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Medium Investment Decision M&A

Bike Helmets

#Manufacturing
ProHub Comment

This case tests market sizing, valuation via comparables, and PE investment decision-making. Candidates must calculate market size bottom-up, determine acquisition price using multiples from comparable transactions, and assess returns against PE firm hurdle rates and holding period norms. The case emphasizes structured financial analysis with consideration of qualitative factors like synergies and management improvement potential.

Estimated Time 15 minutes
Difficulty Medium
Source NYU
50 / 100
Your client is a private equity firm considering purchasing a firm that makes bicycle helmets. You have been hired to help advise whether or not to make the acquisition.

Clarifying Information

TARGET COMPANY

  1. The company only sells its products in the U.S.
  2. The company currently has an estimated market share of 60% of helmets sold in the U.S.
  3. The company has had a string of ineffective CEOs
  4. The company’s helmets have an average price of $30
  5. Helmet prices are not expected to change in the future.
  6. If candidate asks about acquisition price, tell them they will get that information later

MARKET

  1. The market is mature with few new entrants
  2. U.S. regulations require all riders under the age of 18 to wear a helmet

PE FIRM

  1. Holds companies for an average of 7 years
  2. Has an return target of 10%/year
  3. Also owns a bicycle manufacturer (possible synergies unknown)