Investment Case Framework

1. Analysis of Revenue and Cost Synergies:

• Placement: Typically, the analysis of revenue and cost synergies would be a crucial part of the overall financial analysis in an investment scenario. This could be part of the due diligence process, where a Private Equity (PE) firm or a business evaluates the potential benefits from the investment. Revenue synergies might involve exploring new market opportunities, cross-selling products, or expanding the customer base. Cost synergies could include economies of scale, shared resources, and operational efficiency improvements.

2. Opportunity Costs:

• Placement: Opportunity costs should be considered in the decision-making process. In your case study, you might want to include a section where you weigh the benefits of the chosen investment against the potential benefits of other available alternatives. This could be placed after presenting the potential returns and risks of the chosen investment. It's a way of acknowledging that resources are finite, and choosing one investment path means forgoing others.

3. Structuring a Case Study:

• Overview: Begin with an introduction to the investment opportunity and its context.
• Financial Analysis: Include sections on revenue and cost synergies, providing detailed projections and assumptions.
• Risk Analysis: Identify and assess potential risks associated with the investment.
• Opportunity Costs: Devote a section to the evaluation of alternative investments and the opportunity costs involved.
• Recommendations: Conclude with a recommendation based on the analysis, taking into consideration the synergies, risks, and opportunity costs.

4. Assessing Company Capabilities vs. Risks:

• Assessing Capabilities: This involves evaluating a company's strengths, weaknesses, assets, human resources, technology, brand, and market positioning. Look at its ability to innovate, adapt to market changes, and execute strategies effectively. This assessment is more forward-looking and focuses on the internal factors that could drive success.
• Assessing Risks: This involves identifying potential challenges and threats that could hinder the company's performance. It's a more defensive perspective, examining external and internal factors that might pose risks to the company's operations, financial health, or market position.

In a comprehensive case study, you would want to balance both perspectives, considering how the company's capabilities can help mitigate risks and seize opportunities. It's about understanding the company's position in its industry and market and evaluating its ability to navigate uncertainties.

Hello, 

Very good questions!
1. You would have dimensions around a. Investment financials, b. Synergies (to potentially improve current financial assessment | this would be based on other information you would gather about market, purchasing company, current operations, etc). → You would then be able to compare that to Investment Criteria to determine if good investment (pay back period, ROI, opportunity cost …) 

2. As mentioned, opportunity cost is not something you always want to flag as such but rather ask if there are INVESTMENT CRITERIA the PE company has (e.g. payback within 5y). → If so, you can say based on analysis, this investment PASSES or NOT the criteria and qualifies (closing comments "now if the company had other opportunities you could compare them, but based on info provided this is a good investment) 

3. Capabilities are everything related to THEIR businesses (think internal), you can think: Operations (logistics, suppliers, distribution, network…), Innovation/product (portfolio, new products…), market positionning … | Risks are more changing dynamics (e.g. revenue/ebitda trends, competitors, customers, products, regulations, …) 

Cheers! Let me know if you have other questions. 
Nicolas 

Hi there,

Please get coaching. You're fundamentally thinking about frameworking (and business) wrong.

It's hard to answer your questions, because they're just “wrong” questions, but I'll answer them the best I can.

It's like asking a nutritionist “When I drink Soda should I drink less Soda?"

It's like, no, you just shouldn't drink Soda. And there's a bigger point of just limiting sugar overall. And, it's more about your hollistic diet AND exercise rather than just 1 narrow question of “drink less Soda”.

Make sense? You're doing the same thing here with your questions in terms of missing the forest for the trees.

1. Where would one place the analysis of Revenue and Cost Synergies when looking at an investment. Whether it’s a PE firm wanting to purchase a business, or a current business wanting to expand into a new market or segment.

If a PE firm is buying a business, there are no synergies. By definition. If a business is expanding, there are no synergies. Synergies happen with two companies being put together.

2 Going off the first question, where would I mention opportunity costs of the investment?

1. How would you structure a case study about an investment considering Synergies and opportunity costs.

I need more. I need to hear an actual prompt. That's because you need to tailor your answer to the prompt.

Very generically, Bucket 1 = Cost (of investment), Bucket 2 = Benefit, and Bucket 3 = Implementation considerations.

Bucket 2 contains synergies (kind of, but you're thinking about synergies wrong), and Bucket 3 contains opportunity costs (implementation = can I do it and does it make sense)

3. Finally, when assessing the capabilities of a company, what exactly would I be asking/looking for? What is the difference between assessing capabilities vs. risks associated?

But what are you looking at the company's capabilities. What does that have to do with should I make this investment?

I'm not saying it doesn't apply, but it definitely doesn't always apply. It depends on the prompt.

============================================

Frameworking/Case Driving

First, remember that casing isn't just about memorizing every step, industry, case type, etc. It's about learning how to be adaptable and nimble. So, always be prepared for the unexpected.

1. All cases are structured, wheather you realise the structure or not. It's your job to keep it organised and keep it to a good flow/framework!

2. Figure out what data/information you need and ask for it: The interviewer won't just give it to you (just like your client won't know what you need from them). Use your framework to dive into areas! If your interviewer insists they don't have data in that area (after you've gone specific), then go into another area of your framework (or expand out).

3.In this case try and keep a mini framework in your head. You can write as you talk as well.

When you say "not those kinds of questions an interview-led style would ask" this shows me that you're limited in your preparation....don't come in expecting a certain format/style! Be ready to drive your own case if needed. Think if you were on a real life project and asked to lead it...this is what they need you to demonstrate!

Frameworks

If there's anything to remember in this process, is that cases don't exist just because. They have come about because of a real need to simulate the world you will be in when you are hopefully hired. As such, remember that they are a simplified version of what we do, and they test you in those areas.

As such, remember that a framework is a guide, not a mandate. In the real-world, we do not go into a client and say "right, we have a framework that says we need to look at x, y, and z and that's exactly what we're going to do". Rather, we come in with a view, a hypothesis, a plan of attack. The moment this view is created, it's wrong! Same with your framework. The point is that it gives us and you a starting point. We can say "right, part 1 of framework is around this. Let's dig around and see if it helps us get to the answer". If it does, great, we go further (but specific elements of it will certainly be wrong). If it doesn't, we move on.

So, in summary, learn your frameworks, use the ones you like, add/remove to them if the specific case calls for it, and always be prepared to be wrong. Focus rather on having a view, refering back to the initial view to see what is still there and where you need to dive into next to solve the problem.

HOW to learn/think in the right way.

1. Frame based on the objective: Identify exactly what the objective is, then think about the areas you would look at to solve the problem.
2. Think of buckets as "building blocks" - understand the 10-odd buckets that exist out them (Market, Product, Company, How to Enter, etc.). Learn these, and what their used for, then think of them as ingredients that you then pluck out and tailor to your framework.
3. Practice with Introduction, then End, then framework:
   1. ​ Practice a number of cases where you hear just the introduction, then build a framework.
   2. THEN, look at the end of the case and what conclusion was made, and re-do your framework.
   3. THEN, look at what framework(s) was/were proposed as the answer.
4. Read the Economist religiously: The Economist is an excellent, longer-term base knowledge/thinking resource for you. I've found that reading the Economist over the years has been instrumental in helping to shape my thinking and holistically understand problems, whether political, economic, social, or anything in between. Feel free to throw in the Financial Times or BCG Insights into the mix!

Hi there,

 I agree with Ian that coaching might be the best course of action at this point.

Here's my issue: You're not actually asking broad questions. You're asking very specific questions but don't provide any context. This means that you're detaching the analytical framework from the problem at hand, which is exactly what happens when people don't learn how to do this right.

Secondly, it's important to understand that there's different kinds of frameworks regarding their purpose:

• Inductive (bottom up): In candidate-led cases, you're typically asked to solve a specific problem during the interview. The framework serves as an analytical game plan for the duration of the interview to solve the problem at hand. As you go along, you uncover information and put together the pieces to form a conclusion in the end.
• Deductive (top down): In interviewer-led cases (basically just McKinsey at this point), your framework serves an entirely different purpose. After the prompt, you're being asked a specific question. To answer the question, you're starting with a general theory and form hypotheses based on the info you have e.g. long prompt. Your framework is not an analytical game-plan and rather a structured and closed answer. Anything you uncover throughout the case can and should be referenced to the initial answer, when applicable.

Hope this helps a bit. Happy to talk more if needed.

Best of luck!

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1. “Where would one place the analysis of Revenue and Cost Synergies when looking at an investment. Whether it’s a PE firm wanting to purchase a business, or a current business wanting to expand into a new market or segment.”

This depends on the investment thesis. If you are merging two companies and want to optimize performance (that's usually the case when merging) you will look at this.

If you are not merging… then there are no synergies. 

2. Going off the first question, where would I mention opportunity costs of the investment?

You do this if they are considering alternative investments. Or if they do not provide a criteria for deciding whether to invest or not (i.e., if they don't have a specific criteria, then risk-adjusted cost of capital would be the adequate benchmark for performance) 

3. When assessing the capabilities of a company, what exactly would I be asking/looking for? 

This depends on the case. You are looking for capabilities that are critical to win in the market. For example, in Consumer Products cases, you want to look into brand and into channel / distribution presence. To be honest, I would “drop” the work “capabilities” as it is meaningless when used in this generic form.

4. What is the difference between assessing capabilities vs. risks associated?

Given the answer to the previous question, this should be clear by now. By the way, you don't assess “risks” separately. You assess risk in each “driver” you are evaluating. The exception would be if you think a risk-reward analysis is required (e.g. run sensitivity analysis is required to understand how likely it is to achieve the required profitability level; however, I would not have this as a separate analysis, but as something you do immediately if and when you estimate profitability level).

I see you already got a few great answers. 

A few things to add.

Generally, when you are advising on an investment, you need to figure out if that ‘opportunity’ is real - i.e., you need the validate the hypothesis that the client has.

Then if the hypothesis turns out to be true, you should ideally then evaluate if it's the ‘right thing for the client’. Some opportunities might be amazing for the competition, but destructive for our client. This is where you want to look at the overlap in terms of fit. 

Best,
Cristian

Hi!

I've got a few Investment-related cases in my library.
Feel free to DM me and schedule a session, the first one is 50% off.

Kind regards,
Nick