Project Marlowe — Dual-Track: IPO vs. Sale
A 2-hour Dual-Track Exit Analysis case study with a complete model answer
Modeled After
Morgan Stanley
Strategic alternatives review comparing an asset-by-asset realization against a whole-company sale, with forward cap-rate valuation grids, levered and unlevered DCFs run in parallel, and residual-company scenarios after the disposals
Structure and exhibit set are modeled after Morgan Stanley. The company, the financials and every figure in this case are entirely our own.
The Situation
Larkspur Diagnostics, Inc. makes molecular diagnostics for oncology and infectious disease.
Larkspur Diagnostics, Inc.
- Sector
- Molecular diagnostics — targeted sequencing assays and consumables, benchtop sequencing and extraction instruments, and a CLIA-certified reference laboratory serving oncology and infectious disease
- Size
- Geography
- United States; headquartered in Ann Arbor, Michigan, with a listing contemplated on the Nasdaq Global Select Market
- Ownership
- Situation
The Prompt
You are staffed on a Dual-Track Exit Analysis engagement for Larkspur Diagnostics, Inc. You have 120 minutes to work through the materials and produce an answer deck, an Excel model and a memo.
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 plan, the basis, and what the earnings actually are
PART 2
Three screens, each of which is graded
PART 3
Two discounted cash flows, and the reconciliation between them
PART 4
The offering: three price levels, held apart
PART 5
The overhang and the sell-down
PART 6
The sale, bridged to cash
PART 7
The comparison, the option, and the recommendation
Attempt It First
Blank modelling template
The answer model with every produced cell cleared — the shell you build your attempt in. Work it in Excel against the clock, then check yourself against the model answer below.
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 you are comparing before you compute anything
- 02
Screen all three sets first, in one pass
- 03
Run the two discounted cash flows off one plan
- 04
Price the offering, then keep going
- 05
Make the overhang arithmetic rather than a caveat
- 06
Invert the comparison and price the option
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Dual track
Running an initial public offering and a sale process simultaneously, with the choice deferred until the sale has a signable price and the offering has a filed range. Its value to a seller is the price tension a credible, visibly funded alternative creates inside the negotiation with the buyer, rather than either path being better in isolation. A second track carries registration, audit, listing-preparation and advisory cost, so a complete answer prices what it costs and what it has to move the price by to justify itself.
Fully distributed value
Where a newly listed stock would trade once the offering has seasoned, the sponsor is gone and the market prices the issuer on the same basis as its peers. It is not the offer price and it is not a forecast of the first day of trading. In a dual track it does double duty: it is the top of the offering price ladder, and it is the market equity value used to weight a cost of capital, because a target capital structure is struck on market values rather than book ones.
IPO discount, on the multiple and per share
A bookbuilt offering prices below where the peer group trades, and the concession is observable in prior offerings. A discount taken on the enterprise value is a larger discount on the equity, because net debt does not shrink with it and the whole of the shortfall lands on the equity. Quoting a discount without saying which of the two you mean says nothing, and the two numbers can be several percentage points apart in a business carrying this much leverage.
Overhang and the sell-down
After a partial listing the sponsor still holds most of the company behind a lock-up. Measuring that stake in days of average trading volume tells you whether it can be sold into the market at all. When the answer is hundreds of days, the position has to be placed in marketed blocks, each at a discount, and the discount shrinks only as the remaining stake shrinks. Deriving each block's price from a multiple, calendarized forward earnings and the balance sheet at that date — rather than assuming a price path — is what makes the sell-down evidence instead of a hope.
Levered versus unlevered discounted cash flow
The two paths do not treat the debt the same way. A buyer of the whole company acquires the enterprise and repays the debt out of the purchase price, so the unlevered discounted cash flow is the right frame. Under a listing the company stays levered and the sponsor is left holding equity in a levered company, so discounting free cash flow to equity at a cost of equity values that position directly. Running both and reconciling them shows where the gap comes from: the unlevered method holds leverage constant for ever while the levered one runs a capital structure that actually amortizes.
Indifference price
Present value to the sponsor is linear in the sale's enterprise value above the debt repaid at closing and the transaction costs, because every incremental dollar flows to holders in the same proportion and arrives on the same discount factors. That linearity makes the comparison invertible: rather than asking which path wins at one assumed price, solve for the price at which they are equal. The result is a decision rule a committee can act on: sign above it, file below it.
Deal certainty and the fallback
A signed sale is not a completed sale. Where the buyer is a strategic in the same category, antitrust review is the live risk and a second request is plausible. Pricing that risk properly means weighting the sale's present value by the probability of completion and valuing the fallback if it breaks — which, in a dual track, is the offering path several months later. Doing it this way usually narrows the gap between the paths without closing it, and it disciplines the reflex that a listing is automatically the safer route.
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
- —IPO valuation and discount to trading comps
- —Sale value versus IPO value
- —Sell-down path and lock-up modeling
- —Levered and unlevered DCF
- —Sponsor exit proceeds by path
- —Recommendation under uncertainty
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 Marlowe — Dual-Track: IPO vs. Sale
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What is a dual-track exit, and why would a sponsor run one?
A dual track prepares an initial public offering and a whole-company sale at the same time and defers the choice until the sale has a signable price and the offering has a filed range. A sponsor runs one because a credible, visibly funded second path is leverage inside the sale negotiation: a buyer that cannot be sure the seller needs it pays more. The value of the dual track is therefore mostly price tension rather than the listing itself — which is why a complete answer prices what running both costs and what it has to move the price by to be worth it.
How do you compare an IPO against a sale on a like-for-like basis?
By converting both to cash in the seller's hands and discounting them to one date at one rate. Under a sale, that means bridging enterprise value through the debt repaid at closing, any call premium on notes with a change-of-control put, transaction costs and an escrow, then taking the seller's share and discounting the closing payment and the escrow separately. Under an offering, it means the net secondary proceeds at listing plus the present value of every marketed block of the retained stake afterwards, each priced and each discounted for time. Enterprise values and per-share prices do not compare across the two paths.
Why run both a levered and an unlevered DCF in the same case?
Because the debt travels with the asset in one path and not the other. A buyer of the whole company repays the debt out of the purchase price, so enterprise value is what is being bought and the unlevered discounted cash flow is the right frame. Under a listing the company stays levered and the seller is left holding equity in a levered company, so discounting free cash flow to equity at the cost of equity values that position directly rather than reaching it by subtraction. Reconciling the two is part of the answer: the difference comes from the unlevered method holding leverage constant for ever while the levered method runs a structure that amortizes.
What is the sell-down, and why does it matter more than the offer price?
A listing typically monetizes a minority of the position. The rest sits behind a lock-up and is sold afterwards, usually in marketed blocks because the stake is too large relative to trading volume to be sold into the market. Each block prices at a discount to where the stock trades, and the discount shrinks only as the remaining stake shrinks. In this case the retained stake is worth hundreds of days of average volume, so the path to cash runs two more years and three blocks past the offering — which is where nearly all of the offering path's value, and all of its risk, actually sits.
How do you decide between the two paths when one is riskier?
Probability-weight the outcomes you can defend, then invert the comparison. Weighting three sell-down cases gives an expected value for the listing; bridging the sale at its indicated price gives a point estimate for the sale. Solving for the enterprise value at which the two are equal converts the whole analysis into a decision rule — sign above it, file below it — which is what a committee can actually act on. Then price the risks explicitly: the probability the sale completes, the value of the fallback if it does not, and the shape of the listing's distribution, which in this case is much wider on the downside than on the upside.
What does this case test that a standard valuation case does not?
Sequencing and judgment about what the client receives, rather than valuation technique. The technique here is ordinary — two discounted cash flows, three screened market sets, a proceeds bridge — and none of it decides anything on its own. What decides the answer is whether you compare the paths on the same measure, whether you carry the offering past its own pricing into the sell-down, whether you notice that a discount on the multiple and a discount per share are different numbers, and whether your recommendation is stated as a rule with a price attached and a list of things that would change it.
About This Dual-Track Exit Analysis Case Study
Dual-Track Exit Analysis case study for investment banking interviews. 120-minute format covering ipo valuation and discount to trading comps, sale value versus ipo value, sell-down path and lock-up modeling. 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 Leveraged Buyouts. 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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