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Stretch: Should a fund buy Tsukimine Precision, a parts maker with no successor?
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
Written case: a private-equity fund is considering buying Tsukimine Precision, a family-owned maker of precision metal parts in central Japan. Using the data pack below, prepare three slides: is the deal attractive at the asking price, what are the main risks, and what should the fund offer? Money figures are in JPY billion.
The prompt refers to Exhibit 1. After reading it, say: "Open Exhibit 1 now."
Format note: Difficulty: Stretch. Format: written case, with a data pack. Industry: Private equity and manufacturing. Region: Japan. Interview length: about 45 minutes. The company is fictional and all figures are illustrative. In a written case you usually get 30 to 60 minutes with a data pack, then present your slides and answer questions.
2. Answers to clarifying questions
Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.
If asked: Why is the company for sale?
Answer: The founder is 74 and has no family member or manager ready to take over. Many mid-sized Japanese companies face the same succession question.
If asked: What return does the fund need?
Answer: About 20 percent a year over five years, which is about 2.5 times the money.
If asked: Who are the customers?
Answer: About 40 percent of revenue comes from one car maker. The rest is spread across machinery makers.
3. The hypothesis a strong candidate states
Listen for an early, testable guess like this one. It does not need to match word for word.
The price looks modest at about 6 times EBITDA, but the plan depends on margin gains and one large customer. My hypothesis is that the deal returns a bit below target at the asking price, and that customer concentration is the key risk.
4. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Value today, value at exit, and the fund's return
- EBITDA today and the entry multiple
- Plan: revenue growth and margin gains
- Key: Exit value, MOIC, and IRR
- Risks: largest customer, founder handover
Exhibit 1
The prompt uses this exhibit, so the candidate opens it right after you read the prompt ("Show exhibit 1" on their screen).
| Item | Value |
|---|---|
| Revenue today (JPY billion) | 12 |
| EBITDA margin today (%) | 12.5 |
| Asking enterprise value (JPY billion) | 9 |
| Debt available at entry (JPY billion) | 4.5 |
| Revenue in year 5 of the plan (JPY billion) | 14 |
| EBITDA margin in year 5 of the plan (%) | 15 |
| Debt at exit after paydown (JPY billion) | 2 |
| Expected exit multiple (EV/EBITDA) | 6 |
| Share of revenue from the largest customer (%) | 40 |
So-what
The price is 6 times EBITDA and the exit multiple is also 6, so the return must come from debt paydown and EBITDA growth, much of it from raising the margin, while 40 percent of revenue depends on one customer.
5. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: EBITDA today
What a strong candidate does: JPY 12 billion of revenue at a 12.5 percent margin.
EBITDA today (JPY billion): 12 × 0.125 = 1.5
Step 2: Entry multiple
What a strong candidate does: Asking price divided by EBITDA.
Entry multiple (EV/EBITDA): 9 ÷ (12 × 0.125) = 6
Step 3: Year-5 EBITDA
What a strong candidate does: JPY 14 billion of revenue at a 15 percent margin.
Year-5 EBITDA (JPY billion): 14 × 0.15 = 2.1
Step 4: Exit value
What a strong candidate does: Year-5 EBITDA at 6 times.
Exit EV (JPY billion): 14 × 0.15 × 6 = 12.6
Step 5: MOIC
What a strong candidate does: Equity at exit (exit value minus JPY 2 billion of debt) divided by equity invested (JPY 9 billion minus JPY 4.5 billion of debt).
MOIC: (14 × 0.15 × 6 - 2) ÷ (9 - 4.5) = 2.36
Step 6: IRR check
What a strong candidate does: 1.19 to the power of 5 is about 2.39, a little above the MOIC, so the IRR is a little under 19 percent a year.
1.19 to the power of 5: 1.19 × 1.19 × 1.19 × 1.19 × 1.19 = 2.39
Step 7: Price that meets the target
What a strong candidate does: For 2.5 times the money, equity invested must be JPY 10.6 billion divided by 2.5, plus the JPY 4.5 billion of debt.
Maximum EV for 2.5 times (JPY billion): (14 × 0.15 × 6 - 2) ÷ 2.5 + 4.5 = 8.74
Step 8: Curveball: the largest customer wants a price cut
What a strong candidate does: The car maker tells all suppliers it wants a 5 percent price cut. If Tsukimine accepts and its costs do not change, year-5 EBITDA falls by 5 percent of 40 percent of JPY 14 billion, and the return becomes:
MOIC after the price cut: ((14 × 0.15 - 14 × 0.4 × 0.05) × 6 - 2) ÷ (9 - 4.5) = 1.98
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
Slide 1, the answer: the fund should not pay the asking price of JPY 9 billion, but the deal works at about JPY 8.7 billion with protection on the largest customer. At the asking price the entry multiple is 6 times today's EBITDA of JPY 1.5 billion. The plan lifts revenue to JPY 14 billion and the margin from 12.5 to 15 percent, giving year-5 EBITDA of JPY 2.1 billion and an exit value of JPY 12.6 billion at the same 6 times. After debt falls from JPY 4.5 billion to JPY 2 billion, the fund gets about 2.36 times its JPY 4.5 billion of equity, a little under 19 percent a year, below its 20 percent target. Slide 2, the reasons and risks: first, the exit multiple equals the entry multiple, so the return depends on the margin plan and debt paydown, with no help from a higher multiple; second, 40 percent of revenue comes from one car maker, and a 5 percent price cut from that customer would drop the return to about 1.98 times; third, the founder holds key customer relationships and know-how, and skilled engineers may leave with the founder, so the handover must be planned. Slide 3, the offer: bid about JPY 8.7 billion, the price at which the plan returns 2.5 times, ask the founder to stay as an adviser for two years, and tie part of the price to keeping the largest customer's volumes and prices. As a next step, review the supply contract and price history with the car maker.
Risks a strong answer names: The largest customer may move work to a rival during the change of owner; Skilled engineers may leave with the founder; Automation savings may take longer than planned.
Next steps: Review the supply contract and price history with the car maker; Interview the five most senior engineers about their plans; Test the margin plan line by line with the operations team.
Strong versus weak
A strong answer
Built the return step by step, compared it with the target, found the price that works, and tested the customer risk with numbers.
A weak answer
Said the deal is attractive because the multiple is low, without calculating the return or looking at the largest customer.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
Total
0 out of 25
Score all five criteria to see the band and the feedback template.