Project Ironvale — Run-Off Valuation & Management Buyout
A 2-hour Fairness Opinion / Management Buyout case study with a complete model answer
Modeled After
Lazard
Fairness opinion for a management buyout: a run-off DCF of the declining portfolios, with implied perpetuity growth of −8.8% to −16.7%, run beside a going-concern DCF — a liquidation valuation presented in DCF form
Structure and exhibit set are modeled after Lazard. The company, the financials and every figure in this case are entirely our own.
The Situation
Ironvale Payment Systems, LLC (Nasdaq: IVPS) is a merchant acquirer. It is a Delaware limited liability company whose equity trades as Class A shares — the structure several listed alternative asset managers use — and it carries no special voting class and no controlling member.
Ironvale Payment Systems, LLC
- Sector
- Merchant acquiring and payments — direct and independent-sales-organization acquiring, plus purchased merchant residual portfolios in structural run-off
- Size
- Geography
- United States; a national merchant base acquired directly and through independent sales organizations, with the purchased residual portfolios boarded before 2019 and serviced on the same platform
- Ownership
- Situation
The Prompt
You are the financial advisor to the Special Committee of the Board of Directors of Ironvale Payment Systems, LLC. 75 per share in cash, and have stated that price is best and final.
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
Projections — the run-off, built from its own drivers
PART 2
Discounted cash flow — the Ongoing Business, as a going concern
PART 3
Discounted cash flow — the Marbury Portfolios, as a run-off
PART 4
Sum of the parts, and the bridge to value per share
PART 5
Selected publicly traded companies
PART 6
Selected precedent transactions
PART 7
Illustrative statistics at various prices, and the negotiation ladder
PART 8
Sources and uses, the ticking fee, and the leverage condition
PART 9
The rollover schedule and the returns to the buyer group
PART 10
Valuation summary, methodology selection and the governance record
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
Read the consolidated line as a mix effect before you read it as a decline
- 02
Decide what the run-off is before you decide what it is worth
- 03
Run the implied perpetuity growth test across the whole range
- 04
Screen both sets, then keep their earnings bases apart
- 05
Price the terms the buyer group wrote
- 06
Quote the ratio the counterparty sizes on, not the flattering one
- 07
Handle the conflict as an analysis rather than a paragraph
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Run-off valuation
Valuing an asset whose revenue is contractual, whose customer base is closed, and whose decline rate is measured rather than forecast. The mechanics look like a discounted cash flow because they are one, but every assumption means something different: the horizon runs to exhaustion rather than to a steady state, there is no reinvestment because there is nothing to reinvest in, working capital is released rather than absorbed as the book shrinks, and the terminal value is a residual claim on what is left rather than a claim on a perpetuity. The single most useful diagnostic is to back out the perpetuity growth rate the terminal multiple implies, and read that rate for what it is. On a going concern that number is a statement someone can defend. On a run-off it is the arithmetic describing what the asset actually is, and correcting it by raising the exit multiple converts an honest analysis into a wrong one.
Sum of the parts, and why a blended multiple hides the case
When two halves of one company have different growth, different risk and different lives, a single multiple applied to their combined earnings claims that they are the same asset. The sum-of-the-parts bridge values each half on its own basis and adds the enterprise values before deducting one net debt balance. The number worth putting beside it is the comparison between each half's share of earnings and its share of value, because a large gap between those two is exactly what a blended multiple assumes away. The same arithmetic reappears in the returns analysis: hold both segment multiples flat and the blended multiple still moves, purely because the mix changes, and reporting that movement as a re-rating is the most flattering and least true reading of the transaction.
Conflicted management buyout governance
When the buyer is the management team, the ordinary sale process protections are not enough and the ordering of events matters as much as their content. What a reviewer checks first is whether the special committee's protections — an affirmative recommendation requirement, an unwaivable majority-of-the-minority condition, a standstill and the authority to say no and to end discussions — were conditioned before any substantive economic negotiation, or agreed afterwards as a negotiating concession. A significant minority holding is not control, and the vocabulary of a controller squeeze-out does not belong in a transaction that is not one. Because affiliates of the issuer are on the buy side of a going-private transaction, Rule 13e-3 applies, a Schedule 13E-3 will be filed, and the financial advisor's board memorandum is itself a report within Item 1015 and will be filed as an exhibit to it.
Interest cost and the ticking fee
A ticking fee accretes the per-share consideration daily once a deal has been outstanding beyond an agreed date, and it exists so that a seller is not left uncompensated for the time value of a delayed closing. The rate is a drafted term, and the natural reference for it is the buyer's blended cost of acquisition financing — which means whoever supplies the cost-of-debt input effectively sets the rate. Re-pricing that blend independently is a small piece of arithmetic with a large governance point behind it: the size of the difference is usually immaterial against the equity value, and the direction of the difference is never accidental. Quote both, and say which party the error runs to.
Financing EBITDA and a leverage condition
A commitment letter's leverage test is only as meaningful as the earnings definition it is struck on, and lenders write that definition to suit the collateral. Advancing against a contractually declining stream, they will discount it — here by taking a stated haircut to the declining segment's earnings before computing the ratio. The consequence is that the condition can bind while the headline consolidated leverage looks comfortable, and the two numbers are both correct. A candidate who computes the covenant on the flattering base has answered a different question from the one the commitment letter asks, and a candidate who never computes leverage against the enduring half of the business has not told the committee what the credit actually rests on.
Rollover as the funding plug
In a management buyout the rolled equity is usually the residual: the debt is committed, the sponsor's equity check is committed, the cash is on the balance sheet, and whatever is left of the uses has to come from shares the buyer group agrees not to sell. That makes the rollover the lever the whole structure turns on. Each additional share rolled replaces a dollar of funded debt one for one, and each dollar of debt removed reduces the earnings the leverage condition requires. It also makes the rollover schedule a disclosure in its own right: it shows how much cash the buyer group takes off the table at the price it set, which is the fact that makes a management buyer a seller as well as a buyer.
Returns attribution on a two-speed business
Bridging a multiple of money into earnings growth, debt paydown, multiple expansion and value leaked is the clearest single discriminator between a strong and a weak answer anywhere in private equity. On a company with a growing half and a shrinking half it also carries a trap. Run the bridge on the blended multiple and it will report multiple expansion on a transaction in which neither segment was re-rated by a basis point, because the low-multiple half shrinks out of the average. Attribute each half at its own entry multiple instead and the expansion term goes to zero by construction, with the mix effect landing where it belongs — inside the declining segment's contribution, as a negative number.
Observed range versus applied reference range
The observed range is the minimum and maximum of the screened set, and it is arithmetic. The applied reference range is where you judge this company belongs within that evidence, and it is an opinion that needs a written reason tied to how the subject compares with the set. The distinction matters more than usual here, because the subject of the trading analysis is one half of a company carrying the whole of its head office, which depresses its margin against every peer for a reason that has nothing to do with the quality of the business. A range presented as though it fell out of the data, when in fact it was chosen, is the version that cannot be defended when somebody asks why the tails were cut.
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
- —Run-off DCF with negative implied perpetuity growth
- —Going-concern versus run-off
- —Conflicted management buyout governance
- —Interest cost and ticking fee analysis
- —EBITDA coverage against a leverage condition
- —Rollover share schedule
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 Ironvale — Run-Off Valuation & Management Buyout
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What is a run-off valuation, and how is it different from a going-concern DCF?
A run-off valuation values an asset whose revenue is contractual, whose customer base is closed and whose decline rate is measured rather than forecast. The mechanics are a discounted cash flow, but every assumption inside it means something different from its going-concern namesake. The horizon runs toward exhaustion rather than to a steady state, so it is usually longer than the five years a growing business gets. There is no reinvestment, so maintenance capital expenditure and depreciation converge and largely cancel. Working capital is released rather than absorbed, because a shrinking receivable book is a source of cash. And the terminal value is a residual claim on what has not yet run off rather than a claim on a perpetuity — which is why backing out the perpetuity growth rate it implies is the single most useful diagnostic on the page, and why the answer that test returns should be reported rather than corrected.
Why value a declining segment separately instead of applying one multiple to the whole company?
Because a single multiple claims that the two halves are the same asset, and here they demonstrably are not: one grows and boards new customers, the other is a closed book with a measured decay rate. A blended multiple prices them as one, which understates the growing half and overstates the declining half by construction, and does so invisibly — nothing on the page records the assumption. Splitting the company also produces the two statistics that make the case legible: each half's share of trailing earnings, and each half's share of enterprise value. When those two percentages are far apart, the gap is the whole analysis, and it is exactly what the blended approach assumes away.
How does a special committee test a management buyout proposal?
By building a record that survives someone reading it later with hindsight. The committee must be independent and must have its own counsel and its own financial advisor, and it must have real authority — including the authority to say no and to end discussions, which is only meaningful if it is agreed before price is discussed. The protections that matter are an affirmative recommendation requirement, an unwaivable majority-of-the-minority condition and a standstill binding the buyer group, and the ordering matters as much as the content: protections conditioned before any substantive economic negotiation are a governance structure, and the same protections agreed after a price round are a negotiating concession. Beyond process, the committee has to test the projections it is being asked to rely on, because the buyer wrote them, and it has to know what the buyer expects to earn on those same projections.
Is a pre-signing market check enough when the chief executive is the bidder?
It is evidence, and it is weak evidence, and both halves of that sentence belong in the memorandum. Third parties know the sitting chief executive is on the other side, they know that a management team which does not want to work for a new owner is a real diligence risk, and they price that knowledge into whether they engage at all. A check that contacts a reasonable number of parties, signs a few confidentiality agreements and produces one conditional indication that later withdraws is a genuine attempt and not a proof of value. What actually protects the unaffiliated holders in a transaction like this is usually the unwaivable majority-of-the-minority condition rather than the check — which is why the memorandum should say so, and should say what would change if that condition were waived.
What is a ticking fee, and why would a financial advisor re-price one?
A ticking fee accretes the per-share consideration daily once a transaction has been outstanding beyond an agreed date, compensating the seller for the time value of a delayed closing. The drafted rate is typically referenced to the buyer's blended cost of acquisition financing, which means the party supplying the cost-of-debt input effectively sets the rate. When the buyer is management, that input is worth checking independently: re-price the blend on your own view of where the paper would clear, recompute the daily accretion, and compare it with the drafted rate. The aggregate difference is often immaterial against the equity value — and the direction of the difference is never random, which is the reason the analysis belongs on the page even when the amount does not change anybody's mind.
How do you allocate 120 minutes across a case like this?
Across all of it, not a quarter of it. A working budget: about 20 minutes reading and screening the raw extract before typing anything; about 15 minutes building the run-off plan and the consolidated block beneath both plans; about 35 minutes on the two discounted cash flows, their grids and the implied perpetuity growth test; about 20 minutes on the two comparison sets and their applied ranges; about 15 minutes on the price ladder, sources and uses, the ticking fee and the coverage analysis; and about 15 minutes on the buyer-group return, the valuation summary and the governance record. The template asks for 261 distinct formulas and fills 721 cells once the grids and the ladder are filled right — roughly 28 seconds per authored formula, with the raw cell count printed so nobody thinks it was hidden.
About This Fairness Opinion / Management Buyout Case Study
Fairness Opinion / Management Buyout case study for investment banking interviews. 120-minute format covering run-off dcf with negative implied perpetuity growth, going-concern versus run-off, conflicted management buyout governance. 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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