Project Elmscroft — Strategic Alternatives Review
A 2-hour Strategic Alternatives Review case study with a complete model answer
Modeled After
LionTree
Strategic alternatives review run with two live bidders: a content-company free cash flow bridge, standalone valuation of the synergies, tax attributes stripped out of enterprise value, and no football field or precedent set at all
Structure and exhibit set are modeled after LionTree. The company, the financials and every figure in this case are entirely our own.
The Situation
Elmscroft Media Group (NASDAQ: ELMG) is a premium content company with two reported segments.
Elmscroft Media Group
- Sector
- Premium content — three premium subscription networks distributed through traditional and virtual multichannel operators and direct-to-consumer apps, plus a film and scripted television studio that supplies the networks, licenses to third parties and owns its library
- Size
- Geography
- United States; headquartered in Denver, Colorado, with distribution, technology, rights administration and back office shared across both segments and managed centrally
- Ownership
- Situation
The Prompt
You are the financial advisor to the Board of Elmscroft Media Group.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 120 minutes.
PART 1
The content-company free cash flow bridge
PART 2
The tax attributes, and which direction the adjustment runs
PART 3
Alternative 1 — the standalone plan
PART 4
Alternative 2 — the leveraged recapitalization
PART 5
Alternative 3 — separation of the Studio
PART 6
Alternatives 4 and 5 — the two proposals
PART 7
Selected companies, and the company's own trading multiple
PART 8
Analysis at various prices
PART 9
The alternatives summary — one axis, five alternatives
PART 10
The recommendation, and the board memorandum
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished answer deck, Excel model and memo are in the solution set below.
- 01
Decide what the answer is a list of, before you value anything
- 02
Build the free cash flow bridge before you build anything else
- 03
Get the tax attributes pointing the right way at both ends
- 04
Separate what you observed from what you applied
- 05
Ask what each alternative depends on, as well as what it is worth
- 06
Write the recommendation the way a Board can act on it
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Strategic alternatives review
A board-level exercise that prices every course of action open to a company on one comparable axis and closes in a recommendation. It is not a valuation of one subject and it is not a fairness opinion: nothing here has been agreed, the alternatives are mutually exclusive, and three of the five are things the company would do to itself. The discipline the archetype imposes is that a sale, a spin-off, a recapitalization and a standalone plan all have to resolve to the same unit — implied value per share as of the same date — or the board is being asked to compare a multiple with a dividend with a share price and to do the translation in its head.
Content-company free cash flow bridge
The cash flow construction a business that both amortizes and pays for content requires. Programming rights amortization is a non-cash charge and is added back; programming rights payments are cash and are subtracted; the same pair exists for film and television investment. Neither pair nets to zero in a business whose content spend is growing or whose rights cycle is turning over, and the direction of each net is the whole point. A bridge that shows only 'net content investment' has hidden the thing a reader needs to test, and one that omits the pairs entirely treats a company that spends nine times more on content than on capital expenditure as though capital expenditure were its capital intensity.
Tax attributes as an enterprise value adjustment
Carryforwards are an asset of the company and they are not part of its operations, so they get their own line rather than being buried in a multiple. The convention that keeps this honest is to subtract their present value from gross enterprise value before any multiple is struck — so the multiple prices the operating business against peers whose multiples are struck the same way — and to add it back in every bridge from enterprise value to equity value. The direction has to be stated on the page, because the two moves are the same adjustment seen from opposite ends and an artifact that applies it once is wrong by the whole amount in whichever direction it forgot.
Sum-of-the-parts, and the re-rating inside it
Valuing a company's segments on different multiples and adding them up, net of the frictions a separation creates: run-rate dis-synergies, which are capitalized, and one-time separation costs, which are not. The number a board needs beside it is how much of the result is a re-rating rather than a cash flow. A separation changes no line of the operating plan; every dollar of value it creates is the market applying different multiples to the halves than it applied to the whole. Valuing both segments at the company's own current multiple, net of the same frictions, isolates that component exactly — and it is the difference between an alternative a board can underwrite and one it is hoping for.
Fixed exchange ratio, and the breakeven acquirer price
In a cash-and-stock proposal with a fixed ratio and no collar, the target's shareholders carry the acquirer's equity risk from signing to closing: the number of acquirer shares is fixed, so the value of the consideration moves one for one with the acquirer's share price. The test that makes this comparable with a cash proposal is the breakeven — the acquirer share price at which the mix is worth exactly the cash — and the honest statistic beside it is how far spot sits above that breakeven. When the headroom is a few percent of a third company's share price, the apparent advantage of the mix is smaller than a normal week of trading, and no recommendation should rest on it.
The subject's own unaffected trading multiple
The observation that makes a comparable companies page legible, and the one most often left out of it. Before applying a peer range to a subject you have to know where that subject itself traded, because the applied range is a judgment about the distance between the two. It is also what reconciles the multiple yardstick with the premium yardstick: a premium is measured from the subject's own unaffected price and a multiple is measured against the set, so if the subject traded away from its peer band the same price will read as a large premium and an ordinary multiple at once — and neither statistic is wrong. Decompose the re-rating into the move back to the peer median and the premium to the category, and two facts that appear to conflict become one fact described twice.
Leveraged recapitalization
Raising incremental debt and returning the proceeds as a special dividend. It is a change in the timing and the currency of a return, not a change in the value of a business: the operating plan is unchanged, so the only thing it can create is the tax shield on the incremental interest. That makes the year the shield first has cash value the whole analysis, because a company sheltered by carryforwards cannot use an interest deduction until it is actually paying cash tax. It also triggers the customary anti-dilution adjustment to outstanding option strikes, which is small, real, and worth pricing rather than waving through.
Why there is no football field here
A football field lines up methodologies against one subject and converges. This case has two live, negotiated prices from real counterparties with committed financing, and the exhibit the board needs lines up alternatives against one axis instead. The bidders' prices are the reference band, drawn as a band rather than as a bar. The same logic disposes of the precedent transactions analysis: where no comparable change of control has happened in years and two real prices are on the table, a set of loosely comparable deals struck in a different capital-markets environment is weaker evidence than the two prices in front of the board — but an exclusion without a stated reason is worse than no exclusion, so it goes on the page with its reason.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: answer deck, Excel model and memo, built the way a banker would actually build them. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Standalone plan value
- —Sale, separation and recapitalization comparison
- —Content company free cash flow bridge
- —Tax attributes as an EV adjustment
- —Value per share bridge across alternatives
- —Board recommendation
Answer Deck
Full model answer, banker-formatted
Memo
The written recommendation and how it was reached
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the answer deck, the Excel model, the memo and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model and PowerPoint Deck and Memo (PDF) and Answer Deck (PDF) — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Project Elmscroft — Strategic Alternatives Review
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What is a strategic alternatives review case study in an investment banking interview?
It is a board-level exercise rather than a transaction exercise. A company has an activist on the register, live interest from acquirers, or both, and the board asks its advisor for every course of action available to it, priced comparably, plus a recommendation. What is graded is the comparison: whether a sale, a spin-off, a recapitalization and a standalone plan all resolve to the same unit on the same date, whether the assumptions behind each are stated rather than buried, and whether the recommendation names its own counter-argument. It is one of the few M&A exercises where the structure of the answer matters as much as the arithmetic inside it, because a board that cannot compare the alternatives cannot use the work at all.
How should you allocate 120 minutes across a strategic alternatives case?
Across all five alternatives, not across the one you find most interesting. A working budget: about 20 minutes reading and screening the raw extract before you type anything, because the screening judgment feeds the separation directly; about 20 minutes on the free cash flow bridge and the tax attributes, which everything else is built on; about 25 minutes on the standalone discounted cash flow and its grid; about 20 minutes on the selected companies and the sum-of-the-parts; about 20 minutes on the recapitalization and both proposals; and about 15 minutes on the summary and the recommendation. The template asks for 296 distinct formulas across 755 cells — roughly two and a half cells per formula, because a seven-by-seven grid and a seven-price ladder are each one formula filled out. Both numbers are printed on the template's cover so neither can hide.
Why do the tax attributes come out of enterprise value and then go back in?
Because they are an asset of the company and they are not part of its operations, and the two statements have different consequences at different points in the bridge. An EBITDA multiple prices an operating business, so if you strike a multiple on an enterprise value that still contains the value of the carryforwards you are asking the market to pay an operating multiple for a tax asset, and your multiple is not comparable with a peer's whose enterprise value never contained one. So it comes out on the way in. But the carryforwards are still worth something to whoever owns the company, so on the way from enterprise value to equity value it goes back in beside cash and net debt. Subtracted on the way in, added on the way out. The trap is applying it once: the arithmetic looks clean either way, and every multiple downstream is quoted on the wrong base.
Why can't you value a segment with a discounted cash flow in a sum-of-the-parts?
Sometimes you can, and here you cannot, and the reason has to go on the page. Management prepares segment Adjusted EBITDA because the studio is a separately managed content supplier with its own profit and loss, and that figure appears in the filings. Management does not prepare segment capital expenditure, segment working capital or segment content investment, and the two segments share distribution, technology, rights administration and back office. Any segment free cash flow you built would therefore rest on allocations of your own choosing, and an allocation presented as a measurement is a precision the analysis does not have. Valuing each half on a multiple of a figure management actually prepares is the honest construction, and saying why is part of the answer rather than a caveat to it.
How do you tell a board that a separation's value is not the same kind of value as a sale's?
By measuring the part that is a re-rating and printing it separately. A separation does not change a single line of the operating plan, so every dollar it creates comes from the market applying different multiples to the two halves than it applies to the whole. Value both segments at the company's own current multiple, net of exactly the same frictions, and the difference between that and your sum-of-the-parts is the re-rating — a number a board can look at and judge. Conglomerate discounts are real and separations do close them, so this does not make the alternative wrong. It makes it the only alternative on the list whose value depends on the market's future opinion rather than on a contract, and a board deciding between it and a committed cash price is entitled to know that in one number rather than in three paragraphs of hedging.
What does a fixed exchange ratio with no collar actually cost the target's shareholders?
The whole of the acquirer's equity volatility between signing and closing, which on a normal timetable is four to six months. Because the ratio is fixed, the number of acquirer shares is known and the value is not: the consideration moves one for one with a share price nobody in the room controls. The test that makes it comparable with a cash proposal is the breakeven — the acquirer price at which the mix is worth exactly the cash — and then two honest statistics beside it: how far spot sits above that breakeven, and what the mix is worth at the acquirer's own volume weighted average price rather than at its best recent print. A board that understands those three numbers can decide whether to ask for a collar or for more cash. A board shown only the spot value has been shown the most flattering moment of a moving number.
Why is there no football field or precedent transactions analysis in this case?
Because both would answer a question nobody asked. A football field lines up methodologies against one subject and converges on a range; the board here needs alternatives lined up against one axis, which is a different chart carrying a different argument. And a precedent set is evidence about what control has cost in comparable transactions — useful when you have no price, weak when two real counterparties have made negotiated, financed proposals for this company this quarter. Where no comparable change of control has happened in years, a handful of loosely similar deals struck in a different capital-markets environment tells a board less than the two prices in front of it. What is not optional is stating the exclusion and its reason on the page: an exclusion without a reason is worse than no exclusion, because it reads as an omission.
Does the choice of alternative change the legal standard the board is judged by?
Yes, and say so in the text rather than in a footnote. Running the plan, separating a segment and recapitalizing are ordinary business decisions reviewed under the business judgment rule. Deciding between competing proposals for control is not: once a board decides to pursue a sale of control, its conduct is measured against enhanced scrutiny and the obligation to seek the best value reasonably available. That is a reason to make the choice with the standard in mind and to document the process, not a reason to avoid a sale. A board that declines a good price to stay inside a friendlier standard of review has substituted its own comfort for its shareholders' economics, which is its own kind of exposure.
About This Strategic Alternatives Review Case Study
Strategic Alternatives Review case study for investment banking interviews. 120-minute format covering standalone plan value, sale, separation and recapitalization comparison, content company free cash flow bridge. Includes the full prompt, a model answer deck, a tied-out Excel model, a written memo and an audio walkthrough.
This case study sits in Investment Banking, under Mergers & Acquisitions. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
120-Minute Format
The time limit a real assessment would give you
Answer Deck
Included in the model answer
Excel Model
Included in the model answer
Memo
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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