Project Sandalwood — Sponsor Capacity & Sources of Funding
A 1.5-hour Financial Sponsors / Buyer Capacity Screen case study with a complete model answer
Modeled After
UBS
A decision-meeting deck comparing alternatives on a common discounted basis, with a Potential Sources of Funding sponsor-capacity screen and high yield market capacity, a break-even discount rate analysis solving for the rate at which standalone value equals the offer, and a theoretical forward share price at the current versus three-year-average multiple
Structure and exhibit set are modeled after UBS. The company, the financials and every figure in this case are entirely our own.
The Situation
Sandalwood Industrial Services, Inc. (NYSE: SWDI) sells mission-critical maintenance to process industry plants.
Sandalwood Industrial Services, Inc.
- Sector
- Industrial services — turnaround and maintenance, inspection and integrity, and specialty cleaning and environmental services sold to refining, petrochemical and power generation customers under multi-year master service agreements
- Size
- Geography
- United States; headquartered in Tulsa, Oklahoma and listed on the New York Stock Exchange
- Ownership
- Situation
The Prompt
You are staffed on a Financial Sponsors / Buyer Capacity Screen engagement for Sandalwood Industrial Services, Inc. You have 90 minutes to work through the materials and produce an answer deck and an Excel model.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
Board briefing pack
Leveraged finance market read
Private capital database extract
Blank modeling template
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 90 minutes.
PART 1
The plan, the unaffected price and the standalone counterfactual
PART 2
The break-even discount rate
PART 3
Debt capacity, tested three ways on the notes tranche
PART 4
Sources and uses, and the equity check the screen is tested against
PART 5
The buyout, run once, as a screening tool
PART 6
Screen the buyer universe
PART 7
Two ceilings per survivor, and the answer to the board's question
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished answer deck and Excel model are in the solution set below.
- 01
Settle the denominator before you build anything
- 02
Dispose of the standalone alternative early
- 03
Take the lowest capacity test, and say which one it is
- 04
Find the linearity before you build the ceilings
- 05
Screen the universe in one pass, and record every exclusion
- 06
Compute both ceilings and take the lower, then read the column
- 07
Bound the answer before you recommend a process
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Unaffected price
The last close before the market learned a transaction might be coming. It is the only price a board can be shown to have received a premium over, and it is the denominator of every premium in a take-private. Once a leak has moved the stock, the current price already embeds the market's estimate of the deal, so a premium struck against it is partly a premium over the offer itself. Identifying the unaffected date, and being able to defend it, is the first piece of work in any public transaction. Using the wrong one is a mistake that reconciles perfectly on every other line.
Sponsor capacity: fund size, single-position limit and dry powder
The largest equity check a fund can write alone is the lower of two hard numbers rather than a preference. Uncalled capital is what is left to draw. The single-position limit is a percentage of committed capital written into the limited partnership agreement, and it caps one investment however attractive it is. A fund with plenty of dry powder and a tight cap and a fund with a generous cap and little dry powder both fail the same test for different reasons, and neither failure has anything to do with what the asset is worth.
Fund vintage and the remaining investment period
A fund can only commit capital during its investment period, which typically runs five years from final close and may sometimes be extended with advisory committee consent. A public transaction takes six to nine months from approach to signing to close, so a fund with a few months left cannot credibly start one, and a fund whose period has expired cannot start one at all, whatever it says about its successor vehicle. Vintage is therefore a screening criterion in its own right, and the cases near the boundary are where the judgment lives.
High yield new-issue capacity
Debt capacity is usually taught as a credit question: leverage tests and coverage tests struck on the borrower's earnings. In a live market it is often a supply question instead. A debut single-B issuer can only place what the new-issue calendar will absorb that month, and that number moves with fund flows and with what else is in the market. When the window is what binds rather than the covenant, the set of buyers who can pay a given price becomes a function of the bond market, which is why a coverage banker quotes the window alongside the tests.
Two ceilings, and why the answer is the lower
A buyer faces two independent limits. The capacity ceiling is the highest price its own equity can fund once the debt and the balance-sheet cash are subtracted. The return ceiling is the highest price at which the transaction still delivers the return the fund promised its investors. Neither can be borrowed against the other: a fund that can afford the check but not the return will not sign, and a fund that likes the return but cannot write the check cannot sign. Taking the minimum is the only reading that describes a real buyer.
Club deals and LP co-invest
Both enlarge the equity a transaction can raise, and neither improves the return. LP co-invest takes the same equity economics at fee-light terms, so the deal's own internal rate of return is unchanged. A club sums the partners' capacity, but its price is set by the LOWEST of the partners' ceilings, because every partner must clear its own hurdle, which means adding a higher-hurdle partner reduces what the club can pay. Presenting a club as a route to a higher price is the common structuring error in this archetype; it is a route to being able to bid at all.
The interest deduction limit
Deductible business interest is capped at business interest income plus 30% of adjusted taxable income, and the definition of adjusted taxable income has moved. For tax years 2022 through 2024 it was an EBIT-like measure with no add-back for depreciation and amortization; the add-back was restored, permanently, for tax years beginning after December 31, 2024, so a deal closing now is tested on an EBITDA basis and the cap is materially looser than the version most study material still describes. Know which basis the year in front of you takes. At buyout leverage the cap can still bind in the early years, the disallowed amount carries forward indefinitely and is often never usable inside the hold, and the cash tax it creates comes straight out of the sweep. A model that ignores it pays down debt it never really generated and produces a price ceiling that is too high.
A bound truncates
A price ceiling is a bound, not a measurement, and a bound rounds toward the side that keeps it true. Solved to fractions of a cent, a ceiling must be truncated down: rounded to the nearest it can round up, to a price at which the structure returns slightly less than the mandate — a ceiling the model itself does not support. The direction is invisible to any sensible tolerance, which is exactly why it has to be a rule rather than a judgment.
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 and Excel model, 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
- —Potential sources of funding screen
- —High yield market capacity
- —Sponsor fund vintage and check-size mapping
- —Break-even discount rate analysis
- —Theoretical forward share price at current versus average multiple
- —Club deal and co-invest dynamics
Answer Deck
Full model answer, banker-formatted
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the answer deck, the Excel model 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 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 Sandalwood — Sponsor Capacity & Sources of Funding
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What is a sponsor capacity screen, and how is it different from an LBO model?
An LBO model assumes a buyer and a price and reports a return. A capacity screen starts from a universe of buyers and asks which of them could fund a transaction at all. It runs the buyout once — because debt capacity is sized off the target's earnings and does not depend on who is buying — and uses it to produce one number per fund: the price at which that fund's own hurdle is exactly met. That number is then set against a second one, the price the fund's own committed capital, single-position limit and co-invest capacity can reach, and the affordable price is the lower of the two. The deliverable is a table of buyers, not a valuation.
Why does a fund's partnership agreement decide what it can bid?
Because the limit is contractual rather than discretionary. A limited partnership agreement caps how much of committed capital may go into a single investment — commonly ten to twenty percent — and no amount of enthusiasm about an asset changes it. Alongside it sits uncalled capital, which is simply what is left to draw, and the remaining investment period, which is the window in which the fund may commit at all. Those three facts screen out buyers who would otherwise look ideal on sector fit and prior deals, and they are the reason a coverage screen is built on fund data rather than on views about the target.
Why would the high yield market, rather than the credit, cap the debt?
Leverage and coverage tests describe what a lender would be willing to underwrite. The new-issue window describes what a syndicate desk can actually place this month for this kind of issuer. For a first-time issuer with no outstanding public debt, the second is often the smaller number, and it moves with fund flows and with what else is in the market rather than with anything about the borrower. When the window binds, the set of buyers who can pay a given price becomes a function of the bond calendar — which is a different kind of statement from a covenant, and one worth making explicitly.
Does clubbing let sponsors pay more?
No, and assuming it does is the common structuring error in this archetype. A club sums the partners' funding capacity, so the price the combined equity can reach goes up a long way. But every partner still has to clear its own return hurdle, so the price the club can pay is the LOWEST of the partners' ceilings — which means adding a partner with a higher hurdle actually reduces what the club can bid. LP co-invest behaves the same way: it enlarges the check at fee-light economics and takes the same equity economics, so the deal's return is unchanged. Both are capacity instruments.
Why do several funds end up with exactly the same ceiling?
Because the return ceiling is a property of the asset and the hurdle rather than of the buyer. Debt capacity is sized off the target's earnings, so it is the same whoever is buying; the debt schedule is therefore the same, the net debt at exit is the same, and the exit equity value is the same at any given price. Two funds underwriting to the same required return must therefore land on the same maximum price, to the cent. It reads at first like a copy error and it is the opposite: it is the arithmetic telling you that on returns nobody in the universe can outbid anybody else with the same hurdle, and that the real differentiator is who can fund the check.
What does this case test that a standard buyout case does not?
Whether you can build the analysis the question needs rather than the one you have practiced. The mechanics — a debt schedule, a sweep, a returns bridge — are ordinary and none of them decides anything. What decides the answer is whether you strike the premium on the right price, take the binding capacity test rather than the flattering one, notice that the ceilings invert instead of hunting for them, screen a buyer universe on fund constraints rather than on sector stories, keep every exclusion auditable, and then bound the headroom instead of implying it is open-ended. It is a case about knowing which facts about a buyer are the ones that matter.
About This Financial Sponsors / Buyer Capacity Screen Case Study
Financial Sponsors / Buyer Capacity Screen case study for investment banking interviews. 90-minute format covering potential sources of funding screen, high yield market capacity, sponsor fund vintage and check-size mapping. Includes the full prompt, a model answer deck, a tied-out Excel model and an audio walkthrough.
This case study sits in Investment Banking, under Financial Sponsors. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
90-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
Audio Walkthrough
How to approach the case under time pressure
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