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Medium M&A Valuation Profitability Analysis

Spice Up Your Life

#PE & Food/Retail #Food/Retail #Private Equity
ProHub Comment

This case tests quantitative analysis skills by requiring candidates to analyze financial statements, identify cost optimization opportunities, and calculate forward-looking valuations using a MOIC framework. The case structure guides candidates through progressive complexity—starting with profitability comparison, moving to product-level cost analysis, and culminating in a multi-year cash flow projection and terminal value calculation. Success requires both analytical rigor and organizational skills to track multiple data points across exhibits.

Estimated Time 15 minutes
Difficulty Medium
Source ROSS
50 / 100

Our client, Seasoned Investors (SI), is a private equity firm that has just launched a new fund focused on investments in the food industry. For their first investment, they are considering acquiring Favored Flavors (FF), a spice company specializing in premium organic spices.

Favored Flavors is asking for $75M, and the offer is final. Should Seasoned Investors pursue this acquisition?

Clarifying Information

  1. Financial Targets: SI seeks a Multiple of Invested Capital (MOIC) of 2x (i.e. it seeks to earn double the value of its investment by the end of the holding period).
  2. The fund has a holding period of 4 years, at which point the fund will sell the business. SI is confident that they will be able to sell the business at 10x EBITDA.
  3. FF does not have any debt.
  4. FF sells primarily to grocery store wholesalers (not an important part of this case).
  5. A couple SI managing directors have significant experience in this industry, but SI does not currently have any other portfolio companies in the food/beverage market.