Project Elverton — Investment Memo from a CIM
A 4-hour Investment Committee Memo case study with a complete model answer
Modeled After
Warburg Pincus
The take-home investment memo Warburg Pincus is reported to set against a confidential information memorandum, graded on the ability to synthesize and present, on identifying the merits, on identifying the key risks with the diligence steps that would get comfortable with them, on model integrity and the rationale for assumptions, and on the IRR analysis and choice of sensitivity.
Structure and exercise format are modeled after Warburg Pincus — the take-home memo format the firm is reported to use. The company, the financials and every figure in this case are entirely our own.
The Situation
Elverton Testing & Certification, Inc. is a testing, inspection and certification business: laboratory testing of materials and products, environmental and water analysis, building and infrastructure inspection, and third-party certification and audit.
Elverton Testing & Certification
- Sector
- Business services — testing, inspection and certification, four service lines across a national laboratory network
- Size
- Geography
- United States, with a laboratory footprint across 14 states and operations in 3 countries; South and Midwest are the two largest regions
- Ownership
- Situation
The Prompt
You are an associate at a private equity firm.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
The confidential information memorandum (cim.pdf)
Blank workbook (template.xlsx)
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 240 minutes.
PART 1
The Deal Alert — three pages maximum
PART 2
The adjusted EBITDA bridge, and the judgment on it
PART 3
Three operating cases on one structure
PART 4
Sources, uses and the five-year debt schedule
PART 5
Exit, returns and the maximum supportable price
PART 6
Returns attribution and two chosen sensitivities
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 memo and Excel model are in the solution set below.
- 0:00 – 0:30
read the book, and do not open Excel
- 0:30 – 0:50
do the arithmetic the memorandum does not
- 0:50 – 2:15
build the model, drivers on the face
- 2:15 – 2:55
invert for the price, then choose the sensitivities
- 2:55 – 4:00
write the Deal Alert, and stop modeling
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
The Deal Alert versus the investment memorandum
In a live process there are two memos, written weeks apart. The first is a Deal Alert: two to three pages, written when the book lands, whose job is to get permission to spend money on diligence. The second is the full investment memorandum, written much later before a binding bid — after the data room, after management meetings, after a quality-of-earnings report has come back. Writing the second document from the first document's information makes every page of it decoration, because the things that would fill it are not yet known. The commonest way to fail this case is to produce thirty excellent pages of the wrong document.
One company, three earnings numbers
Reported EBITDA is what the accounts show. Adjusted EBITDA is what the memorandum presents. The earnings you underwrite is a third number, and it is the one every multiple, every turn of leverage and the whole debt quantum should be struck on. A multiple quoted without its denominator is the single easiest thing to be misled by in a sell-side process, which is why a good memo prints all three side by side wherever a multiple appears rather than picking the flattering one.
An adjustment that recurs is not an adjustment
The test on each line of a bridge is whether the cost stops, and what stops it. A monitoring fee that terminates by contract on a change of control stops. The annualized effect of businesses already owned is arithmetic and verifiable. Deal costs, integration costs, severance and greenfield start-up losses at a company that buys four to six businesses a year do not stop, because the plan you are being sold assumes more of the same deals. Calling those exceptional is calling the strategy exceptional.
A plan that buys revenue must charge the cash
When a memorandum states a revenue plan and, separately, an organic growth rate, the difference between them is revenue the plan intends to buy. Buying it costs cash — at the acquired margin and the multiple the company itself discloses — and a plan that shows the revenue without the consideration has shown you the benefit and hidden the price. This is the second-largest thing in the case and it is one subtraction away from two numbers the book prints.
The same benefit sold twice
Watch for a synergy that is both added back to historical earnings as unrealized and embedded in the forecast as margin expansion. Each statement is defensible on its own page; together they charge you for the same improvement in two places. This is the kind of error you only catch by reading a book for internal consistency rather than for content, and it is worth saying out loud in the memo because it changes what the plan is worth rather than merely what it looks like.
Solve for the price, do not pick it
'What is the return at this price?' and 'what would you pay?' are different questions. In this structure the entry price enters in exactly one place — the size of the equity check — so holding the return at the hurdle and inverting gives a closed-form answer rather than a goal seek. And because the output is a ceiling, it truncates to its printed precision: rounding it up, even by a tenth, puts a price on the table the hurdle does not support, which is the one direction that figure is not allowed to move in.
Sensitivities are chosen, not defaulted
The reflex grid is entry price against exit multiple. Here it tests nothing, because the entry price is the output of the exercise and sweeping it against the exit sweeps one variable twice. The two things actually in dispute are how much of the memorandum's bridge survives diligence and where a larger, more diversified business trades on the way out. Choosing the axes is itself a graded judgment, and the choice tells a reviewer whether you understood the case or reached for a template.
Every risk carries its diligence step
A risk list with no diligence attached is a list of reasons to do nothing, and it is the fastest way to look junior on a committee paper. Each risk should name the document, the file or the analysis that would resolve it — three years of monthly management accounts, the pipeline log with the multiple paid on each signed letter of intent, the accreditation body correspondence file. And where a risk cannot be diligenced, say so and price it instead, because a discipline stated is worth more than a diligence item made up.
The memo must be able to say the good things
A Deal Alert that agrees with its own CIM has not done the exercise. But a memo that omits the genuine merits to make its objections look stronger is a worse memo, not a tougher one. Revenue retention, framework coverage, customer diversification and a margin that improves on your own basis as well as the seller's are checkable facts and they belong in the paper. The committee is not asking you to dislike the asset. It is asking whether the price is right.
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: memo 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
- —Synthesizing a CIM into a thesis
- —Deal Alert format and length discipline
- —Risk identification with the diligence step attached
- —Model integrity and driver identification
- —Five-year IRR analysis with sensitivities
- —Recommendation with a stated hurdle
Memo
The written recommendation and how it was reached
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the memo, 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 Memo (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 Elverton — Investment Memo from a CIM
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
How long should the memo actually be?
Two to three pages, and the cap is the exercise rather than an inconvenience. This is the first investment committee review of a live process: the paper exists to get permission to spend diligence money, not to conclude anything. The thirty-page memorandum belongs weeks later, before a binding bid, when you have had the data room, management meetings and a quality-of-earnings report. Writing it now means most of its pages are decoration, because the facts that would fill them do not exist yet.
Why does the memorandum not contain a price?
Because no memorandum does. The price is what the process is for, and a seller that publishes its own number has made an opening bid and capped itself at it. The same reasoning explains the other omissions: no multiple applied to its own earnings, no capital structure, no return and no recommendation. Those are all the buyer's work, and a book that did them would be arguing with its recipients in advance. The price in this case arrives the way it usually does — verbally, from the advisor, after the book.
Should I take the add-backs at face value?
No, and you should not reject them wholesale either. The memorandum presents all of them without distinction, which is exactly what a memorandum does; the judgment is yours. Test each one on whether the cost stops and what stops it, and be ready to defend the split in both directions. Accepting everything reproduces the seller's answer. Rejecting everything prices the company off reported EBITDA and ignores charges that really do terminate at close. Neither extreme is defensible, and the memo should say which lines moved and why.
The memorandum discloses the multiple the company paid for its own acquisitions. Is that a valuation?
No, and keeping the two apart matters. It is a fact about transactions already completed, on the acquired businesses' earnings at the time, and the memorandum is entitled to disclose it because it describes the economics of the strategy being sold. It is not a view on what this company is worth, and a candidate who anchors on it has been handed a number and mistaken it for an answer. What it is useful for is pricing the acquisitions the plan assumes — and for asking whether an average is hiding a wide spread.
Should I build a discounted cash flow?
No. A first-round Deal Alert prices the asset off what it returns to the fund, not off a cost-of-capital debate, and the hurdle is the discount rate in a sponsor's language. There are no comparable companies and no precedent transactions either — the memorandum contains no peer set to inherit, and a first-round paper that invents one has substituted a screen for the analysis it was asked for. One output price, expressed as a ceiling.
How do I choose the sensitivity axes?
Ask what you might actually lose an argument about. Here it is how much of the memorandum's bridge survives diligence, and where a larger and more diversified version of this business trades when you come to sell it. Do not sweep the entry price: it is the output of the exercise, and running it against the exit multiple sweeps one variable twice while looking like thorough work. Choosing the axes is itself graded, and the choice is the clearest signal in the paper of whether you understood the case.
What does 'every risk gets the diligence step' mean in practice?
It means naming the document or the analysis that would settle it. Not 'we should diligence the add-backs' but a quality-of-earnings review scoped at the specific lines in dispute, with three years of monthly management accounts behind it. Not 'the pipeline is a risk' but the pipeline log and the last twelve signed letters of intent with the multiple paid on each. Where nothing can settle it — the exit multiple you assume, for instance — say so and price it in the grid instead of pretending it is a diligence item.
Is it acceptable to recommend proceeding while expecting to lose?
Yes, and on this case it is often the strongest answer available. If the price your hurdle supports sits well below what the vendor has described, the committee is better served by a paper that says so and asks for a bounded diligence budget than by one that manufactures a yes. The reviewer's next question is always why you chose that assumption, and 'because the deal otherwise did not work' is the answer no workbook can rescue.
About This Investment Committee Memo Case Study
Investment Committee Memo case study for private equity interviews. 240-minute format covering synthesizing a cim into a thesis, deal alert format and length discipline, risk identification with the diligence step attached. Includes the full prompt, the CIM, a written memo, a tied-out Excel model and an audio walkthrough.
This case study sits in Private Equity, under Investment Committee Memos. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
240-Minute Format
The time limit a real assessment would give you
Memo
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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