Project Umberline — Segment Carve-Out
A 2-hour Carve-Out / Divestiture case study with a complete model answer
Modeled After
Evercore
Divestiture and merger analysis materials: cash EPS accretion to the acquirer run in synergy-ramp and run-rate variants as purchase price by synergy grids, plus an illustrative sharing-of-synergies split-of-value analysis framed from both sides
Structure and exhibit set are modeled after Evercore. The company, the financials and every figure in this case are entirely our own.
The Situation
Umberline Global Holdings, Inc.
Umberline Global Holdings
- Sector
- Diversified industrial manufacturing — flow control equipment, industrial protective and specialty coatings, and air and liquid filtration
- Size
- Geography
- Headquartered in Cleveland, Ohio; the Coatings business sells into North America, Europe, the Middle East and Africa, Asia-Pacific and Latin America, with no region above half of its net sales
- Ownership
- Situation
The Prompt
You are an analyst on the team advising the Board of Directors of Umberline Global Holdings, Inc.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
Confidential Information Memorandum
Unlock this case study to read the supporting materials
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 120 minutes.
PART 1
Build the carve-out financials before you value anything
PART 2
Quantify the cost that does not leave with the business
PART 3
Screen the universe, then strike an applied range and defend it
PART 4
Value the three segments separately, and capitalize the head office
PART 5
Turn a headline price into proceeds, and name the basis every time
PART 6
Run the accretion grids on both timings and both earnings measures
PART 7
Show how the value created is shared, and do not truncate the grid
PART 8
Price the tax-free spin against the taxable sale, and solve the crossover
PART 9
Write two documents for two different readers
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
Read the prompt, the memorandum brief and the extract; screen the universe
- 02
Build the carve-out and split the stranded cost
- 03
RemainCo on both bases, and the applied range
- 04
Sum-of-the-parts, the price ladder and the proceeds bridge
- 05
Both accretion tabs, both timings, cash and accounting
- 06
Sharing of synergies, spin versus sale, and the valuation summary
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
A carve-out has no financial statements, so you build them
The defining fact of the archetype and the thing that makes it different in kind from every valuation case. A segment inside a group does not have its own income statement; the segment note in the Annual Report stops above corporate cost, is silent about services the parent supplies at no internal charge, and says nothing about what stays behind. So construction comes before valuation, and every exhibit downstream is struck on the construction. A candidate who lifts the segment line and starts multiplying has performed correct arithmetic on a number that does not describe any business anybody could buy.
Three EBITDA figures for one business, and every exhibit must name which
The segment line as reported, carve-out standalone after the corporate cost the segment consumes and after replacing the parent-supplied services, and pro forma to a buyer after that buyer's own synergies. A multiple struck on the first and a multiple struck on the second are not comparable, and quoting the price as a multiple of the first is the standard way a seller makes an expensive deal look cheap. It works because nobody says which line it is. Print both bases wherever a price appears: the first belongs in a document going to a buyer, who will rebuild the second anyway; the second belongs in the Board's own assessment of what is being sold.
Allocate corporate cost bottom-up, never on revenue
A percentage-of-revenue spread is convenient and it is wrong here, and it is wrong in the direction that flatters the sale. This segment is a third of net sales and consumes materially more than a third of corporate cost, because it carries the group's largest environmental, health and safety and product-regulatory burden — something that shows up in a function-by-function build and cannot show up in a revenue spread. With allocation shortcuts, the convenient method is almost always the one that makes the thing you are selling look better.
Stranded cost is not a one-time item
Of the corporate cost allocated to a segment, only the part physically dedicated to it leaves with the business. Part of the remainder can be removed over a mitigation period at a stated one-time cash cost. The rest cannot be removed at all, and it is a permanent reduction in the earnings of what the company keeps. Treating the whole of it as one-time capitalizes at zero a cost that never goes away. It does not belong in the purchase price, it survives whichever mechanism removes the segment, and it should be capitalized at the retained business's own multiple and stated per share so that its size is comparable to the price being negotiated.
Two naive answers, erring in opposite directions
The exhibit that shows the stranded cost rather than claiming it. Subtracting the segment line as reported from the consolidated line leaves every dollar of corporate cost at the parent — including the part that walks out with the business — so it understates on both bases. Subtracting the segment line AND all of its allocated corporate cost assumes every allocated dollar leaves, which is the definition of having no stranded cost, so it overstates on both bases. And the sizes of the two overstatements are not proxies for the stranded cost: they ARE the gross stranded cost against the day-one answer and the permanently stranded cost against the run-rate answer. Build it that way and you never have to argue the point.
The transition services fee is not a synergy and not a substitute
Three things sit near each other and are routinely collapsed. The cost of replacing parent-supplied services is a PERMANENT cost of the business standing alone and belongs inside carve-out standalone earnings. The transition services fee is TEMPORARY, sits on top, is income to the seller and a cost to the buyer for the same period, and stops. The buyer's synergies belong to the buyer and to neither seller figure. Collapse any two and you have double-counted or under-counted a capability. The fee belongs in the first-year accretion grid as a charge and nowhere in the run-rate grid — which is why a package that prints only the run-rate grid is selling.
Cash and GAAP earnings per share, both, every time
A purchase creates a step-up over the net book value of the assets acquired, part of which is allocated to identified intangibles and amortized. That amortization is a real charge under generally accepted accounting principles and is not a cash cost. A cash earnings measure adds it back; the accounting measure does not. On a large step-up the two measures do not merely differ in magnitude — they can disagree about the sign of the answer. Neither is the honest one alone: print only the cash grid and you are selling, print only the accounting grid and you have told a board that a cash-generative acquisition destroys earnings.
Solve break-evens; do not search for them
The synergy level at which a transaction is exactly earnings-neutral is linear in synergies once the price, the financing rate, the tax rate and the ramp are fixed, so it has a closed form. A bisection is a slower way of getting a less exact answer, and worse, a searched answer does not move when something upstream changes. Solve it, then put the solved value back through the accretion calculation and confirm it returns exactly zero — a break-even that does not round-trip is not a break-even.
Sharing of synergies is the page that decides the negotiation
An accretion grid is a fact about the buyer. It says nothing about who captures the value the combination creates. The sharing grid does: the seller's share is the premium over standalone value as a fraction of the value the synergies add, with both halves struck at the SAME multiple, because a split computed at two multiples is two unrelated numbers. Run it past the point where the buyer keeps nothing and leave that column in — a negative buyer share looks like a mistake and is the only thing in the exhibit that tells a negotiator where the ceiling is. Read it against the accretion grids: the overlap between what the seller wants and what each buyer can afford is the negotiating range.
A headline price is not proceeds
A taxable asset sale produces a gain over the tax basis, cash tax on that gain, and advisory, legal and other costs. What the seller receives is materially less than the number in the press release, and the gap is what makes a tax-free spin competitive with a sale that looks better on its face. Because net proceeds are linear in price with a slope of one less the tax rate, the price at which a sale exactly matches a spin has a closed form and should be solved rather than searched — and that solved crossover is a walk-away price that is derived rather than chosen.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Nothing you need exists until you build it
The basis error is invisible and it is worth turns of multiple
The stranded cost is easy to mention and hard to quantify
The screen cannot be passed by checking the median
Six grids of twenty-five cells inside a two-hour clock
The memorandum is graded on what you left out
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
- —Carve-out financials and standalone cost build
- —Stranded cost quantification
- —Illustrative sharing of synergies
- —Cash EPS accretion to the acquirer
- —Sum-of-the-parts valuation
- —Tax-free spin versus taxable sale
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 Umberline — Segment Carve-Out
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What is a carve-out case study in an investment banking interview?
It is a modeling exercise in which a diversified company is selling one of its segments, and the segment does not have stand-alone financial statements. You are given the parent's consolidated and segment disclosure and management's own review of shared costs, and you build the segment's stand-alone earnings before you value anything: allocating the corporate cost it actually consumes, charging the cost of replacing services the parent supplies it for nothing, and then quantifying what stays behind at the parent after the segment leaves. From there you value the business standing alone, price it against what identified acquirers can pay on both a cash and an accounting earnings basis, show how the value created is shared at each price, and — if the parent is public — compare a taxable sale against a tax-free spin. It is distinct from an accretion/dilution test, from a leveraged buyout and from a fairness opinion, and importing any of those frameworks makes the answer wrong in kind rather than wrong in detail.
What is stranded cost, and why does it matter so much?
Stranded cost is the shared corporate cost that was being borne on behalf of a divested business and does not leave when the business does. If a segment consumed a given amount of group overhead, only the part physically dedicated to it — usually dedicated headcount — transfers on completion. Part of the remainder can be removed over a mitigation period, at a real one-time cash cost. The rest is permanent: a lasting reduction in the earnings of whatever the seller keeps, against a revenue base that has just shrunk. It matters because it is invisible in every disclosure the market can see, because it survives whichever mechanism removes the segment, and because capitalized at the retained business's own multiple it is frequently worth more than the difference between competing bids.
Why print both cash EPS and GAAP EPS on every accretion page?
Because a purchase creates intangible amortization that is real under accounting rules and is not a cash cost, and on a large step-up the two measures can disagree about the sign of the answer — the same transaction being accretive on a cash basis and dilutive on an accounting basis. Neither measure is honest on its own. Showing only the cash grid is selling; showing only the accounting grid tells a board that a cash-generative acquisition destroys earnings. Interviewers use the pairing to test whether you understand what the step-up actually does rather than whether you can run the grid.
What is a sharing-of-synergies analysis and why is it rarely done?
It expresses, at each possible price, what fraction of the value a combination creates ends up with the seller and what fraction stays with the buyer. The seller's share is the premium paid above what the business is worth standing alone, as a fraction of the value the synergies add, with both halves struck at the same multiple. It is rarely done because it makes the negotiation explicit in a way an accretion grid does not: an accretion grid tells the buyer what it can afford, and this tells both sides who is winning. Run past the price at which the buyer keeps nothing, the buyer's share goes negative — that column looks like an error and is in fact the ceiling, which is why it should be left in.
Why compare a tax-free spin against a taxable sale?
Because they deliver different things and the comparison is the Board's actual decision. A sale delivers cash and a tax bill on the gain over the tax basis, plus transaction costs, so what the seller receives is well below the headline. A spin delivers neither cash nor a tax charge, but it produces a separately listed company carrying incremental public-company cost, it takes twelve to eighteen months, and its outcome is a market price nobody controls. Valuing both routes per share of the parent, on a stated price and a stated basis, and solving for the price at which they are identical gives the Board a walk-away price that is derived rather than chosen — and often shows that the margin between the routes is thinner than the headline suggests.
Why is there no discounted cash flow in this case?
Because the only stand-alone carve-out cash flows available are themselves the output of the allocation judgment the case is about. Discounting a number you have just built and presenting the result as independent evidence is circular, and the reader has no way to see it. That is stated on the page rather than left as a silence. The same discipline explains the other omissions: no premiums-paid analysis, because a segment has no share price to strike a premium against; no precedent transactions, because carve-out transaction multiples are quoted in the public record on inconsistent earnings bases — sometimes the segment line, sometimes stand-alone earnings, almost never with the basis stated — and building a set from figures whose basis cannot be established reproduces the exact error the case exists to teach.
How long should this take, and where does the time actually go?
Two hours, and the budget is not evenly spread. Fifteen minutes to read and screen the extract; twenty-five to build the carve-out and split the stranded cost, which is the block everything else is struck on; fifteen for RemainCo and the applied range; fifteen for the sum-of-the-parts, the price ladder and the proceeds bridge; thirty for both accretion tabs on both timings and both earnings measures, which is the largest single block; and twenty for the sharing grids, the spin-versus-sale comparison and the summary. That leaves nothing spare, which is the point. The common failure is a beautifully built pair of accretion grids attached to a carve-out earnings figure that was never built properly.
About This Carve-Out / Divestiture Case Study
Carve-Out / Divestiture case study for investment banking interviews. 120-minute format covering carve-out financials and standalone cost build, stranded cost quantification, illustrative sharing of synergies. Includes the full prompt, the CIM, a model answer deck, a tied-out Excel model 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
Audio Walkthrough
How to approach the case under time pressure
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