specific financial profiles ($100 million Purchase Enterprise Value and a 15x EBITDA purchase multiple with 10% revenue growth or 5x EBITDA with 3% growth).

The presentation includes some examples of potential matches:

While these examples are better than nothing, the case is not that strong because:

• Most of these companies are too big or too small to fit into the strategy proposed here of ~$100 million in annual acquisitions.
• The acquisition strategy is unclear ; acquiring and integrating dealerships (even online ones) would be very, very different from acquiring software/data/media companies.
• And since the auto software market is very niche, there’s probably not a long list of potential acquisition candidates beyond the few we found.

We end up saying, “Yes” in this recommendation, but you could easily reach the opposite conclusion because you believe the supporting data is weak.

In short: For a 1-week open-ended case study, this approach is fine, but this specific deal would probably not stand up to a more detailed on-the-job analysis.

The Private Equity Case Study: Final Thoughts

Similar to time-pressured LBO modeling tests, you can get better at the open-ended private equity case study by “putting in the reps.”

But each rep is more time-consuming, and if you have a demanding full-time job, it may be unrealistic to complete multiple practice case studies before the real thing.

Also, even with significant practice, you can’t necessarily reduce the time required to research an industry and specific companies within it.

So, it’s best to pick companies and industries you already know and have several Excel and PowerPoint templates ready to go.

If you’re targeting smaller funds that use off-cycle recruiting, the first part should be easy because you should be applying to funds that match your industry/deal/client background.

And if not, you can always make a lateral move to a bulge bracket bank and interview at the larger funds if you prefer the private equity case study in “speed test” form.

If you liked this article, you might be interested in:

• Private Equity Value Creation : Equally Viable Alternative to PE Deal Teams?
• The Growth Equity Case Study: Real-Life Example and Tutorial
• The Full Guide to Healthcare Private Equity, from Careers to Contradictions
• Healthcare Investment Banking: The Best Group to Check Into When Human Civilization is Collapsing?

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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