Project Gargoyle

#Hair Care Products
ProHub Comment

This case tests the candidate's ability to construct a profit tree framework to diagnose why EBITDA growth stalled despite revenue growth, then conduct market analysis and breakeven calculations to evaluate investment attractiveness. The case requires candidates to identify that expansion into lower-margin drugstore channels eroded profitability and damaged brand positioning with core salon customers, leading to a 'no-invest' recommendation despite surface-level growth metrics.

Estimated Time 27 minutes
Difficulty Medium
Source Chicago Booth
36 / 100

Your client, a private equity fund, is evaluating the potential acquisition of Gargoyle. Gargoyle is a premium, fashion forward hair care products brand sold in the U.S. Gargoyle has grown quickly over the past 5 years and management is forecasting strong top-line growth.

Your client has little experience in the industry and needs to quickly evaluate the opportunity. Your client would like to grow cash flow (EBITDA) each year during the investment horizon with minimal capital expenditure.

How should you evaluate the opportunity? Should the fund invest in Gargoyle?

Clarifying Information

  1. Gargoyle has grown quickly, especially during most recent period.
  2. EBITDA margin declined and EBITDA $ were flat.
Mock Interview
Interviewer

Your client, a private equity fund, is evaluating the potential acquisition of Gargoyle. Gargoyle is a premium, fashion forward hair care products brand sold in the U.S. Gargoyle has grown quickly over the past 5 years and management is forecasting strong top-line growth. Your client has little experience in the industry and needs to quickly evaluate the opportunity. Your client would like to grow cash flow (EBITDA) each year during the investment horizon with minimal capital expenditure. How should you evaluate the opportunity? Should the fund invest in Gargoyle?

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
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Practice this case with AI Mock Interview

A PE fund evaluates acquiring Gargoyle, a premium hair care brand. While revenues grew strongly, EBITDA margins declined. Analysis reveals the underlying issue: recent expansion into unprofitable drugstore channels (breakeven only) alienated core salon customers where the brand underperforms competitors. The recommendation is not to invest.

Key Insights:

  1. Revenue growth can mask margin deterioration—EBITDA provides critical profitability insight
  2. Market segmentation analysis is essential; not all growth channels are equally profitable or strategic
  3. Breakeven analysis reveals that drugstore expansion merely breaks even at $50M revenue (10M units × $5 price), failing to create value
  4. Customer perception research (Exhibit 5) shows Gargoyle underperforms on exclusivity and key product attributes versus competitors
  5. Diversifying distribution into mass channels can cannibalize premium brand positioning and key customer relationships