Interviewer view · keep this screen to yourself
Stretch: Corvane Home Comfort: a buy-and-build in home services
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.
A US private-equity fund plans to build Corvane Home Comfort, a heating and air-conditioning services group in the Midwest, by buying a platform company and five add-ons. The exhibit shows the deal pieces. What return could the fund earn, and what could go wrong?
Format note: Difficulty: Stretch. Format: interviewer-led, with an exhibit. Industry: Private equity and home services. Region: US. Interview length: about 40 minutes. The company is fictional and all figures are illustrative.
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: What is the strategy?
Answer: Buy one larger heating and air-conditioning services company (the platform), then buy five small local companies (add-ons) and combine them.
If asked: How is it financed?
Answer: 60 percent debt; debt falls to USD 134 million by exit.
If asked: What growth and exit?
Answer: About 5 percent a year EBITDA growth for five years; the fund expects to sell at 10 times EBITDA.
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.
Small companies sell for lower multiples than large ones, so combining them can create value. My hypothesis is that the return depends heavily on the exit multiple.
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.
- Entry cost, exit value, and the fund's return
- Total price and blended entry multiple
- EBITDA growth to exit
- Key: Exit value, MOIC, and IRR
- Risk: a lower exit multiple
Exhibit 1
Reveal to candidate: when they ask for this data, say "Open Exhibit 1" (they press "Show exhibit 1" on their screen).
| Item | Platform | Each add-on |
|---|---|---|
| EBITDA (USD million a year) | 20 | 3 |
| Purchase multiple (EV/EBITDA) | 10 | 6 |
| Number of companies | 1 | 5 |
So-what
Add-ons cost 6 times EBITDA against 10 for the platform, so combining them lowers the average price paid.
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: Total price
What a strong candidate does: Platform at 10 times USD 20 million, plus five add-ons at 6 times USD 3 million each (USD million).
Total price (USD million): 20 × 10 + 5 × 3 × 6 = 290
Step 2: Combined EBITDA
What a strong candidate does: Platform plus add-ons.
Combined EBITDA (USD million): 20 + 5 × 3 = 35
Step 3: Blended entry multiple
What a strong candidate does: Below the 10 times paid for the platform alone.
Blended EV/EBITDA: 290 ÷ 35 = 8.29
Step 4: Equity invested
What a strong candidate does: 40 percent of the total price.
Equity (USD million): 290 × 0.4 = 116
Step 5: Exit value
What a strong candidate does: EBITDA grows 5 percent a year for five years and sells at 10 times.
Exit EV (USD million): 35 × 1.05 × 1.05 × 1.05 × 1.05 × 1.05 × 10 = 447
Step 6: MOIC
What a strong candidate does: Exit value minus USD 134 million of remaining debt, divided by equity.
MOIC: (35 × 1.05 × 1.05 × 1.05 × 1.05 × 1.05 × 10 - 134) ÷ 116 = 2.7
Step 7: IRR check
What a strong candidate does: About 2.7 times in five years is roughly 22 percent a year.
1.22 to the power of 5: 1.22 × 1.22 × 1.22 × 1.22 × 1.22 = 2.7
Step 8: Curveball: exit multiples fall
What a strong candidate does: Interviewer: "If buyers pay only 8 times at exit, what happens?"
MOIC at an 8 times exit: (35 × 1.05 × 1.05 × 1.05 × 1.05 × 1.05 × 8 - 134) ÷ 116 = 1.93
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
The plan could return about 2.7 times the fund's money, roughly 22 percent a year, but much of that depends on the exit multiple. First, buying add-ons at 6 times lowers the blended entry multiple to about 8.3 times. Second, selling the combined group at 10 times turns that gap into value, alongside 5 percent yearly EBITDA growth and debt paydown. Third, if the exit multiple is only 8 times, MOIC falls to about 1.9 times, below a typical target. So only proceed if the group becomes a real, integrated business that deserves a higher multiple: shared booking, purchasing, and technician training, not just a collection of local firms.
Risks a strong answer names: Add-on owners and key technicians may leave after the sale; Integration may fail, so the group does not earn a higher multiple; Higher interest rates increase debt costs.
Next steps: Build an integration plan for booking, purchasing, and training; Agree retention terms with add-on owners.
Strong versus weak
A strong answer
Calculated the blended entry multiple, exit value, MOIC, and IRR, and identified the exit multiple as the main risk.
A weak answer
Added up EBITDA and said the deal is good because the market is fragmented, without calculating the return.
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.