Project Tallowfield — 10-Minute Verbal Paper LBO
A 10-minute Paper LBO case study with a complete model answer
Modeled After
KKR
KKR 2013 SEO Case Study Best Practices — its model audit protocol (cumulative free cash flow must tie to the change in net debt from close to exit; re-check the return calculation in the exit year) and its standard that there is no right answer provided you can explain how you built your base case. The same source sets a multi-hour written case, not a verbal screen.
The judgment standard and the returns-check protocol are modeled after KKR. The ten-minute verbal format, the aggressive-rounding discipline and the IRR-to-multiple heuristics are general market conventions rather than any one firm's, and the company, the capital structure and every figure in this case are entirely our own.
The Situation
Tallowfield Coffee Bars
- Sector
- Consumer / restaurants — franchised and company-operated coffee bars
- Size
- Geography
- United States; Midwest and Mid-Atlantic
- Ownership
- Situation
The Prompt
You are a candidate in a first-round private equity interview. Twenty-two minutes into a forty-five minute conversation, the interviewer stops talking about your résumé and says:
"Tallowfield Coffee Bars did two hundred and fifty million of revenue last year at a twenty 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 10 minutes.
PART 1
Establish the minimum information set
PART 2
Entry valuation and funding
PART 3
The five-year build to levered free cash flow
PART 4
Exit, multiple of money and an approximate IRR
PART 5
Returns attribution — where the return came from
PART 6
The recommendation
EXTENSION A
Six named sensitivity cases
EXTENSION B
What the ten-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
ask before you calculate
- 1 – 2 min
entry, in three multiplications
- 2 – 5 min
the build, using the shortcut
- 5 – 7 min
exit and the multiple of money
- 7 – 9 min
attribution, out loud
- 9 – 10 min
the recommendation, with a condition
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
The minimum information set
Capital structure, duration, projected EBITDA, D&A, cost of debt, tax rate, working capital and capex, exit multiple. Eight items. If one is missing you cannot finish, so the fastest way to fail a paper LBO is to start calculating before you have checked the list. Knowing the list cold is what lets you spot a gap in four seconds rather than four minutes.
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. That is why a paper LBO has no debt schedule at all — an absence that defines the format rather than an omission from it. It also flatters the answer slightly, because a real sweep would have been reducing interest along the way.
The five-year MoM-to-IRR grid
1.0x is 0%, 1.5x is about 8%, 2.0x is about 15%, 2.5x is about 20%, 3.0x is about 25%, 4.0x is about 32%, 5.0x is about 38%, 6.0x is about 43%. Memorize it. It is accurate to well inside a percentage point everywhere, which is far tighter than the precision of a paper LBO's inputs, and it turns the last step of the exercise from a fifth root into a lookup. The companion rule: above 6.0x over five years, check your arithmetic.
Returns attribution
Total gain decomposes into EBITDA growth, multiple expansion and debt paydown or cash generation. Growth is the change in EBITDA times the entry multiple; multiple expansion is the change in multiple times exit EBITDA; the remainder is cash. A return that leans on multiple expansion is a weaker return, because the exit multiple is the one variable in a buyout that the sponsor does not control.
Capex is not D&A
The most common unforced error in this format. For a mature, capital-light business the two converge; for a chain still opening company-operated locations, capex runs above depreciation, and the gap is exactly the reinvestment funding the growth you are underwriting. Assuming they are equal does not simplify the problem, it assumes away the cost of the growth assumption.
Earnings quality behind the multiple
Any valuation that runs off an EBITDA multiple should state what is in the EBITDA. Ask whether the figure is reported or adjusted and what the adjustment contains; where stock-based compensation or one-off add-backs are material, the multiple you are paying and the earnings the business produces are not the same thing. It costs four seconds and it is the mark of someone who has priced a real deal.
Price discipline
'What's the IRR?' and 'what would you pay?' are different questions. The second one holds the return fixed at a hurdle and solves for the entry multiple, which converts an IRR readout into a negotiating position. Expect it as the follow-up, and know roughly how many turns of headroom there are above the asking price before the hurdle disappears.
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
- —The minimum information set
- —Asking for the missing assumption
- —IRR-to-multiple heuristics
- —Aggressive rounding
- —Returns attribution
- —Verbal delivery of a number
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 Tallowfield — 10-Minute Verbal Paper LBO
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
How long should the arithmetic actually take?
About two minutes, if the rounding is aggressive and consistent. The remaining eight are for asking the right questions at the start, narrating the method as you go, and delivering a recommendation with a named sensitivity at the end. If you are still computing at minute eight, the problem is almost always that you tried to carry decimals you did not need.
Am I really not allowed a calculator?
Correct. A paper LBO is a no-computer exercise: a blank sheet and a pen. 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 ten minutes fills in zero cells. Do the paper version first, then open the template and see where your rounding went.
What do I do if I cannot work out which inputs are missing?
Say what you are assuming and keep moving. The failure mode here is an unstated assumption rather than a wrong one. 'I don't think you gave me a tax rate — I'll use twenty-five percent unless you'd rather I used something else' costs three seconds and converts a gap into a demonstration that you know the checklist.
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. Read it off the memorized five-year grid and interpolate between the two nearest rows. If the interviewer wants precision they will hand you a calculator, which they will not.
The exit multiple equals the entry multiple. Isn't that unrealistic?
It is the base-case convention, and it is a choice rather than a default. Holding exit equal to entry means none of the return depends on the market re-rating the asset, which is the honest way to underwrite. If a case assumes multiple expansion, that has to be an explicit, labeled assumption you can defend — a reversion to the mean is an assumption, not an explanation.
What is the interviewer's most likely follow-up question?
Some version of 'what would you pay?' or 'what would worry you?'. The first is answered by holding the return at a hurdle and solving for the entry multiple; the second by naming the assumption the return depends on and quantifying what happens if it halves. Both are in the extension tabs of the workbook, and neither is expected inside the ten minutes.
Does this format still come up, or is it a relic?
It is one of the most common exercises in buyside recruiting and it is usually the first quantitative question in a first round. It survives because it is cheap to administer and very hard to fake: you cannot pattern-match your way to a returns attribution, and thirty seconds of listening tells an interviewer whether you have built a model or only watched someone build one.
About This Paper LBO Case Study
Paper LBO case study for private equity interviews. 10-minute format covering the minimum information set, asking for the missing assumption, irr-to-multiple heuristics. 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.
10-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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