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LBO Case Study: Carousel Investment Analysis

The document provides instructions for a take-home case study assignment for an interview at a private equity firm. The applicant is asked to screen sectors to identify an acquisition target between $500 million and $2 billion, build an LBO model with cash flow projections and debt schedule, and create a 15-20 slide PowerPoint addressing investment recommendation, market analysis, turnaround strategy, valuation, LBO model outputs, and risk factors. The applicant has 7 days to complete the assignment and PowerPoint and should be prepared for a 30-minute Q&A. The score will depend primarily on the strength of the investment recommendation and support for financial projections.

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Loïc Halleux
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2K views2 pages

LBO Case Study: Carousel Investment Analysis

The document provides instructions for a take-home case study assignment for an interview at a private equity firm. The applicant is asked to screen sectors to identify an acquisition target between $500 million and $2 billion, build an LBO model with cash flow projections and debt schedule, and create a 15-20 slide PowerPoint addressing investment recommendation, market analysis, turnaround strategy, valuation, LBO model outputs, and risk factors. The applicant has 7 days to complete the assignment and PowerPoint and should be prepared for a 30-minute Q&A. The score will depend primarily on the strength of the investment recommendation and support for financial projections.

Uploaded by

Loïc Halleux
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
  • Introduction and Task Description
  • Recommendation and Analysis

LBO Modeling Test and Investment Recommendation – Take-Home Case Study (7 Days to

Complete)

You are interviewing at First Consumer Capital, a U.S.-based middle-market private equity firm
that invests domestically in the consumer, media/telecom, and software sectors.

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 firm’s average deal size is between $500 million and $1 billion (Enterprise Value), but it can
go as high as $2 billion for the right opportunity.

Using all the available tools at your disposal (Capital IQ, FactSet, etc.), screen these sectors for
appropriate acquisition candidates and select the best one.

Then, build an LBO model based on reasonable assumptions for the purchase price, debt, cash
flow projections, and exit.

You should use the company’s historical performance and industry/market research to build
the projections.

You do not need to build a full 3-statement LBO model; cash flow projections with a debt
schedule and returns calculations are fine.

When you’re finished, draft a short PowerPoint presentation (15-20 slides) that addresses the
following questions:

1. Investment Recommendation – Would you recommend acquiring this company in a


leveraged buyout? What are the key quantitative and qualitative factors?

2. Market – How would you describe this company’s market and the company’s position in
it? What are the major growth opportunities and competitive threats?

3. Strategy – What is your proposed turnaround or transformation strategy, and what


evidence do you have that it might be feasible?

4. Valuation – Please address the expected premium and multiple you expect to pay for
this company and how it compares with the company’s past trading history and
comparable companies and transactions in the sector.

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5. LBO Model – Explain the output of your LBO model, including the IRR and MOIC in
different cases or under different purchase and exit conditions. Your model should also
address the possibility of losing money in different scenarios.

6. Risk Factors – What are the key risk factors in your proposed deal, and how could you
mitigate them?

You have seven (7) days to complete everything above and submit your Excel file and
PowerPoint presentation.

You should be prepared to present your findings to the investment committee and answer
questions about your work in a 30-minute Q&A session afterward as well.

Note that your score will be determined primarily by the strength of your investment
recommendation and support for your numbers.

You will not earn extra points by submitting an extremely complex model or one with many
bells and whistles. Focus on selecting a good acquisition candidate, understanding the market,
and using outside research to support your numbers.

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Common questions

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A comprehensive LBO model output should include financial metrics such as the projected free cash flows, debt repayment schedules, and sensitivity analysis on key variables (e.g., purchase price and exit multiple). It should also provide IRR and MOIC under different scenarios, including best case, base case, and worst case, to evaluate the potential financial returns and the risk of losing money in adverse conditions .

When evaluating valuation for an LBO candidate, compare the acquisition's valuation multiples such as EBITDA, Revenue multiples, and the price-to-book ratio to the company's historical trading multiples and those of comparable companies. Additionally, assess the expected acquisition premium over the company’s current market valuation within the context of recent transactions in the sector to determine if the purchase price is justified .

Evidence supporting the feasibility of a turnaround strategy includes historical cases where similar restructuring led to successful outcomes, current operational inefficiencies that can be addressed, and management’s proven track record in executing transformations. Additionally, industry benchmarks indicating potential for improvement and synergies from potential add-on acquisitions can bolster the argument for the strategy's feasibility .

To assess a company's position in its market, evaluate its market share, growth rate compared to competitors, product differentiation, and barriers to entry in the industry. Growth opportunities can be identified by analyzing trends for increasing demand, technological advancements, geographic expansion, or strategic partnerships. Additionally, understanding competitive threats from existing players and potential disruptors is critical .

Key risk factors in a leveraged buyout include economic downturns affecting company performance, high leverage ratios leading to operational strain, changes in interest rates, and integration risks in add-on acquisitions. Mitigation strategies include structuring covenants to provide financial flexibility, hedging interest rate exposure, securing reliable management teams, and ensuring thorough due diligence to understand all aspects of the business and industry .

In a leveraged buyout acquisition decision, key quantitative factors include the company's cash flow stability, the debt service coverage ratio, valuation multiples, and projected financial returns such as IRR (Internal Rate of Return) and MOIC (Multiple on Invested Capital). Qualitative factors involve the company’s leadership capability, market position, competitive landscape, and potential for operational improvements and cost reductions through a restructuring or turnaround strategy .

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