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.
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?