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Medium Merger & Acquisition Financial Analysis

Zoo Co

#Financial Services #Entertainment/Leisure

Practice this intermediate merger & acquisition case interview question in the Financial Services sector. Includes detailed problem prompt, clarifying questions, structured framework, and expert recommendation. Part of ProHub's 835+ consulting case library.

ProHub Comment

This case tests financial valuation, NPV analysis, breakeven calculations, and risk assessment in a creative M&A context. The core challenge involves determining whether a high-cost acquisition can generate sufficient incremental revenue, with the added complexity of evaluating a hedging insurance contract using probabilistic market research data.

Estimated Time 27 minutes
Difficulty Medium
Source Kellogg
19 / 100
Our client is a zoo that is thinking about acquiring a famous zebra from an African preserve. It’s a huge investment, but they believe the new zebra would be a great contribution to their animal community. You have been engaged to help decide whether this is a good idea. What would you consider when trying to help your client make this decision?

Clarifying Information

  1. Goal: Zoo’s primary concern is whether the zebra acquisition would be profitable. No specific timeline, but zebras do have a finite lifespan.
  2. Client Characteristics: Major zoo within the US. Majority of revenue generated through admission sales to daily zoo visitors.
  3. Competitive Dynamics: No other zoo within the local market.
Mock Interview
Interviewer

Our client is a zoo that is thinking about acquiring a famous zebra from an African preserve. It's a huge investment, but they believe the new zebra would be a great contribution to their animal community. You have been engaged to help decide whether this is a good idea. What would you consider when trying to help your client make this decision?

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
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Practice this case with AI Mock Interview

Zoo Co must decide whether to acquire a famous zebra from an African preserve. The analysis requires developing an M&A framework, calculating NPV based on expected attendance increases and costs, performing breakeven analysis, and evaluating an insurance contract to hedge downside risk. Market research suggests the acquisition is marginally profitable but risky.

Key Insights:

  1. NPV calculation reveals $155K positive value at 8% attendance increase, but breakeven occurs at only 7.3% increase—a thin margin of safety
  2. Breakeven analysis demonstrates high sensitivity to assumptions; even a 1% variance from the 8% estimate could turn the investment NPV-negative
  3. The insurance contract costs $47,520 annually but provides only $33,000 in expected benefits, making it an unfavorable risk mitigation strategy
  4. Using comparable zoo data as a proxy for attendance increases requires careful consideration of market differences and competitive dynamics
  5. Creative alternatives (merchandise revenue, cost reduction, lease options) should be explored before rejecting the acquisition outright

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