Project Nettleford — 15-Minute Paper LBO
A 15-minute Paper LBO case study with a complete model answer
Modeled After
Warburg Pincus
Warburg Pincus's LBO modeling test as candidates describe and rebuild it: a clean assumption template, a capital structure quoted in turns of EBITDA against a per-tranche cash rate, an explicit circularity switch, and a start/end/elapsed timing discipline logged across successive attempts.
The capital-structure convention and the timed-drill discipline are modeled after Warburg Pincus. The fifteen-minute paper format is a general market convention rather than any one firm's, and the company, the capital structure and every figure in this case are entirely our own.
The Situation
Nettleford Fire Protection Group
- Sector
- Industrials / business services — commercial fire protection and life safety; scheduled inspection, testing and monitoring, plus installation and retrofit
- Size
- Geography
- United States; Southeast and lower Midwest
- Ownership
- Situation
The Prompt
You are a candidate in a second-round private equity interview. Twenty-five minutes into a sixty-minute conversation with two investment professionals, one of them slides a single page across the desk and reads it out:
"Nettleford Fire Protection Group did four hundred million of revenue last year at a twenty-five percent EBITDA margin.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
The prompt (material-1.pdf)
Blank template (template.xlsx)
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 15 minutes.
PART 1
Entry, funding and the blended cost of debt
PART 2
The five-year operating model to levered free cash flow
PART 3
Exit, multiple of money and an approximate IRR
PART 4
Returns attribution, the tie-out and the recommendation
EXTENSION A
Six named sensitivity cases
EXTENSION B
What the fifteen-minute simplifications cost
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 Excel model is in the solution set below.
- 0 – 1 min
blend first, then check the list
- 1 – 3 min
entry, in three multiplications
- 3 – 7 min
the build, using the shortcut
- 7 – 9 min
exit and the multiple of money
- 9 – 12 min
attribution, including the line that is negative
- 12 – 15 min
the recommendation, and the de-rating defended
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Blending a two-tranche structure before you use it
A term loan and a subordinated note at different coupons are two rows in a funding table, not a debt schedule. Weight each rate by its share of total debt, produce one blended cost, and carry that single number through the hold. The amounts here are chosen so the weighting is a one-step mental calculation. Doing it first is worth four seconds; not doing it costs you a multiplication per tranche per year, and every one of those is a chance to drop a decimal in front of two people who are watching.
The minimum information set — and a case where nothing is missing
Capital structure, duration, projected EBITDA, D&A, cost of debt, tax rate, working capital, capex, exit multiple. Nine items, and you cannot finish without all nine. Run the list anyway even when the page is in front of you, because knowing it cold is what lets you spot a gap in four seconds rather than four minutes. The one input here not given in the form you need it is the cost of debt: you are handed two rates and have to produce the blend yourself.
No debt paydown until exit
The defining simplification of the paper-LBO tier. If the debt balance never moves, interest never moves, so there is no circular relationship between the debt schedule and the income statement to resolve — which is why a paper LBO has no debt schedule at all. Neither tranche pays interest in kind either, because a PIK strip accretes the balance and puts the circularity straight back in. The simplification also understates the return slightly, since a real sweep would have been cutting interest along the way.
An exit multiple below entry is an assumption, not a default
The base-case convention is that exit equals entry, and a base case assuming multiple expansion is not acceptable, because it leans the return on the one variable the sponsor does not control. Assuming contraction runs the other way: it is the conservative direction and it is permitted, but only as an explicit labeled assumption you can defend on the facts. Here the defense is the earnings mix and the process asymmetry, and you should offer it before anyone asks for it.
Buying bilaterally and selling into a process
Half of the de-rating case is not about the company at all. The entry multiple is a price negotiated with a founder who has no other bidder in the room. The exit is a sale into a market with several credible buyers running real diligence. Those are not symmetric situations, and the direction the asymmetry pushes the multiple is against you, not for you. Any candidate underwriting a flat exit out of a bilateral entry should be able to say why that is safe.
The growth assumption and the de-rating are the same fact
Roughly three fifths of Adj. EBITDA is contracted inspection, testing and monitoring; the rest is project work won job by job with no renewal. The growth in the plan comes disproportionately from the project side, because that is where the capacity is. So the business gets bigger and, on plan, slightly lower quality — and the exit buyer pays for the blend they inherit rather than the one you bought. Underwriting the growth rate and a flat exit multiple together treats the two as independent, which on these facts they are not.
Returns attribution with a negative line
The gain decomposes into EBITDA growth, the change in multiple, and debt paydown or cash generation, and the three must sum to exit equity less invested equity. When the exit multiple is below entry, the middle line is a deduction rather than a contribution — struck on exit-year earnings, so the better the operating plan, the more the de-rating costs. The sentence worth rehearsing is the mirror of the usual one: a return that needs a re-rating to clear the hurdle is weak, and a return that still clears it after handing back half a turn is strong.
Capex above D&A is the price of the growth
A route business adding vehicles, monitoring devices and shop equipment to serve a growing installed base spends above its depreciation. The gap between capex and D&A here is the reinvestment funding the growth rate you are being asked to underwrite. Setting the two equal is the most common unforced error in this format, and it does not simplify the problem so much as delete part of it.
Price discipline, and the constraint that actually binds
'What's the IRR?' and 'what would you pay?' are different questions. The second holds the return at a hurdle and solves for entry multiple, which turns a readout into a negotiating position. The twist here is that the answer the IRR arithmetic produces is not usable: at that price and this debt percentage the structure would carry more leverage than any lender funds against a business with this share of project revenue. The binding constraint on what this sponsor can pay is debt capacity, not the hurdle — and saying so is the difference between doing the returns math and understanding it.
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: Excel model, built the way a banker would actually build it. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Blending a two-tranche capital structure
- —Simplified free cash flow build
- —Flat interest on entry debt
- —The no-debt-paydown simplification
- —MoM to IRR conversion
- —Returns attribution under multiple contraction
- —Deal verdict
Memo
The written recommendation and how it was reached
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock 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 Nettleford — 15-Minute Paper LBO
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
Do I really have to blend the two tranches, or can I just carry both?
You can carry both and you will get the same answer, but you will get it slower and with more chances to slip. Interest is flat for all five years because nothing is repaid, so blending converts the whole debt structure into one number you use once and then never revisit. The amounts here are set up so the weighting is a single mental step. Do it in the first minute, say the result out loud, and treat the tranches as gone.
Am I really not allowed a calculator?
Correct. A paper LBO is a no-computer exercise: a blank sheet, a pen, and the prompt page on the desk. The workbook that ships with this case is the answer key and a self-check to key in afterwards — it is not the timed deliverable, and the fifteen minutes fills in zero cells. Do the paper version first against a timer, then open the template and see where your rounding went.
The exit multiple is below the entry multiple. Is that a mistake in the prompt?
No. Spotting that it is a choice rather than a slip is part of the exercise. The base-case convention is exit equals entry, and assuming expansion is never acceptable because it leans the return on the one variable a sponsor does not control. Assuming contraction is the conservative direction and is allowed — but only as an explicit assumption you can defend. On these facts it is defensible on the earnings mix and on the fact that you are buying without an auction and selling into one.
Nothing is withheld here. Doesn't that make it easier than the ten-minute version?
It makes it a different exercise. At the ten-minute tier two required inputs are left out and noticing them is the graded skill. Here the whole page stays on the desk and the fifteen extra minutes buys a structure that has to be blended before it can be used and a multiple assumption that has to be argued rather than accepted. Run the nine-item checklist anyway. It costs four seconds and it is the only way to know that nothing is missing rather than to assume it.
How much of the fifteen minutes should the arithmetic take?
About three minutes if you round hard and round consistently. The rest goes on blending and checking at the start, narrating the method as you work, decomposing the return, and delivering a recommendation that names the assumption it depends on. If you are still computing at minute twelve, the cause is almost always decimals you did not need or five years of separate arithmetic where the one-line shortcut would have done.
Should I compute the IRR properly?
No. Nobody expects a fifth root in their head, and reaching for one signals you do not know the shortcut. Memorize the five-year grid — 1.5x is about 8%, 2.0x about 15%, 2.5x about 20%, 3.0x about 25%, 4.0x about 32% — and interpolate between the two nearest rows. It is accurate to well inside a percentage point, which is far tighter than the precision of the inputs you were read.
What is the interviewer's most likely follow-up?
Some version of 'and what would you pay?'. It is asked in effectively every recorded instance of this format, it sits outside the fifteen minutes, and it is not optional. Answer it by holding the return at a hurdle and solving for entry multiple — then check the leverage that price implies before you quote it, because on this business the number the returns math produces is not one a lender would fund. Saying that out loud is the strongest thing you can do with the follow-up.
How should I frame the recommendation if the deal clears the hurdle?
Lead with the composition rather than the number. A return built on earnings growth and cash generation, delivered after handing back half a turn of multiple, is a different quality of return from the same headline figure produced by a re-rating. Then temper it: name the further half turn of de-rating that would end the deal, and note that the paper answer omits fees and a management pool, so the real margin over a hurdle is thinner than the arithmetic suggests.
About This Paper LBO Case Study
Paper LBO case study for private equity interviews. 15-minute format covering blending a two-tranche capital structure, simplified free cash flow build, flat interest on entry debt. Includes the full prompt, a tied-out Excel model and an audio walkthrough.
This case study sits in Private Equity, under Paper LBOs. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
15-Minute Format
The time limit a real assessment would give you
Excel Model
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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