CASE INTERVIEW WORKSHOP:

PART III

ANNOUNCEMENTS Weekly case practice Thursday, 30th June,

5:30pm, UT MSB B100. Now open to all members. McKinsey online events: http://

www.mckinsey.com/careers/your-career/McKinsey-on-campus/online-events Full time application deadline: July 18th 2016

BCG connection event on July 7th from 5-7pm at their Houston office  (1221 McKinney, Suite 3000 Houston, TX 77010)

Weekly case practice on Thursday, July 7th is cancelled due to the BCG event.

OPENING A CASE

1. Take notes2. Synthesize the prompt3. Ask clarifying questions 4. Pause to prepare your structure5. Present hypothesis and structure

ANALYSIS

1. Select one component of issue tree2. Analyze using process of elimination3. Comment on significance of numbers4. Update issue tree5. Summarize what you have learned6. Move to next branch7. Exhaust all branches

CLOSING

1. State recommendation or conclusion clearly

2. Two or three supporting reasons3. Risks (as appropriate)4. Next steps (as appropriate)

DIFFERENT CASE TYPES By format

Interviewer-led Candidate-led Written/presentation Group

By content Market entry Profitability Business situation/strategy Mergers and acquisitions “Back of the envelope” estimation case

MERGERS AND ACQUISITIONS (M&A) CASE

PROS AND CONS OF M&A

Pros Increases market

shareReduces

competition Introduces less risk

(v.s. developing new products)

Cons Increases financial

risksMay not achieve

synergyMay introduce

clash in company culture

REAL-LIFE M&A CASES

PROMPT

Our client is a beer brewing and retailing company in the east coast. Their products serve the regional “low-end” market and the company has a steady growth in sales. Currently our client is actively seeking acquisition opportunities and interested in Bita Beer Company, a beer brewing company serving the “high-end” market in the west coast. Our client has hired us to help them figure out whether this is an attractive acquisition.

SUMMARIZE THE PROMPT

Candidate: Thanks for the information. This is an interesting case. It sounds like our client is doing well in business and looking for acquisition opportunities. Buying Bita Beer Company could be a great move for our client in terms of expanding their business. I’m happy to help them make the decision.

CLARIFYING QUESTIONS

Client’s goalGeographyPrice

CLARIFYING QUESTIONS

Client’s goalCandidate: Does our client have any specific

quantitative goal for this acquisition? Interviewer: The rationale of our client for

this acquisition is to develop a premium beer product aiming the high-end market. Meanwhile, our client hopes the investment associated with this acquisition would be profitable in 5 years.

CLARIFYING QUESTIONS

GeographyCandidate: Our client is a east coast

company. Why are they looking so far away for the acquisition?

Interviewer: Good question. That’s because currently there is no company in the east coast for sale. The premium beer market is mainly on the two coasts.

CLARIFYING QUESTIONS

PriceCandidate: I assume Bita Beer Company

is on sale. If so, what is the asking price? Interviewer: Yes, Bita Beer Company is on

sale and asks for $200M

PREPARE THE STRUCTURE

Client: A Beer producer and retailer• Serving “low-end”

market in east coast• Steady growth in sales• Acquisition target: Bita

Beer Company a premium beer producer in west coast

Clarifying questions• Return on investment

(ROI) in 5 years• No acquisition target

in east coast• Acquisition price:

$200M

Objective: Return on investment in 5 yearsHypothesis: This will be an ideal acquisition and our client can achieve its business goal.

PREPARE THE STRUCTURE

Client: A Beer producer and retailer• Serving “low-end”

market in east coast• Steady growth in sales• Acquisition target: Bita

Beer Company a premium beer producer in west coast

Clarifying questions• Return on investment

(ROI) in 5 years• No acquisition target

in east coast• Acquisition price:

$200M

Objective: Return on investment in 5 yearsHypothesis: This will be an ideal acquisition and our client can achieve its business goal.

Industry dynamics

Market size

Competition

Market growth

Synergy with client company

Increase

sales?Reduce cost?

Brand value

Company

culture

Cannibalizatio

n

Target company

Customer Product Profitab

ility

Revenu

e

Cost

INDUSTRY DYNAMICS

Industry dynamics

Market size

Competition

Market growth

MARKET SIZE AND COMPETITION

Candidate: Do we have any data about how big the markets are and the market share of Bita Beer Company?

Interviewer: Yes. Why not take a look at Exhibit 1 and tell me what you find?

EXHIBIT I

Total: $800M Total: $1 billion

2015 West Coast Premium Beer Market

2015 East Coast Premium Beer Market

INSIGHTS FROM EXHIBIT 1 Candidate: I found two things from Exhibit I: 1. In the west coast, Bita Beer Company takes 25% of

the market share, which is the highest among all the other competitors

2. In the east coast, the market size is larger with relatively less competition. It seems domestic beer is more popular in the east coast.

Candidate: I’m thinking it could be a great opportunity if our client can introduce the beer of Bita Beer Company to the east coast. I would like to explore this idea later if we have time

MARKET GROWTHCandidate: Do we have any data about

the overall market size and Bita Beer Company’s market share in previous years?

Interviewer: The overall premium beer market size has been stable in the past few years. Meanwhile, Bita Beer Company had an average of 5% growth of its market share in the past 3 years.

PART I SUMMARY

Bita Beer Company is in a leading position in the west coast premium beer market.

The overall premium beer market growth is stable and Bita Beer Company outperforms it

Domestic premium beer is more popular in the east coast where there is less competition. It could be a good opportunity for our client to introduce a new premium beer.

TARGET COMPANY

Target company

Customer Product Profitability

Revenue Cos

t

CUSTOMER AND PRODUCTCandidate: What makes Bita Beer Company’s

beer so popular in the west coast? Do we have any data about its beer and who are the customers?

Interviewer: Absolutely. Bita Beer Company has a trade secret that improves its brewing process, yielding fresher and better tasting beer. As for the customers, we don’t have any data about them. It seems that their beer is popular among all ages.

CUSTOMER AND PRODUCTCandidate: I would like to confirm that our

client will be able to produce the beer of Bita Beer Company in the east coast after the acquisition. Are there any special processes that limit the factory only to the west coast?

Interviewer: That’s a good point. Actually all the techniques are transferable after the acquisition.

PROFITABILITYCandidate: I see. I was wondering is Bita

Beer Company profitable? Interviewer: That’s a good point. How do

you plan to analyze that? Candidate: Based on Exhibit I, we should

have some information to calculate the revenue. If I can have some cost information, I should be able to calculate the profit.

PROFITABILITY - REVENUERevenue: $800M 25% = $200M

Candidate: Do they have any other source of revenue?

Interviewer: Not that we know of.

Candidate: Excellent. Do we have any data about their cost structure?

Total: $800M

2015 West Coast Premium Beer Market

EXHIBIT II

Average cost of a bottle

of beer

($)/

bottle

Raw materials 0.5

Labor 0.1

Transportation 0.2

Storage 1

Package 0.2

INSIGHTS FROM EXHIBIT II Two findings1. Total variable cost = 0.5 + 0.1 + 0.2 + 1 + 0.2 =

$22. Storage cost is the highest among all variable

costs (50%) Candidate: Do we have any information about how

many bottles Bita Beer Company sold in 2015? I was also wondering what are the total fixed costs?

Interviewer: Yes, Bita Beer Company sold 80M bottles last year. And the fixed costs were $20M.

PROFITABILITY

Total cost = $2 80M bottles + $20M = $180M

Profit = revenue cost = $200M $180M = $20M

INSIGHT FROM EXHIBIT IIBita Beer Company is a profitable companyHowever, the potential profit that our client

can acquire in the next 5 years is $20M 5 = $100M. Our client cannot break-even in 5 years for the $200M purchase price

Variable cost, especially storage cost, is the major cost of the company. If the company would like to improve its cost structure, that might be a good starting point.

Synergy with client company

Increase sales?

Reduce cost?

Brand value

Company culture

Cannibalization

SYNERGY WITH CLIENT COMPANY

SYNERGY WITH CLIENT COMPANYCandidate: Since it seems we can potentially

reduce the storage cost, I would like to focus on that first. I was wondering why is the storage cost so high?

Interviewer: That’s a good question. There are two reasons: Bita Beer Company has an outdated storage system. It

requires an investment to upgrade it. Bita Beer Company is only a beer brewing company.

There is always a waiting period before transporting the beer to the retailer, which increases the storage cost.

SYNERGY WITH CLIENT COMPANY Candidate: That’s interesting. I was wondering what

is the storage cost of our client and whether they can help Bita Beer Company to improve it.

Interviewer: The average storage cost per bottle for our client is $0.50.

Our client have recently upgraded its infrastructure for beer storage. Besides, our client is also a beer retailer, thus the waiting period is shorter. Actually our client has estimated the investment associated with upgrading the infrastructure of Bita Beer Company. This information can be found in Exhibit III.

EXHIBIT III

Plans Investment Storage cost ($)/Bottle

Plan A $40M 0.8

Plan B $60M 0.6

Plan C $120M 0.5

CALCULATION

Plans ($)Saved/bottle Profit increased/yearPlan A 1 0.8 = 0.2 0.2 80M = 16MPlan B 1 0.6 = 0.4 0.4 80M = 32MPlan C 1 0.5 = 0.5 0.5 80M = 40M

Plans Total additional profit in 5 years Total investment Break-

even?Plan

A (20M + 16M) 5 = 180M 200M + 40M = 240M No

Plan B (20M + 32M) 5 = 260M 200M + 60M =

260M Yes

Plan C (20M + 40M) 5 = 300M 200M + 120M =

320M No

INSIGHTS FROM EXHIBIT III

Candidate: After the calculation, it seems only investment plan B will allow our client to achieve its goal to break-even in 5 years. I would like to double-check our client’s financial ability to make sure they can afford the $260M investment.

Interviewer: That sounds reasonable. Our client is doing well in recent years and they can definitely afford the $260M investment.

OTHER FACTORS FOR SYNERGY

Interviewer: What other factors should our client consider regarding this acquisition?

Candidate: That’s a good question. Can I have one moment to organize my thoughts?

OTHER FACTORS FOR SYNERGY

1. Brand value: “low-end” vs. “high-end”2. Company culture: management style3. Geographical difference: west coast vs.

east coast4. Business opportunity in the east coast5. Potential cannibalization?

PREPARE YOUR RECOMMENDATION

RECOMMENDATIONCandidate: I recommend that our client acquires Bita Beer Company and invests $60M for upgrading its infrastructure.1. Bita Beer Company is a profitable company with

leading market share in the west coast. 2. By investing $60M, our client will achieve its

goal to break-even the investment in 5 years. 3. Bita Beer Company owns a premium beer that

can be assimilated into our client’s product line. This fits our client’s goal for this acquisition.

RISKS AND NEXT STEPS Risks

Potentially lose some old Bita Beer Company customers after the acquisition

Geographical difference could be a big risk factor Next steps

Increase advertising to ensure customers believe that the beer quality remains the same after the acquisition

Set up regular meetings between the two companies to ensure effective communication

Evaluate the revenue and cost to produce and sell the premium beer in the east coast

GROUP INTERVIEW

GROUP INTERVIEWFormat

Typically 4-5 candidates in a group Answer questions in turn Expected to write on a white board Ask questions in the end

What interviewers look for Teamwork ability and social skills Problem-solving skills Presentation skills in a team environment

TIPS FOR GROUP INTERVIEWS

Be a friendly and cooperative team member

Do not wait for the next question. Be proactive!

Practice writing on a white boardPrepare an interesting question in the

end