Private Equity Cases 2026: Does the Asking Price Hold

The private equity question is a price, and the clock is the hold

A diligence case has five terms and only one of them is the current profit.

Entry value equals earnings times the entry multiple. Debt funds part of it and equity funds the rest. Earnings then grow, or they do not. Exit value equals the final year's earnings times an exit multiple. What the fund keeps is exit value less whatever debt remains, and the return is that amount over the equity it put in, spread across the hold period.

So a recommendation in this sector ends with a number in dollars or in turns of earnings. "Improve the operations" is not an answer, because the fund can only act by paying or walking.

The hold period does the work that a discount rate does elsewhere. Oliver Wyman's own published case makes it visible: its model answer refuses an entry that turns a real annual profit because it "does not align with the client's investment criteria for a five-year payback period", checked 29 September 2026 at oliverwyman.com. Money was being made. The answer was still no.

Bain's published coffee shop case sets the same trap from the other side. Its algebra charges the entire cost of opening the shop against the first year, and the firm then remarks that "a better answer would take into account how long it would take for her to recoup the cost to open the store", checked 29 September 2026 at bain.com. So ask what hold period and what hurdle apply before computing anything.

Private equity consulting, and why a consultant is in the room

A candidate meets this case because the diligence gets bought. Oliver Wyman, whose dairy farm case is worked below, publishes the practice that sells it. Its private equity and principal investors page, read 8 October 2026, puts it in one sentence: "We serve private equity firms and their portfolio companies with a focus on delivering a differentiated return on investment across the investment cycle." The same page counts "500+ due diligences" over the last year and "$50B+ enterprise value generated over the past 2 years".

It also names what the practice sells, in six lines: Buy-Side Due Diligence, Post-Transaction Support For Operations, Post-Transaction Support For Commercial Excellence, Sell-Side Vendor Due Diligence, Post-Merger Integration And Carve-Outs, and Mergers And Acquisitions.

Read that list as a map of the seat. Private equity consulting spans three moments, and the case below is the first of them: a buy-side question, an operating question, and an exit question. A private equity consultant works the fund's clock rather than the company's, which is why the hold period keeps turning up in the arithmetic.

Consulting to private equity has one feature no other practice has. The client can decline to act. A diligence that ends in a refusal is a delivered answer, and the model answers quoted above are both refusals.

Oliver Wyman's two dairy farms, a private equity case computed

The firm publishes a fund diligence, and it repays being worked as one. "A private equity firm is deciding whether to invest in a dairy farm in a county of Illinois. There are two dairy farms in the area, both of which only produce milk", checked 30 September 2026 at oliverwyman.com.

Here are the published inputs. Farm One has 10,000 cows at 100 units of milk each, sells standard product, pays $10 a unit in feed and carries $5 million of fixed cost. Farm Two has 5,000 cows at 80 units each, sells organic product, pays $15 a unit in feed and carries $3 million of fixed cost. Standard milk sells at $20 a unit and the price is set by the state. Organic milk sells at $30 a unit.

Farm One first. Volume is 10,000 cows at 100 units, which is 1,000,000 units. Then 1,000,000 units at $20 is $20 million of revenue, and 1,000,000 units at $10 is $10 million of feed. Take off $5 million of fixed cost and the farm earns $5 million.

Farm Two next. Volume is 5,000 cows at 80 units, which is 400,000 units. Then 400,000 units at $30 is $12 million of revenue, and 400,000 units at $15 is $6 million of feed. Take off $3 million of fixed cost and the farm earns $3 million.

Both farms run at exactly twice breakeven

The last row is the one the published case does not draw, and it takes two divisions.

Farm One covers $5 million of fixed cost at $10 of contribution a unit, so it breaks even at 500,000 units against 1,000,000 produced. Farm Two covers $3 million at $15 a unit, so it breaks even at 200,000 units against 400,000 produced.

Both farms operate at exactly twice their breakeven volume. That is worth saying because it kills the usual reflex. A candidate looks at the bigger farm and calls it safer, or looks at the higher unit margin and calls the smaller one better. On operating gearing they are identical, and the difference has to be found somewhere else.

It is found in the price. The standard milk price of $20 is set by the state, and the organic price of $30 is not. So a one dollar fall in the standard price takes $1 million off Farm One, which is 20 percent of its profit and arrives by administrative decision. A one dollar fall in the organic price takes $400,000 off Farm Two, which is 13.3 percent of its profit and arrives through the market.

Farm One therefore carries less price volatility and more price concentration. One decision by one body moves a fifth of its earnings. That is the risk a fund underwrites when it buys the larger farm, and it belongs in the recommendation rather than in a footnote.

Putting a price on five million dollars of earnings

The published case names no price, which is the gap a candidate has to fill out loud. Assume the seller of Farm One asks eight times earnings, so $40 million of enterprise value. Six more assumptions are needed before anything can be computed, and each one should be said out loud as an assumption.

1. Hold period. Five years.
2. Exit multiple. Eight times, the same as entry.
3. Profit growth. 3 percent a year.
4. Debt. $22 million at 8 percent fixed, so equity of $18 million.
5. Tax. 21 percent on profit after interest.
6. Cash use. All net income repays debt, and nothing is distributed.

Run the unlevered case first, because it is one division and it frames everything. The schedule below holds profit at $5.0 million in year one and grows it from there, so year five profit is 5.0 times 1.03 to the power of four, which is $5.628 million. At eight times that is $45.02 million of exit value against $40 million paid, so the money multiple is 1.1255 and the annual return is 2.4 percent. That sits 0.6 points under the 3 percent profit growth rate, because the multiple did not move and the first year of the hold earns no growth at all. Unlevered, this deal returns slightly less than what the cows grow.

Now add the debt and sweep the cash. Equity in is $18 million.

Exit value is eight times the year five profit of $5.628 million, which is $45.02 million. Take off the $6.18 million of remaining debt and the equity is worth $38.84 million. Against $18 million in, the money multiple is 2.16, and over five years that is a 16.6 percent annual return, rounding the 16.63 the root gives.

Read what those two runs show together. Unlevered, 3.0 percent. Levered, 16.6 percent. Almost the entire return comes from turning $15.8 million of accumulated net income into debt repayment, and none of it comes from the business getting better at making milk.

The maximum multiple a private equity hurdle allows

A fund does not ask what return a price gives. It asks what price a required return allows, and that is one more division.

Suppose the hurdle is 20 percent a year over five years. A 20 percent compound return needs a money multiple of 1.20 to the power of five, which is 2.488. The exit equity of $38.84 million divided by 2.488 gives $15.61 million of entry equity. Add the $22 million of debt and the enterprise value is $37.61 million, which on $5 million of earnings is 7.5 times.

So the answer is a maximum price of 7.5 times earnings. At the asking eight times the deal returns 16.6 percent and misses the hurdle. The conversation with the seller is now about half a turn of earnings, and the fund knows exactly what half a turn is worth.

Then test the one risk that actually breaks the model. Rerun the ladder with the standard milk price one dollar lower, so profit starts at $4 million and still grows 3 percent. Year five profit becomes $4.502 million, exit value becomes $36.02 million, and the slower cash generation leaves $10.92 million of debt outstanding. Equity at exit is $25.10 million, the money multiple is 1.39, and the annual return is 6.9 percent.

State the conclusion in the fund's own currency. Five percent off a state set price takes the return from 16.6 percent to 6.9 percent, and no operating improvement inside a dairy farm closes that gap. Buy Farm One at 7.5 times or below, and only with a view on the state price that the fund is willing to defend in front of its own committee.

Where a diligence answer loses points

The weights that follow are ours, read from the rubric code in this repository, and Oliver Wyman publishes qualitative criteria under each question of its case without any weighting at all. What sits behind each of our weights is on how an answer is assessed.

Drilling the return arithmetic

Rework the deal one variable at a time, and say which of the five terms you are moving.

Exit multiple first, because it is the term candidates assume away. Hold everything and exit at seven times rather than eight. Exit value becomes 7 times 5.628, which is $39.39 million, equity becomes $33.21 million, the multiple is 1.85 and the return is 13.0 percent. So one turn of multiple contraction costs 3.6 points of annual return, and that is the number to have ready when an interviewer asks about market conditions at exit.

Leverage second. Take debt from $22 million to $28 million, so equity in is $12 million. Interest in year one becomes 8 percent of 28, which is $2.24 million, and the sweep runs against a bigger balance for longer. The direction is obvious and the magnitude is not, which is why it gets computed rather than asserted.

Then try Farm Two on the same terms. At eight times its $3 million it costs $24 million, and the organic price is not administered. Whether that is the better asset depends on which risk the fund would rather own, and the arithmetic above gives it the two numbers to choose between.

Our breakeven calculator handles the fixed cost divisions in the first table, and the math drill times chains like the ladder and reports Answer, Working, Units and Interpretation on their own lines.

For an entry decision judged against a threshold rather than a hold, see the market entry framework. For the balance sheet businesses a fund most often looks at in financial services, see banking cases. For the profit tree that a diligence sits on top of, see the profitability framework.