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Medium M&A Private Equity Investment Decision

Boxing in the Opportunity

#Private Equity #Manufacturing #Industrial Machinery
ProHub Comment

This is a structured M&A valuation case requiring candidates to build a five-year financial model from limited baseline data (current Y1 EBITDA of $10M). The case teaches the importance of understanding business model dynamics—specifically how machine sales drive downstream high-margin service and parts revenue—before jumping to simple growth assumptions. The solution demonstrates that reaching the target 3.8x return is achievable but hinges on critical assumptions about market share growth, EBITDA margin improvements toward industry averages, and portfolio synergies.

Estimated Time 15 minutes
Difficulty Medium
Source Darden
50 / 100
Our client, GS Capital, is a private equity firm looking to acquire a new operating company, CorrugatedCo., which manufactures machines that cut, form, and print corrugated boxes. GS Capital has an opportunity to purchase the company for $100M and wants to know if it’s a good idea.

Clarifying Information

  1. Financial goal, metrics, timeline: GS Capital aims to achieve a 3.0-4.0x cash-on-cash return within five years. For simplicity, assume the transaction is completely funded by equity. (If candidate is still confused – In other words, GS Capital will pay for the company entirely with cash; it wants to sell the company in five years for at least 3-4 times more than it bought it.)
  2. Geography: US only.
  3. Business model: The company manufactures large, complex machines to sell to paper and packaging companies and then is exclusive provider of after market servicing and parts.
  4. Understanding the product: Very large machine that can process 100 boxes per minute taking the box from raw corrugated board to final box you would see when you receive shipment from Amazon.
  5. Other portfolio companies: We’ll get into that later.