The following are three case study example questions from actual investment banking interviews. Please answer the questions by explaining what you would advise each client to do in the comments section below this article and you will be given feedback.
Case Study Question 1 - A client of yours owns his own business 100% outright. It is worth £500M and he/she would like to get some liquidity out of his company, but still wants to continue working. How do you advise your client to get the maximum valuation, while still retaining some ownership?
Case Study Question 2 - A public company is currently trading at a 52-week low. The company's current quarterly reporting is on schedule with analyst's and management's predictions. The management team is looking to raise money to fund a project, which they believe will double the company's EBITDA. What options do you advise the company to pursue in order to raise the necessary capital?
Case Study Question 3 - Your client has a company, which manufactures and sells propellers and is preparing to sell the entire company. The company is comprised of three divisions: boat, air, and windmill propellers. The boat and air divisions comprise 80% of the company, while the windmill division makes up only 20%. The boat and air divisions are losing money, while the windmill division is making money, so the net effect of the company is to break even. What do you advise your client to do in order to help them sell their company at the best price (ie. best valuation)?
21 November 2011 - 5:06am
tmik
For the case #1, i would recommend to sell 49% stake to keep absolute ownership, and to buy shot-term bills to idol the money in order to keep its monetary value from losing it by inflation. but still need some additional info to answer to get the maximum value for the stock price.
For the case #2, there needs to be more info. so with this limited info, i would recommend to isseu bonds because the issuing bonds is less risky for bond holders compared to stock holders, and interest payment is txdeductable for the company when dividends are not.
For the case #3, i would recommend to liquidate either boat or air division of the company, and then sell the entire company if the client still want to do so after the liquidation of the div. Anyway, my rationale goes like this. The profit of combined div of boat and air is in red, but the profit of windmill is in black, when the boat and air comprise 80% of company and the windmill does 20%. under this circumstance, the company makes 0 profit, break even, meaning either boat or air is not making profit, profit(boat+air)+profit(windmill)=O. But we can't identify which div is losin money by the given data.
23 January 2012 - 12:45pm
AssociateMergers
(correct) answers from a banker:
#1 IPO retaining some ownership -20-30% is fine. 49% as mentioned above would be too much and other shareholders might not like to have somebody with so much power.
#2 Issue equity, of course. Equity does not take into account the potential upside coming, so its cheap.
# Break up the company and sell the good business separately. Could consider closing down the rest if there are no big synergies.
Want some more practice? here is a list of more technical questions from the www.askivy.net website (which I recommend)
http://www.askivy.net/content/investment-banking-technical-questions
23 January 2012 - 4:38pm
tmik
Hi Mr. Banker,
Thanks for your insighful answers and giving me the info where I can practice!
I hope I will be able to get to the answers like yours.
Just once again, thank you.
Tmik
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Sell stake
Raise debt financing
Raise money through debt financing as company's share price is low/doesn't reflect true valuation
Split it up, sell divisions separately