Interviewer view · keep this screen to yourself

Buying a regional rival: what is it worth?

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

Target length:

1. Read the prompt aloud

Read it slowly, then pause. Let the candidate ask questions before they structure.

A US building-products distributor wants to buy a regional rival. The target earns USD 10 million of EBITDA a year and the seller asks USD 90 million. The chart below shows the multiples paid in five recent sales of similar distributors. The buyer expects cost synergies of USD 3 million a year once fully in place (half in year one), and integration will cost USD 4 million one time. Should it pay USD 90 million?

The prompt refers to Exhibit 1. After reading it, say: "Open Exhibit 1 now."

Format note: Interviewer-led: the interviewer shows the chart of recent deals and asks, in order, for the standalone value, the synergy value, the walk-away price, and a recommendation.

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: Where do the synergies come from?
Answer: Closing overlapping warehouses and combining purchasing.
If asked: Why is the owner selling?
Answer: The founder is retiring; the business is stable.
If asked: What multiple should we use?
Answer: Recent deals for similar distributors were about 8 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.

The asking price is above what similar companies sell for, so my hypothesis is that the deal only works if most of the synergies are real. I will value the target alone, add synergies, and find the most we should pay.

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.

Standalone value plus net synergies versus priceThis comes from most we should pay = standalone value (EBITDA x multiple) + synergies phased in, minus integration cost.
- Standalone value from the multiple
- Key: Synergy value, phased, minus integration cost
- Walk-away price and the downside case

Exhibit 1

The prompt uses this exhibit, so the candidate opens it right after you read the prompt ("Show exhibit 1" on their screen).

EV/EBITDA multiples paid for similar US distributors, last three years(times EBITDA)

So-what

Similar companies sold for about 8 times EBITDA on average, and none for more than 8.5 times, so an asking price of 9 times is above every recent deal.

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: The asking multiple
What a strong candidate does: USD 90 million for USD 10 million of EBITDA.
Asking EV/EBITDA: 90 ÷ 10 = 9
Step 2: Read the exhibit
What a strong candidate does: The five recent deals average 8 times EBITDA, and the highest is 8.5 times. The asking price is above all of them.
Average multiple of recent deals: (7.5 + 8 + 8.5 + 7.8 + 8.2) ÷ 5 = 8
Step 3: Standalone value
What a strong candidate does: At the 8 times paid for similar companies.
Standalone value (USD m): 10 × 8 = 80
Step 4: Synergy value
What a strong candidate does: Value the full USD 3 million a year of synergies at the same multiple, a shortcut for their present value.
Synergy value (USD m): 3 × 8 = 24
Step 5: Phasing
What a strong candidate does: Only half arrives in year one, so year-one profit gets a smaller lift than the run-rate figure suggests.
Year-one synergies (USD m): 3 × 0.5 = 1.5
Step 6: Net of phasing and integration cost
What a strong candidate does: Subtract the USD 1.5 million of synergies missed in year one and the USD 4 million one-time integration cost.
Net synergy value (USD m): 24 - 1.5 - 4 = 18.5
Step 7: Walk-away price
What a strong candidate does: The most the buyer should ever pay, which would hand all synergy value to the seller.
Walk-away price (USD m): 80 + 24 - 1.5 - 4 = 98.5
Step 8: Downside: only half the synergies
What a strong candidate does: If synergies reach USD 1.5 million a year instead of 3 (with half of that missed in year one), the combined value falls below the asking price.
Value with half the synergies (USD m): 80 + (1.5 × 8 - 0.75 - 4) = 87.25

The recommendation to listen for

At the end, say: "The CEO walks in. What is your recommendation?"

Do not pay USD 90 million; offer about USD 85 million and proceed only with a detailed, costed plan for the warehouse closures. First, the target is worth about USD 80 million on its own, and USD 90 million means paying 9 times EBITDA, above every recent deal in the chart, which average 8 times. Second, with about USD 18.5 million of synergy value after year-one phasing and integration cost, the most we should ever pay is about USD 98.5 million, and at USD 90 million we would give the seller more than half the net synergy value. Third, if only half the synergies arrive, the deal is worth about USD 87 million, less than the price.

Risks a strong answer names: Synergies may arrive late or smaller than planned; Integration may cost more than USD 4 million; Key customers of the target may leave after the deal.

Next steps: Build a site-by-site warehouse closure plan; Interview the target's top ten customers.

Strong versus weak

A strong answer

Valued the target alone with a market multiple, phased synergies, subtracted integration cost, set a walk-away price, and tested the downside.

A weak answer

Added synergies at face value, computed a payback, and called the deal good without comparing the price with similar deals.

Score the candidate

Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.

Structuring

1: No clear structure, or a memorized framework that does not fit the problem.
3: A sensible structure, but with some overlap, a gap, or no clear priority.
5: A structure built for this problem, with no overlap and no gaps, a stated hypothesis, and a clear first step.

Math

1: Frequent errors, no units, or needed heavy help to finish.
3: Right answers but slow or messy working, or one error caught late.
5: Accurate and clearly narrated, with units, a sense check, and what the number means.

Exhibit reading

1: Read the chart aloud without finding the number that matters.
3: Found the key number but gave only part of the so-what.
5: Pulled the right number quickly and said what it means for the case.

Synthesis

1: Summarized what was done, with no clear answer.
3: Gave an answer, but with weak reasons or no next step.
5: Answer first, then two or three reasons with numbers, the main risk, and next steps.

Communication

1: Hard to follow: long silences, no signposting.
3: Clear most of the time, with some rambling.
5: Calm and concise, signposted each step, and checked in with the interviewer.

Total

0 out of 25

Score all five criteria to see the band and the feedback template.