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case interview

How should I use this handbook? When you are invited for an interview, you can safe-
ly assume that your CV is good enough. What is
The purpose of this handbook is to serve as a source left to do is for you to show your personality and to
of inspiration during your interview preparation. We demonstrate your ability to work in a group – as well
recommend browsing through all sections of the as your analytical and problem-solving skills. One of
handbook to ensure that you are familiar with the our consultants who recently joined QVARTZ shares
various topics covered in it. At QVARTZ, case inter- her top-3 preparation tips here:
views are a part of the recruitment process for full-
time Consultants, Junior Consultants and Interns. 1. Practice problem solving in a structured way,
The contents of this handbook will, however, not be but preferably without clinging too much to
explicitly tested during the recruitment process. specific learned-by-heart frameworks. Make
sure you are familiar with the most common
types of cases

Is this handbook relevant for me? 2. Practice calculations without a calculator

(it is usually fine to use pen and paper,
If you are new to case interviews and you are pre- however)
paring for upcoming interviews, this is the hand-
book for you. If you are already a seasoned case 3. Reflect on who you are and how to best convey
solver or have read other literature on the topic, the yourself. Consider how you want to interact
handbook may be of less relevance to you. See the with the rest of the group – both in group inter-
section “Additional resources for case preparation” views and under less formal circumstances
for other recommended sources of information.
If you want to know more about our recruitment
process, go to www.qvartz.com/career. Here, you
can also find information about open positions and
Should I prepare before the interview upcoming recruitment deadlines.

Very few make it successfully through manage-

ment consulting interviews without preparation,
and we therefore strongly recommend that you take
the time to prepare as this greatly improves your
chances of securing a job offer. The vast majority of
successful applicants across all management con-
sulting companies have prepared by reading up on
cases, practicing with friends and brushing up on
their mathematical skills.

Table of contents

QVARTZ: Nordic heritage, global reach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

The case interview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Types of case questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

How to open and close a case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Frameworks for business cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Profitability framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Industry analysis framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Mergers & acquisitions framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Product strategy framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Additional resources for case preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Quantitative preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Example cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

QVARTZ: Nordic heritage,
global reach
QVARTZ is a management consulting company with Getting your head around what management con-
Nordic heritage and global reach. Our purpose is sulting is all about can be difficult. At QVARTZ, we
to inspire, deliver and demonstrate “next practice” aspire to deliver results and build relationships in
leadership and organization. Our civilization con- everything we do. Through a combination of rigor-
sists of passionate and empathetic people, intro- ous analyses, solid experience and deep industry
verts and extroverts, business profiles, economists, insight, we help our clients improve their business
engineers and scientists. Together, we tackle and – whether this requires reducing costs, maximizing
solve complex problems and make others shine in investments or restructuring the organization.
the process.
As a consultant with us, you will work closely to-
QVARTZ was founded in 2002 with a relentless gether with the client and your team. Being a good
desire to create a tier-one original in manage- management consultant is therefore not only about
ment consulting with less dependence on standard having the black belt in problem solving. It is equal-
methodologies and more emphasis on listening and ly important to be able to understand your client’s
giving advice based on the client’s specific challeng- business and culture, and to be able to work with
es and opportunities as well as our specific insight and motivate different personality types in different
and experience. Today, we follow our clients around team structures.
the globe from our offices across Europe, the U.S.
and Asia, constantly exploring new opportunities to
strengthen our relevance.

The case interview
What is a case interview? 2. Would you work well with us and our clients?

In a case interview, the interviewer will present you Management consulting is based on teamwork. Your
with a challenge faced by a company. You are asked ability to interact with others and your communi-
to analyze and solve the problem through a discus- cation and presentation skills are therefore of great
sion with the interviewer. The majority of case in- importance. The interviewer wants to learn if you
terviews are based on real client projects, and the are tactful and approachable, and how you handle
interviewer may therefore have additional knowl- constructive input. Additionally, he or she wants to
edge or information to draw upon during your dis- evaluate if you present your arguments in a clear
cussions than that which was initially presented. and concise manner that would be easy for a cli-
ent to follow. Do not be afraid to show that you are
human; a welcoming and attentive attitude goes a
Why case interviews? long way.

Consultants tackle and solve problems. Case inter-

views are an effective way of simulating the kind of The group case session
problems we encounter on a daily basis. They pro-
vide a fast and concrete way for us to understand The group case session is designed to give you
how you frame and solve ambiguous business prob- an opportunity to show how you work with
lems. In addition, they also give you an opportunity peers to challenge problems. In addition to the
to gain a better understanding of the work we do as problem-solving approach, teamwork along with
well as whether a career in management consulting effective communication and the ability to show re-
is for you. spect and empathy will be evaluated. Throughout
the group case-solving process, an interviewer will
listen in on the group’s communication to observe
What do we look for in the case how its members interact, and continuously provide
interview? feedback.

The case interview is designed to test skills that are

common to almost all consulting companies, though
they may be described and weighted a little different-
ly in different places. During case interviews, the in-
terviewer is looking to answer at least two questions:

1. Would you thrive when solving our clients’


The interviewer will assess your ability to combine

skills such as logical reasoning, creativity, quantita-
tive skills and business acumen as well as your abili-
ty to put it all together in a structured way.

Types of case questions

Interview cases generally fall into two categories, (1) Approaches

Estimation or market-sizing cases and (2) Business
cases. At times, the interviewer may also ask you to A) Extrapolation
include a market-sizing question as part of a larger One approach is to extrapolate a metric from one
business case. element against an entire population. As an illustra-
tive example, you could answer the question “How
many gas stations are there in Sweden?” by extrap-
olating your knowledge about the number of gas
1. Estimation or market-sizing cases stations in your local region against the whole coun-
try. (E.g. three gas stations per 50,000 inhabitants
In estimation or market-sizing cases, you are asked in a given city would bring you to 600 gas stations
to estimate a quantity that you will not likely know across Sweden, assuming a population of 10 million
in advance. Examples of estimation case questions people).
are: “How many gas stations are there in Sweden?”,
“How many trains are in motion in the Singapore B) Segment-by-segment breakdown
metro system right now?”, or “What is the value of An alternative approach is to isolate the estima-
all coal produced in the U.S.?” tion per segment. Visually, you could do your cal-
culations in a table format, which makes your work
Typically, there is not one correct answer. The pur- well-structured and easy-to-follow. As an illustra-
pose of these cases is to understand how you work tive example, you could answer the question “How
logically through a mathematical problem, make many diapers are sold in Singapore each year?” by
reasonable assumptions and interpret mathemati- segmenting Singapore’s population by logical age
cal results. While you cannot prepare for the exact groups and then making sound assumptions of
problems, there are a few things to think about and the average amount purchased per capita for each
possible approaches you could consider. group.

C) Driver breakdown
A third approach that works well for many estima-
Communicate your approach tion or market-sizing cases, especially the more
unconventional ones, is the driver breakdown ap-
Before you dig into the details, it is a good idea to proach. Here, you begin with the key metric and
think through your mathematical approach on a systematically decompose it into its corresponding
high level and then briefly communicate it to the in- drivers. Keep attempting different decompositions
terviewer. In that way, the interviewer can give you until you find that the subcomponents are manage-
an indication of whether you are on the right track able to make your assumptions on. As an illustra-
from the start or intervene and help you change di- tive example, you could answer the question “How
rection before you spend time on an approach that many golf balls are in the air in the U.S. at 11 a.m.
may not work out. on a Saturday morning?” by breaking it down into
its subcomponents “number of golf balls in the air
per course” times “number of courses in the Unit-
ed States”, and subsequently breaking those down

2. Business cases

The business case interview is by far the most com- You can significantly increase your chances of be-
mon type of case interview. A business case inter- ing successful in a business case interview by prac-
view begins with the interviewer presenting you ticing. The opening and closing of the case are fairly
with a challenge or opportunity faced by a company generic practicing how to open will get you off to
and asking you to analyze and resolve the situation a good start and practicing how to close will make
through a discussion with the interviewer. your wrap-up more concrete and concise. The mid-
dle part is more difficult and requires more natu-
Business cases are designed to simulate real-life ral talent, yet there are a number of methods and
consulting projects, and sometimes the interview- frameworks which can help you along the way when
er may even roleplay one or several “characters” in- you practice case interviews.
volved in the case to get as close to a real project as
possible. He or she could provide you with relevant The following pages contain a selection of approach-
data upon request — or — after a given section of a es and frameworks that might inspire you in your
case, ask you to analyze or investigate certain top- case solving. But keep in mind always to adapt your
ics. The types of topics vary; you may for example thinking. Interviewers look for candidates with busi-
investigate how to make a company’s distribution ness acumen who are able to develop high-quality
chain more effective, how to best enter the Brazilian frameworks on their own in contrast to merely re-
soda market or how to make use of overcapacity in peating rehearsed frameworks. The key takeaway
a car manufacturing facility. is to use frameworks as a source of inspiration, but
not to force-fit a case into one just because you are
The purpose of this type of case is to understand familiar with it.
several of your competences: the depth of your
business acumen, how you structure and prioritize
issues, how you handle different types of informa-
tion and your overall fit with the type of work that
we do.

Typical business cases you could be presented with

Strategy Organization Operations

• Increasing market share • Incentive systems • Cost-out

• Market entry strategies • Organizational design • Strategic sourcing
• M&A transactions • Roles and responsibilities • Supply chain optimization
• Starting a new business • Post-merger integration • Production capacity change
• Competitive response
• Pricing strategies
• New product strategy

How to open and
close a case
Receiving and gathering Summarize the process and
information synthesize

• Listen carefully to the question and confirm Either the interview comes to a natural close when
that you have fully understood the assignment you feel that you have solved the problem, or the
or problem faced by the client. A good way to interviewer steers you in that direction because time
check is to paraphrase the question back to the is running out. Regardless, a good close is one of
interviewer. Take notes, especially if you are pre- the most crucial parts of the interview. At this point,
sented with data you have hopefully asked all the questions you want
and performed your analysis. So where do you go
• Ask clarifying questions if necessary. Even the from there?
most obvious questions are sometimes appro-
priate to ask, and asking provides you with more • If you feel you need to, take a moment to collect
time to think your thoughts

Process information and present • Try to quickly take your interviewer through the
your approach analysis and your most important findings

• Ask for time to collect your thoughts and struc- • Answer the question! If there is a clear question
ture your analysis. Often the interviewer leaves at the beginning of the interview, do not forget
the room to give you some time, while at other to answer it. If the question is whether or not to
times, the interviewer may stay in the room – in enter a specific market, your conclusion should
either case, do not feel stressed and take the be just that, whether to enter it or not. Not all
time you need cases are the same, but you should always focus
on making your conclusion as action-oriented
• Present to the interviewer how you are going as possible
to approach your analysis. This is very impor-
tant and often forgotten. Be a good listener; • Lastly, back up your conclusion with support-
the interviewer might give you hints on where ing arguments. Try not to include too many,
to go first or whether you should rethink your but rather spend time on the ones that you find
approach altogether. If this is the case, ask for most important to your overall conclusion
another minute to collect your thoughts

Frameworks for
business cases
You will quickly find frameworks if you start looking
around for materials on management consulting in-
terviews. Frameworks are tools for you to use when
structuring your problem solving in a case interview.
Sometimes, they could also just be a checklist to
avoid missing the most important steps in the pro-
cess. You should keep in mind that a case question
rarely turns out to fit perfectly into a predefined
framework – instead you will have to adapt your ap-
proach and use the framework more as the back-
bone of your analysis. In the following pages, you
will find four useful frameworks.

Profitability framework

In many cases, you will be expected to analyze the competitors’ because our brand is the weakest in
profitability of a company at a more granular level. the industry, but is it possible to improve it through
The profitability framework helps you to systemati- investment?).
cally break down the profitability drivers. Your goal
is often to isolate significant historic developments
(e.g. the cost of raw materials has been surging), Segment your analysis
benchmark profitability drivers with competitors
(e.g. our prices are lower than our competitors’), and Think of different ways to segment costs and
evaluate opportunities (e.g. is it possible for us to in- revenue. During a real project, you will have
crease profits by boosting sales of product A?). The time to investigate several different ways of
key to solving these cases is often to understand the segmenting, but in a case interview, the inter-
underlying mechanics that produce any anomalies viewer often has a preferred segmentation.
in the numbers (e.g. our prices are lower than our



• Decompose by applying appropriate • Decompose by applying appropriate segmen-

segmentation, e.g. tation (e.g. by looking at revenue)
• Decomposing according to the value chain is
–– Business units another powerful way of analyzing costs, e.g.
–– Customer types
–– Large vs. small customers 1. Raw materials
–– Geographies 2. Inbound logistics
–– Product types 3. Production costs
–– Sales representatives 4. Sales and distribution costs
–– Etc.
• Do not forget overhead costs
(e.g. administrative, IT and marketing costs)


• Identify increases or decreases in components (e.g. has “units sold” gone up, down or stayed consistent)
• Understand if trends are company-specific or an industry-wide problem

Industry analysis framework

The industry analysis framework is designed to help you gather information on a company’s external environ-
ment. At first glance, it may appear overwhelming, but many of the elements are likely already familiar to you.


• Industry growth
• Business life cycle
• Is the industry cyclical, stable or counter cyclical?


Client Competitor A Competitor B ...

Market share


(differentiation, packaging, prices, etc.)

Other drivers
(brands, loyalty, etc.)



• Suppliers • Economies of scale

–– Have their costs shifted? • Is there a better technology?
–– Bargaining power? • Can we change our staff?
• Raw materials • Is outsourcing a possibility?
–– Has the price changed?
–– Is the economy affecting prices?


• What is the channel mix? • B2B or B2C?

• Distributors • Preferences
–– Have their costs shifted? –– Product
–– Bargaining power? –– Distribution
• Sales personel –– Price
–– Are there large differences in competences? • Has the bargaining power shifted?
–– Is the right incentive system in place?
• Marketing



• New players in the market or new players entering? • Can we change the mode of transportation to be more effective?
• Substitute products? • Can we manage inventory more effectively?
• Is the market getting consolidated?

Mergers & acquisitions
This framework is seemingly quite narrow in scope and perhaps not as important as the other frameworks.
It is, however, common for transactions to come up in business case interviews, and it is a good idea to have
thought them through in advance, especially if you have no previous experience from transaction work or


• What does the client do? • Can the client afford the company?
• How do the finances look? • Is the price fair?
• Potential reasons for M&A • Are there any benchmark transactions?
–– Increase market share or access • How will the transaction be financed?
–– Economies of scale or scope • What is the expected return?
–– Learning-curve advantages
–– Diversification
–– Pre-empting competition
–– Tax reasons


• Use a light version of the industry analysis • Does the client expect to make an exit?
framework • For how long is the client going to hold the
• How is the client planning to sell the company?

Product strategy
This framework is similar to the industry analysis framework, but with some important differences
and additional issues.


• How does the product and its features com- • Does the client sell similar or competing prod-
pare to competing alternatives? ucts today?
• Is there an intended price level for the prod- • Does the client benefit from economies of
uct? If no, consider scale or scope?
–– Cost-based pricing • Is there a risk of cannibalization?
(Applying a margin on top of costs) • Does the client have the capabilities necessary
–– Market pricing to introduce the product (e.g. technical know-
(Based on prices of competing products) how, financing, operational set-up, suppliers)?
–– Value-based pricing
(What are customers willing to pay?)
• Is the client’s technology protected by


• Who are the target customers? • What is the revenue potential?

• Are there different customer segments (e.g. • What are the corresponding costs?
businesses vs. consumers)? • Are there any capital expenditure requirements
• Is there an overlap with the existing customer to consider?
base? • What is the break-even volume?
• What are the customers’ key purchasing • What would be the expected payback period?
• Does the client have an appropriate distri-
bution set-up (e.g. retail sales, internet sales,
direct sales reps or distributors)?

Additional resources for
case preparation

www.caseinterview.com A recent and popular case site developed by a

former consultant.
The site includes a range of materials containing
useful and concentrated frameworks and case tips.
The materials come in the form of videos and PDFs
and are typically free of charge. However, beware
that the site is designed to encourage you to make
large add-on purchases which are not necessary
for your interview preparation.

Case Interview Secrets Same as above, in book format.

Author: Victor Cheng

How to Get Into the Top Consulting Firms: A book written by a VP of a large American
A Surefire Case Interview Method consulting firm.

Author: Tim Darling The book offers a condensed overview

of how to create problem-solving structures and
communicate like consultants. It also provides
ten well-written practice cases.

Case in Point One of the most frequently used case preparation

Author: Marc Cosentino books.
The book contains detailed descriptions of case
interviews and samples of how a case interview
may play out.

The Pyramid Principle Almost all consultants have a copy of this book.
Author: Barbara Minto This is not a typical case interview preparation
book, but reading it will provide you with a solid
understanding of how consultants work with
structure and communication.

Quantitative preparation

Most management consulting companies put em- How are you tested quantitatively?
phasis on a candidate’s numerical capabilities and
strive to test these in one way or another as part of Normally, you will be tested on
the recruitment process. Numerical skills are easy to
improve with practice, and we strongly recommend • Your ability to make computations accurately
that you set aside some time for practicing numeri- and efficiently without a calculator
cal accuracy and speed by repeating basic arithme-
tic operations. • Your ability to develop and communicate a
numerical model

• Your ability to interpret quantitative measures

Why are you tested quantitatively? and data

We need to be confident that every team member

is able to structure and carry out quantitative anal-
yses. Most client recommendations are based on
quantitative evidence. It is crucial to be comfortable
with numerical estimations and arithmetics as these
are a cornerstone of a consultant’s sanity-checking

Estimates & mini cases

Estimates Mini cases

1. How big is the market for home delivery of 1. The Swedish prime minister has asked for a
newspapers in New York City? meeting with you, inquiring about what the
government can do to improve the business
Key: Number of households in New York City, share climate in Sweden for life science companies in
of households that subscribe to a newspaper (seg- the next 25 years.
mented by interests, education, age, income or
other), number of subscriptions per household (seg- Key: You should be able to reason about core char-
mented by interests, education, age, income or oth- acteristics of the industry
er), frequency of delivery (magazine, journal, daily).
• Life science firms are typically protected by pat-
Delivered newspapers in New York City per day ents for long periods. In countries where patents
multi-plied by days in a year to detect volume, mul- are upheld for a longer time and easier to obtain,
tiplied again by cost per delivery to find market size. drug development is more attractive.

• Life science is a knowledge-intensive industry,

and the key to success is having access to a
2. What is the market size for exterior house skilled workforce. A necessity is strong educa-
paint in North Carolina? tion or beneficial conditions for expats to work
in the host country.
3. How much tea is consumed in China every day?
• Due to long pipelines between drug discovery
4. What is the collective amount of money spent and market launch, life science firms will require
on domestic flight travels per day in Germany? significant start-up funds. Access to investors for
smaller firms is essential.

2. Can you valuate 10,000 hectares of forest, how

would you do it and on what parameters do
you base your valuation?

3. The biotechnology industry is one of the most

profitable industries, whereas airlines have had
low returns for decades. Why do you think this
is the case?

4. You are asked to do the advertising campaign

for a new best-selling action movie. You have
USD 100 million to spend. How, and through
which channels, would you market it?

Example cases

The juice case

Interviewer Our client, a China-based private equity fund, is considering an acquisition of a Singa-
porean company that produces freshly squeezed juice. We have been invited to help the
client evaluate the attractiveness of such an investment. What are the key elements for
us to look at?

Candidate Just to be clear, are we talking about a retail juice chain or a wholesale juice manufacturer?

Interviewer Good question, we are evaluating a manufacturer/wholesaler.

Candidate Interesting, let me think about my approach for a short while.

Interviewer Sure, I’ll be back in a minute or two …

The interviewer walks out of the room and returns a couple of minutes later

Candidate All right! On a high level, I would like to understand

1) The attractiveness of the market in terms of size and growth

2) The competitive landscape and the target company’s competitive position
3) The company’s current business portfolio and its performance

Interviewer Okay, that sounds appropriate. Why don’t you start with the size and growth of the market?
How would you estimate the size of the Swedish juice market?

Candidate Okay, let me take a minute to think through my approach.

The candidate thinks for about a minute and resumes the conversation

Candidate In order to estimate the market size in terms of value, I need to look into the drivers of
market value, which are (a) yearly juice consumption in liters and (b) price per liter. I’ll start
with the consumption.

Interviewer Okay, good. It sounds like you have a good overall approach, but I would like you to re-
fine your structure a bit; what do you think is an appropriate customer segmentation to
find out how much juice is consumed every year?

Candidate Hmm, we could segment the consumers into different categories both in terms of behavior
and in terms of age groups.

Interviewer Sounds good!

Candidate Let’s start with the behavioral parameters. Since we’re only focusing on the wholesale
market, I’ll look at the consumption of pre-bottled juice. This is more or less the same as
breakfast consumption, according to my experience. Let’s create three types of breakfast
juice drinkers; a) everyday drinkers, b) occasional drinkers and c) non-drinkers. I assume
that the weekly consumption within the three groups is: a) 7 glasses (1.5 liters), b) 2-3
glasses (0.5 liters) and c) nothing.

Interviewer Great, then you mentioned that you were going to analyze age groups. How?

Candidate In addition to the behavioral aspects, I believe that age is relevant due to different life
styles. I think that the share of people who belong to the different behavioral groups (a,
b and c) varies with age. I would like to start off by defining the age groups: 0-20 years,
20-40 years, 40-60 years and 60-plus.

Interviewer Okay, tell me why you chose those age groups?

Candidate Hmm, I get your point; I need to explain the rationale for defining different age groups
which must be connected to the different lifestyles I was talking about.

Interviewer That’s right!

Candidate OK, so 0-7 is the first group and I assume they do not drink juice at all. The next group is
7–20 as they typically live at home with their parents and are not buying juice themselves.
Based on my experience, half of these people do not drink juice at all, in fact many of
them don’t even eat breakfast. I assume 25% drink every day, and the rest drink a couple
of times per week. The next group is 20-65, which is basically the working population. If
I look at my friends and family, there are about 50% who do not drink juice at all. Then I
think there is a slightly higher share of everyday drinkers than in the 7-20 age group. Based
on my experience, I assume 30%, which leaves us with 20% drinking occasionally. Finally,
in the group 65-plus, I think the share of everyday drinkers goes down a bit due to lower
income, I assume 20%, and I think the non-drinkers are still about 50%, leaving us with 30%
occasional drinkers.

Behavioral distribution Weekly liters/behavioral type

Ages Number of Everyday Occassionally Never Everyday Occassionally Never Total week Total yearly
people consumption

0-7 550,000 0% 0% 100% 1.5 0.5 0 - -

7-20 1,100,000 25% 25% 50% 1.5 0.5 0 550,000 28,600,000

20-65 3,300,000 30% 20% 50% 1.5 0.5 0 1,815,000 94,380,000

65-plus 550,000 20% 30% 50% 1.5 0.5 0 247,500 12,870,000

Total 5,500,000 2,612,500 135,850,000

Interviewer Excellent, what do you do next?

Candidate Let’s continue with (b), price per liter. Based on my experience from the grocery store, a
package of juice is about SGD 2 per liter …

Interviewer Okay, but before you do the calculation, I would like to ask you – there is an element
you’re missing, can you think of what it is?

Candidate Ah! Yes, since we’re talking about a wholesaler, my price includes a retailer mark-up which
should not be considered in the wholesaler market.

Interviewer Yes, that’s it. There’s also another consideration. What do you think that is?

Candidate We are only talking about one juice type here. Maybe we should consider different types
of juices?

Interviewer Yes, what would that mean?

Candidate That we get different prices for different juices; I would say that there are three basic types
with different price levels; high-end, low-end and private-label.

Interviewer Exactly, I’ll help you out and give you some numbers.

The candidate runs the numbers based on an assumed retail price and calculates
backwards to find out the wholesale price

Volume in Retail price Price/liter to Total value

Share of sale VAT Retail mark-up
liters (SGD) Retailer* (SGD)

10% 13,585,000 10 7% 20% 8 108,680,000

65% 88,302,500 2 7% 20% 2 176,605,000

Private-label 25% 33,962,500 5 7% 60% 3 101,887,500

Total 100% 135,850,000 387,172,500

*The prices have been rounded off

Candidate Okay, so given these price levels, I arrive at approximately SEK 3 billion in wholesale value.
In terms of weaknesses of the estimation I would say that the consumption assumptions
are the ones that I’m least comfortable with. If I had more time I would dig deeper into that.

Interviewer What do you think of SGD 387 million? Is it realistic?

Candidate Well, a simple sanity check is to find out how much that would be per person per week,
and it is about SGD 1.4 plus retail mark-up across the entire population. To me, that sounds
reasonable, which would make SGD 387 million a realistic estimate.

Interviewer Okay, it sounds like you have thought this through. Assume for the rest of the case that
your estimate of SGD 387 million is correct. So, what’s next?

Candidate Next, I would like to look at the market growth and if we have any information on whether
it is set to grow in the years ahead.

Interviewer Okay, you can assume that the market has been declining by 4% per year over the past
five years and is set to continue to do so over the next five years.

Candidate Is that 4% in real decline or nominal decline?

Interviewer Good question, assume it is 4% in nominal decline.

Candidate Okay, so is it fair to assume that we can expect even more than 4% real decline in the next
five years?

Interviewer Yes. So where do you want to go next?

Candidate Next, I would like to analyze (2) the competitive landscape and the target company’s com-
petitiveness to see if it might have some kind of unique position in a particularly attractive
sub-segment because overall, the market does not seem very attractive.

We will wrap up the case example at this stage. We do, however, encourage you to try and think what your
approach would have been in mapping the competitive landscape, and how you would have proceeded in
analyzing whether we should recommend to the private equity fund to acquire the company or not.

The space case

After years of engineering work, you finally have the world’s first commercially viable
spacecraft. It cost you EUR 50 million to build. From its launching pad outside Paris, it
can take a load of up to 12 passengers into space, orbit earth and then return safely eight
hours later. There are no safety concerns whatsoever. The spacecraft can do three trips
per week and the operational costs related to each trip (salaries, fuel, maintenance) are
EUR 75,000. There are no competing products, and the design is effectively protected
by patent rights for the next 25 years. It will take you three years to build an additional

My question to you is: how would you take the product to the market in the next three
years before you could have another spacecraft?

Candidate So we’re talking about a commercial spacecraft here? Our goal is to push this thing to the
market, right? Okay, let me make sure that I caught all the details in the data.

• In terms of costs, we have invested EUR 50 million, and each round

trip costs us approximately EUR 75,000

• We can do three trips per week, so basically 150 trips per year, and
each trip can carry 12 passengers

• Our technology is completely protected for the next 25 years

Did I get all that right?

Interviewer Yes, that’s right. What I want you to start with is deciding on a couple of areas that you
would like to investigate further.

Candidate Okay, give me a minute and I’ll collect my thoughts a bit.

The candidate takes around three minutes and then resumes the conversation

Candidate All right -— there are a couple of areas that I would like to explore, which fall into three
main categories

1) What’s the market for commercial space trips?

2) What are the finances behind the operation?
3) How do we market the space trip?

My primary concern with area (1), the market, is that I want to understand the product and
situation a bit better. My hypothesis is that the demand is rather high in relation to our
supply …

Interviewer Well, the demand would depend on the price, right?

Candidate Yes, of course you’re right. I would like to explore the dynamics of the market by

(1.1) Who are our potential customers? What are the segments? What are their
considerations when buying a ticket?

(1.2) How big is our market? What I would like to figure out is whether we
can fill our capacity or not.

(1.3) What is the competition like? I.e. are there any substitutes?

For (2), finances, I would like to do a break-even analysis to understand whether it’s a prof-
itable idea, and if yes, how much room do we have left for marketing?

For (3), marketing, I don’t have a clear idea yet. But we’ll dig deeper into that later.

Interviewer Good. I would like to hear your thoughts on topic (1.3), competition, what do you think?

Candidate Well, I don’t know of any other space trips, and I guess it is safe to assume that no one else
will develop such a concept in a three-year period?

Interviewer You are right, and in addition, I did mention that there are no competing products,

Candidate You are right, I forgot to note that down.

Interviewer No problem, so what about substitutes?

Candidate Good question, the closest thing I can think of is different types of leisure trips, which
aren’t really comparable to this, if you ask me. My hypothesis is that there are no real sub-
stitutes. I mean, what compares to travelling to space?

Interviewer I agree. Let’s assume there are no substitute products either, so effectively there is no
competition of any kind for the remainder of the case.

Candidate Okay, then I would like to continue with the first branch of the analysis: (1.1), customers,
who are they in this situation?

Interviewer Well, what do you think?

The candidate takes about half a minute to think before he proceeds

Candidate This is a bit tricky because I would assume that the vast majority of the human population
would be interested in travelling to space – but, as we concluded, this depends on the tick-
et price. For example, I would definitely go for EUR 100, but maybe not for EUR 1 million
in my current situation. The key takeaway here is that: the higher the price, the fewer the
people who would be interested in a ticket.

Interviewer Yes, of course. Can you look at the customer group and price issue from another angle
perhaps? Let’s assume we are looking at the market for the next three years.

Candidate Ah, yes, we could look at how many tickets we could possibly sell per year and divide this
by the number of inhabitants in the world. I think this can give us a clue as to how much
we can charge for the tickets.

Interviewer Okay, let’s explore that.

Candidate We have around 150 trips per year, with 12 passengers each, which adds up to 1,800 seats
per year to fill. Considering a world population of 7 billion people, this corresponds to less
than one person in a million. Given that, I think it is safe to assume that we could charge a
lot for these tickets. I mean, one person in a million is quite a small group of people.

Interviewer That sounds reasonable, with that in mind, I would like you to go into issue (2), the
finances, and run some numbers on the break-even price for the first three years.

Candidate All right, we have two cost components that I noted down during the introduction of
the case: the initial investment costs and the round-trip costs. I’m not completely sure of
whether we should consider the initial investment as a sunk cost or use it in the break-even
analysis. My suggestion is that we should include it.

Interviewer Great! Do that.

The candidate writes down his calculations on a piece of paper

Candidate Okay. I will translate both costs into costs per seat, so given that and assuming there are no
additional costs, the investment costs of EUR 50 million will be EUR 16.7 million per year,
and a little less than EUR 10,000 per seat, let’s assume EUR 9,500. The round-trip cost of
EUR 75,000 becomes EUR 6,250 per seat since we have 12 seats. So, in total we have a
cost per seat of around EUR 16,000, which would be our price if want to break even after
three years.

Interviewer Okay, what does that tell you? That we should charge at least EUR 16,000 per ticket?

Candidate It completely depends on the circumstances. If the useful life of the spacecraft is three
Years, we would have to charge significantly more to make a good profit, but if the useful
life is longer, it could be a viable option to charge the 16 thousand.

Interviewer Good thinking, unfortunately we don’t have any information on the useful life right now
so let’s leave it at that. But what about EUR 16,000, how do think that ticket price
Well, since we’re looking at the “one-in-a-million-most-willing-to-pay person” as our cus-
tomer group, I think that it’s safe to assume that we can charge at least that. EUR 16,000
is a lot, but I’m confident we could sell the tickets at least at that price. As I mentioned
before, however, I think we should make a large marketing campaign to build some mo-
mentum around the demand so we might want to add a bit of a margin on top of that EUR
16,000 if we are to break even including that in three years.

Interviewer That is true. We should probably try to make a splash before the launch, but at the same
time, a big attraction like this might almost sell itself, don’t you think?

Candidate Well, yes, you might be right, but we should still ensure that the word gets out there so we
don’t risk not filling the seats during the first weeks before the word spreads.

Interviewer Okay, so what are your ideas on marketing?

We will wrap up the case example at this stage of the case. We do, however, encourage you to consider
what your approach would be for a marketing campaign for the first commercial space trip.

Vertical Windows

Interviewer Our client, the Swedish window manufacturer “Vertical Windows”, is considering en-
tering the German market. The company has an annual revenue of EUR 600 million and
is currently the market leader in Sweden and one of the top 3 in Denmark and Norway
– 90% of its sales are within the Nordic region. Vertical Windows also has sales and pro-
duction facilities in the UK.

What aspects do we need to look into in order to evaluate whether entering the German
market is an attractive opportunity for Vertical Windows?

Candidate Ok, let me think about how to approach this issue for a moment.

Interviewer No problem. I’ll grab a coffee and be back in a couple of minutes.

The interviewer returns to the room after a short break.

Candidate To assess how attractive it would be to enter the German market, I would start by looking at:

1) The size of the German market

2) Market growth – to better understand the dynamics
3) Current profitability in the industry, if information is available
4) Vertical Windows’ product offering versus current market demandd

Interviewer Good, it sounds like an approach that can provide useful insight to get us started. How
would you estimate the size of the German market for windows?

Candidate First, I would start by estimating the number of households in Germany to get an idea of
the total number of windows sold. I know that the population in Germany is roughly 80
million. Assuming that each household counts, on average, two people, this would give us
a total of 40 million households.

Interviewer The assumptions you have made so far are fairly accurate, but maybe we should slow
down a little bit and try to structure our approach a bit more, so that we don’t miss out
on any important details? For example, would private households represent the only
potential market for a company selling windows?

Candidate Yes, of course. In addition to the residential market, we also have to consider the
non-residential market. Maybe I should set up an issue tree to make the analysis more

Interviewer I think that’s a good idea!

Candidate sketches a simplified issue tree on his paper

Residential market

Market size
Non-residential market

Market growth

Attractiveness of the German market



Candidate I use the four elements initially mentioned as the base of my issue tree, and I will continue
down the “market size” branch first. I would like to complete the analysis of residential
property before moving on to non-residential.

Interviewer That’s fine.

Candidate So, if we have 40 million households, these can be split into flats and houses. Is it fair to say
that the split could be 50/50 between family houses and apartments?

Interviewer Sounds fair, so let’s go with that.

Candidate Great, obviously houses would have more windows than apartments, so this has an in-
fluence on our total number of windows. I would say houses have, on average, twice the
number of windows compared to those of apartments. Perhaps 10 windows per house and
5 windows per apartment are reasonable estimates?

Interviewer I agree that those numbers sound reasonable.

Candidate Then that would give us a total residential market size of: (20 million apartments x 5 win-
dows) + (20 million houses x 10 windows) = 300 million windows in the residential market.
I think the residential market is larger than the non-residential market by a decent margin.
Perhaps 2/3 of all windows are residential and 1/3 is non-residential?

Interviewer Sounds reasonable. Anything else we need to consider here? Would this be the total
market size – and what does this number actually imply?

Candidate Given that we have estimated the residential market to 300 million windows, the total
market would amount to about 450 million windows. However, windows are normally not
changed every year, so annual sales would not be 450 million windows. I do not know too
much about windows, but is it fair to say they are changed, on average, every 20 years?

Interviewer Don’t worry! This is not a test of your knowledge of the lifetime of windows, but I would
say your number is a bit low and that a better estimate would be 30 years. What else do
you need in order to get an idea of the total annual sales?

Candidate Thanks! So, this would give me a number of 15 million windows sold in Germany every
year. To estimate annual sales, I would need the average price of a window. Does EUR 400
sound like a fair guess?

Interviewer EUR 400 per window sounds like a good estimate.

Candidate Great! Then that would give us total annual sales of 15 million windows times EUR 400,
which makes the annual sales worth EUR 6 billion.

Interviewer Does that number make sense to you?

Candidate Vertical Windows currently has revenues of 600 million from sales in the three Nordic
countries. Altogether, the Nordic countries are about one quarter of Germany in popula-
tion size; following the same reasoning as before, this means that the total Nordic market
should be about 1.5 billion. With a market share of 40%, Vertical Windows could be making
600 million in sales. So, given this, I would say the estimate is within the ballpark.

Interviewer That was a good approach to check your estimate. Let’s use 6 billion as the market size
for Germany. What should we look at next?

Candidate Next, I would like to look at growth: How has the market developed historically, and are
there available predictions for the upcoming years?

Interviewer The market has been, and is predicted to remain, stable.

Candidate Ok, then I think it’s safe to say that there will be no change in market size. Next, I would like
to look into the profitability of the industry – do we have any data on this?

Interviewer Yes, we do. Looking at the largest players in Germany, they are currently operating at a
lower profitability than that of the Nordic countries.

Candidate Ok, I would need to continue my investigation into whether Germany would be a good fit
for our client’s company.

Interviewer I think that’s a good idea. How would you do that?

Candidate First, I think it would be interesting to look at the competitive landscape to see if the mar-
ket is fragmented or consolidated. Second, I would ideally like to see if the company has
any kind of competitive advantage it can benefit from.

Interviewer We actually have some data on the competitive landscape.

The interviewer hands over the following diagram to the candidate.

The European Vertical Windows market split by market share

European Vertical Windows market

100% – total market size

100% 100% 100% 100%

Market share of top-3
20% players in the market






Sweden Denmark Norway Germany

Candidate It looks like the German market is much more fragmented than the Nordic markets, which
indicates that there are no large players dominating the market, but rather a lot of smaller
players. This might actually be good for our client, since there is no player that can easily
start a price war to keep our client out of the market.

Given that the current competitive landscape looks fairly good, I think we should look into
our client’s product portfolio to see if there are any pockets in the market that look obvi-
ous for it to take advantage of.

Interviewer Let’s do that!

Interviewer provides data.

The European Vertical Windows market split by market material

European Vertical Windows material

100% – total market size


47% 50%

6% 4%

40% 53%
42% 41%

7% 4% 4%

Sweden Denmark Norway Germany Vertical Windows

Candidate My first observation is that Vertical Windows currently does not offer windows in the seg-
ment that is the largest in Germany, PVC. This is an immediate concern, as it reduces the
addressable market by 41%, unless Vertical Windows would be able to broaden its portfo-
lio to also include PVC windows.

Interviewer I agree that it reduces the addressable potential of the German market, but do you per-
ceive it to be a reason not to enter the market?

Candidate No, I would not dismiss the German market based on this information, since Vertical Win-
dows’ strongholds are “wood” and “aluminum”, which still account for 54% of the German
market. Furthermore, Vertical Windows has a somewhat similar situation in Denmark and
Sweden, where wood/aluminum represents roughly 50% of the market, but constitutes
only 10% of Vertical Windows’ total sales.

Interviewer I think you’re right that we shouldn’t dismiss the German market simply because Verti-
cal Windows cannot address the entire market. To help you in the continuation of your
analysis, we have also been provided with some data on the price levels of the different
window types. Does this new data cause you any further reflection regarding the attrac-
tiveness of the market?

Price level by window type

Price levels by material




PVC Aluminium Wood Wood/Aluminium

Candidate Well, Vertical Windows sells mainly the slightly more expensive windows, which indicates
that its value proposition is that of a premium brand rather than an economy brand. As
a premium brand, you will typically have greater margins and be less dependent on high
volumes, making the fact that Vertical Windows currently can address only 54% of the
German market less troubling. In fact, this convinces me that the German market does
have an attractive pocket that Vertical Windows should address by trying to enter the
market as a premium brand.

Interviewer Exactly. So how would you sum up the analysis at this point?

Candidate Based on the provided information and the conducted analysis, I would say that entering
the German market is a potential next step for Vertical Windows. This conclusion is based
on the attractiveness of the market in terms of its size and competitive situation. Further-
more, Vertical Windows’ main segments constitute 54% of the German market, which rep-
resents a significant pocket to tap into.

Interviewer Vertical Windows actually reached the same conclusion that you did in your analysis.
They have started to develop a market-entry strategy for Germany, and they have also
started talking to a German window manufacturer, which they think may represent an
interesting acquisition target

We will wrap up the case example here. However, we do encourage you to reflect on which approach would be
useful in order to analyze the potential acquisition as a means for supporting Vertical Windows’ market entry.

The newspaper case

Interviewer An American newspaper company has approached us to assist them in improving their
profitability. They are currently operating at a break-even level of USD 200 million per
year and would like to reach a 10% margin by the end of next year. You have been as-
signed to determine whether there are any cost savings to be made.

Candidate OK! So, if I’ve understood this correctly, I am to evaluate the cost structure of an American
newspaper company to potentially improve its profitability from its current break-even
level to a 10% profit margin within a year?

Interviewer Sounds like you caught it all!

Candidate Great! I just have one more question before I begin to sketch an approach. I’m not an
expert on the news industry, but I’ve heard some newspapers outsource the production
of the actual newspapers and manage only the marketing and content creation, whereas
others do all the work internally. What kind of newspaper company is this one?

Interviewer That’s a great question! You’re right, some firms outsource production, but this partic-
ular firm prints its own newspapers and take care of all other parts of the business too!

Candidate Alright, if you allow me to take a moment to collect my thoughts on how to approach this

Interviewer Sure!

*Moment goes by*

Candidate Ok, I thought it would be a good idea to look at what costs are currently the biggest for
the newspaper by breaking its USD 200 million cost base into its different components
and then assess which costs can potentially be reduced and how. To do so, I’d like to un-
derstand the value chain for the newspaper company and what costs each step contains.

Interviewer That sounds like a good approach!

Candidate I imagine the value chain of a newspaper company could be divided into a five-step pro-
cess; purchasing, content creation, production, selling and distribution.

Interviewer Could you elaborate?

Candidate Sure! I assume the process of making a newspaper would start with purchasing the materi-
als necessary to produce the newspaper. As I’ve understood it, larger companies typically
have purchasing units that take care of acquiring the materials necessary to produce the
goods they sell. To fill the newspaper with newsworthy articles, I suspect the firm would
also need to have journalists, editors, proofreaders and copywriters. This would constitute
its content creation. Once the content has been written and the necessary materials ac-
quired, the newspaper would have to be printed. Then comes the task of selling the news-
papers. I’m not sure, but I imagine that newspaper companies sell their newspapers both

through direct sales and through convenience stores? Either way, I suspect the newspaper
is sold before it’s delivered. Perhaps you could tell me?

Interviewer You’re absolutely right! The bulk of sales for this newspaper is through subscriptions that
are delivered directly to the end customer, but a sizeable portion is also sold through
convenience stores and newsstands. Go on!

Candidate Ok! So, once the newspaper has been sold, it will have to be delivered to either the customer
or to a convenience store. I imagine the whole process something like this:

*Shows chart*

Purchasing Content
Production Selling Distribution

Cost Purchasers Journalists Paper Sales people Drivers

Cost Editors Energy Energy

Cost Copywriters Machinery Transportation



Interviewer *Inspects the chart*

It looks like you’ve laid out the value chain in an orderly fashion, how about assigning
how big a share of the costs each component constitutes?

Candidate No problem! I think that production would have to be the most cost-intensive part of the
value chain. I know that the machinery is very expensive, and it requires a lot of paper and
energy to produce a year’s worth of newspapers, so let’s say 30% of the USD 200 million
are spent on production.

Interviewer Actually, it’s closer to 40%, but I like how you are reasoning, go on!

Candidate Ok, so we adjust the production costs to 40%.

The next item would probably be distribution. Since the bulk of our client’s sales are to the
end customers, I suspect they would need more cars with smaller loads of paper than if
most of the newspapers were sold to convenience stores. That means they would need a
lot of trucks and drivers, and I suspect the gas for the cars costs a lot too. Let’s say 30%
of the USD 200 million.

Interviewer That’s about right, so let’s stick with that!

Candidate Next, we have purchasing, selling and content creation. I actually have no idea how much
journalists, editors or purchasers are paid or how many of each are necessary, but I suspect

their salaries are roughly equal, because the qualifications they require to do their jobs
properly are about the same, and I guess that the newspaper company roughly needs the
same amount of people for each of the three parts of the value chain. Against that reason-
ing, I’d like to assign them each 10% of the USD 200 million.

Interviewer Good reasoning!

Candidate That means we have the following cost structure:

Purchasing Content
Production Selling Distribution

Share 10% 10% 40% 10% 30%

USD 20,000,000 20,000,000 80,000,000 20,000,000 60,000,000

Against this backdrop, I would like to look into potential cost savings in production, since
this represents the greatest portion of the total costs, so efficiency improvements would
have a bigger impact on the total costs than would be the case for other parts of the value

Interviewer All right!

Candidate We said earlier that the four main costs associated with production were: paper, energy,
machinery and production workers. Since our client wants to improve the bottom line
immediately, I think they should focus on reducing the cost of either paper or labor since
the machinery depreciation and energy costs are tied to the machines they already have
in place. Besides, I don’t think production labor is very expensive, since I suspect the print-
ing process must be highly automated. Do we have any information on how much each of
these components cost us?

Interviewer Actually, yes! We know from the purchasing office that last year, 60% of the total pro-
duction costs of USD 80 million went to raw materials such as paper and ink.

Candidate So that means our client spent USD 48 million on paper last year?

Interviewer Exactly.

Candidate That sounds interesting. Since paper represents almost 25% of the total costs, I would like
to investigate whether it would be possible to reduce that number. Could I have another
minute to think of how we could go through with that?

Interviewer Of course!

* Sketches an approach *

Candidate All right, the way I see it, to reduce the paper costs, our client must either reduce the price
they pay for the same quantity of paper, or they could purchase less paper. I have come up
with a few proposals for each option

* Shows sketch to interviewer *

Price Quantity

Look for other suppliers Decrease size of newspaper

Bulk buying Shift to online

Secure longer supplier contracts in

return for lower prices

Buy lower quality of paper

Interviewer This looks interesting! Which of these options do you think they should pursue?

Candidate I think the easiest change to look into would be to decrease the size of the newspaper and
to buy lower-quality paper. Since paper is a commodity good, I don’t think they’ll be able
to find much cheaper suppliers elsewhere. If they buy bulk, they still have to store the pa-
per, and that might cost more than it saves. Writing longer supplier contracts may sound
appealing, but if customer preferences shift toward online news consumption further, our
client may be left with excess paper. Shifting the business online is a good response to
reduce paper costs, but that shift will likely take longer than until the end of the year, so
that’s something they should look into for the medium to long term. This leaves them with
two remaining options.

Interviewer Great thinking! The news company has, however, already looked into the paper quality
of its newspapers, and they don’t think it would be a good decision to buy any cheaper
quality than they do today. They do however like the idea of changing the size of the
newspaper. Today, the newspaper is 40cm x 55cm, but management believes that 30cm
x 40cm is a more fitting size.

Candidate Alright, with these measures, they would decrease the newspaper from its current size of
2200 cm2 to 1200 cm2. Assuming they use the same thickness and number of pages as
previously, this represents a 45% decrease in area and volume. If they sell the same number
of newspapers as the previous year, with the same prices for paper, the volume reduction
would save them 45% of USD 48 million, or USD 21.6 million. That alone would be enough
to reach the 10% profitability goal as long as sales stay flat!

Interviewer Great! Why don’t you wrap up our findings and make a recommendation?

Candidate Absolutely! I recommend that management go through with its proposal to shrink the
size of its newspaper, since it would save them annual costs of UDS 21.6 million. This alone
would help them reach their profitability goal of 10%. Before launching the new sizes, I
would, however, recommend that management look into how their customers would ap-
preciate the new size. Because there is now less space for news, perhaps customers aren’t
prepared to pay as much as they have done before, or perhaps the loss effect on removed
space for advertisement sales for the newspaper company would outweigh the cost ben-
efits of shrinking the newspaper.

Interviewer Perfect! Do you have any additional advice to the newspaper company going forward?

Candidate Sure, I would also look into shifting the newspaper company’s business strategy to focus
more on online news consumption in the long run, which essentially would remove the
expensive production stage of the value chain. Another area that could potentially be
improved would be distribution, which also accounts for a significant portion of the total

Interviewer Great job! Thanks!

The investment case

Interviewer A Chinese private equity fund is considering the acquisition of an American wood pel-
lets manufacturer. The company is currently owned by an industrial conglomerate.

Wood pellets are used as heating fuel. They are manufactured by compressing sawdust
into pellets. Pellets are extremely dense and can be produced with a low moisture con-
tent, which allows them to be burned with a very high combustion efficiency.

In this case, only the heating of buildings with wood pellets is in scope

The first question our client asked was to assess whether there will be a future demand
for wood pellets. What do you think would be a good structure to analyze future de-
mand for wood pellets?

Candidate Let me take a minute to structure my thoughts.

Interviewer Of course, take the time you need.

A minute passes and the candidate resumes the conversation …

Candidate In order to assess the future demand for wood pellets, I would like to divide the issue into
two main parts:

1) Who are the main users of wood pellets?

2) What is the substitute for using wood pellets?

Interviewer Interesting, let’s start by looking at the first one. Who are the primary users of wood

Candidate Since pellets are used for heating, owners of any kind of building in need of heating
are potential customers. There are different set-ups for heating a building. In my view,
multi-family houses and commercial buildings in cities are primarily connected to central
heating systems, and would therefore not be direct users of pellets. The primary customers
of pellets would be A) family houses and B) commercial buildings in rural areas.

Interviewer You mention central heating systems, what kind of fuel do they use?

Candidate I see your point. Central heaters can probably also run on pellets.

Interviewer Good! So, you have now identified three main types of customers. What would the alter-
native for wood pellets be in each category?

Candidate I believe that there is a different dynamic to each segment. There are central heating sys-
tems running on garbage, wood – well, anything that burns basically. They buy fuel in great
quantities and probably shift it depending on the price.

Candidate For houses, demand is more static. They can use electricity, oil or geothermal for heating,
but they do not shift fuel. Shifting fuel would be connected to an investment in a new
boiler. So, the installed base would perhaps be slightly more stable over the investment

Interviewer Yes, there is a different dynamic in play for each segment. Could you describe in an over-
all way how you would investigate future development in each segment?

Candidate One could look at the historical development and growth rates, and of course get hold of
an industry expert to provide additional market insight.

Interviewer That sounds like a good approach. Let’s say that after looking at historical data and
conducting expert interviews, we found that the demand from houses is declining, com-
mercial is increasing and central heating is flat-lining.

Candidate So there will be a demand for wood pellets over the investment horizon, but no spectac-
ular growth.

Interviewer That sounds like a good hypothesis.

I will provide you with some additional information about the target company, so you
can evaluate the attractiveness of the potential investment.

• The target company is a pioneer in the industry and was established

some 25 years ago

• According to the management team, the company has a very strong brand and
excellent customer relations which enable a price premium ­— albeit modest —
compared to its competitors

• The company’s business model is to operate ten factories in forest areas where it
sources sawdust from local sawmills (50-100 km from the production sites)

Would you say that the pellets company is an attractive target for the private equity fund?

Candidate Hmm, the attractiveness of the investment is determined by the private equity fund’s abil-
ity to increase the value of the firm and ensure that it becomes an attractive target when
selling again. Buy low and sell high, right?

Interviewer That’s right. And how would they try to increase the value of the company?

Candidate There should be a case for how to increase the company’s profits, either by increasing
revenues or lowering the cost base – or both.

Interviewer Ok, if we start by looking on the revenue side, what could be done there?

Candidate Well, the company already has a strong brand and good relations with its customers. But
wood pellets are a really basic product, a commodity – I mean, I would not pay extra for
a branded bag of charcoal for the barbeque. I wonder if the company’s price premium is
sustainable over time …

Interviewer What options could the company pursue to increase revenues?

Candidate Well, the market is not really growing, so to increase revenues, they either need to gain
market shares or raise product prices.

Interviewer Is raising prices a possible strategy? What do you believe is the most important criterion
for the customer when shopping for wood pellets?

Candidate Assuming that the quality is equal across suppliers, the most important thing would be
the price.

Interviewer That’s right, so how would you go about determining the target company’s market

Candidate Since wood pellets are a commodity, the price is determined by the market, and the suppli-
ers’ competitiveness is about being the most cost-efficient. The way forward would be to
make a cost comparison across the value chain for the target company and its competitors.

Do we know who the other suppliers of wood pellets are in the market?

Interviewer Good question, there are three main categories of competitors in the market:
A) medium-sized suppliers with a similar set-up as the target company, B) large forest
companies and C) international importers.

Candidate Do the largest forest companies operate their own sawmills, and can they thus produce the
pellets out of sawdust from their own wood production?

Interviewer Yes, they use their own sawdust for the production.

If you were to make a structured comparison of the different competitors’ value chain,
how would you approach this?

Candidate Give me a minute to gather my thoughts.

A minute passes …

We have three types of competitors and a value chain for producing and distributing pel-
lets consisting of four main steps: A) acquiring raw material B) transportation to produc-
tion, C) production and D) distribution. By evaluating each step per competitor, we can
identify advantages and potential disadvantages to base our assessment on.

Value chain

A) Raw materials B) Transportation C) Production D) Distribution

Candidate We concluded that the large forest companies have a minor advantage compared to the
target company with regards to raw materials. Also, the large forest companies have an
advantage when it comes to transportation by having the production of pellets in imme-
diate connection to the sawmills.

Interviewer Good. As you mentioned, the forest companies have back-integrated their operations
and co-located the pellet production with the sawmill. How could you assess the advan-
tage of having the production next to the sawmill?

Candidate Well, that depends on how much sawdust you need to produce one unit of pellets?

Interviewer The density of sawdust is six times less than in pellets, which is the whole idea of the

Candidate So, in order to produce one truckload of pellets, they would need to transport six loads of
sawdust between the sawmill and the production site. That’s a pretty big disadvantage for
the target company.

If we look at production, are there any significant economies of scale when producing
wood pellets?

Interviewer Production costs are almost equal across competitors. There is no economy of scale
that’s relevant in this case.

Candidate Looking at the final step of the value chain, distribution, importers would have a disadvan-
tage, as they need to ship the pellets in by boat. Shipping costs are still low, so perhaps it’s
just a minor disadvantage.

So, summing up the cost advantages and disadvantages and plugging them into a matrix
organized according to value chain and competitors, we see that the target company
holds a poor competitive position compared to its competitors.

Candidate explains the rationale behind his matrix.

Value chain

Raw materials Transportation Production Distribution

A) Equal to target company - - -/+ -/+

B) Forest companies + + -/+ -/+

C) Importers + + -/+ -

Candidate Do you have any information on recent market developments such as sales or market
share per competitor?

Interviewer The forest companies and the importers have only been on the market for a couple of
years, but have quickly gained significant market shares from the traditional players (like
our target company). This proves that we’re facing a price game, and that customer rela-
tions are not a sustainable competitive advantage, but rather a reflection of the manage-
ment team’s wishful thinking.

Candidate That further supports my suspicion.

The large forest companies have integrated the pellets production directly with their saw-
mills; hence, they have a structural advantage that the target company can’t mitigate.

Interviewer Interesting, so what recommendation would you give to the investment committee?

Candidate The structural disadvantage compared to competitors will make it hard for the target com-
pany to compete on price. We already see signs of this disadvantage in the current market,
with the company’s decreasing market share.

In my view, the wood pellets company would not be a good investment for the private
equity fund.