Case 007M&A and corporate developmentHard

A strategic buyer with synergies and a private equity sponsor with leverage both bid for a sportswear company. Who can pay more, and by how much?

NomuraNew York · 2026Houlihan LokeyLos Angeles · 2026

The situation

Chaitanya Sportswear earns EBITDA of Rs 200 crore, growing 8% a year, and similar businesses change hands at 10x EBITDA. Two bidders are interested.

Veerbhadra Apparel, a strategic buyer, expects Rs 50 crore a year of pre-tax cost synergies from year 2 onwards, after Rs 80 crore of integration cost in year 1. Its WACC is 11% and tax is 25%. Ashvamedh Capital, a sponsor, needs a 20% IRR over five years, expects to exit at 10x, can borrow 4.0x EBITDA at 10% and plans to repay Rs 60 crore of debt a year from cash flow.

Your task

Work out the maximum price each bidder can pay and say who wins, then say when the answer would flip.

Quick check

Before any maths: which bidder can pay more here?

Worked solution

Try it on paper, then open one step at a time.

30-second answerThe answer to give first

Veerbhadra can pay up to about Rs 2,253 crore, 11.3x EBITDA, and Ashvamedh about Rs 1,780 crore, 8.9x, so the strategic can outbid by roughly Rs 473 crore. The strategic pays for standalone value plus synergies it alone can capture. The sponsor pays only what a 20% return allows on a 10x exit, which is below 10x today. The answer flips if synergies are small or the sponsor can borrow much more.

Step 1Why do the two bidders reach different prices for the same business?

Each bidder asks a different question. Think of two people bidding for a shop next door: the neighbour can knock the wall through and share one cashier, so the shop is worth more to her than to anyone; an investor only wants a rent that pays back his money fast. A strategic is worth standalone value plus synergies; a sponsor is worth whatever price still earns its target return on the equity it puts in. The bidder whose number is higher can win, and the loser sets the floor.

Step 2What can the strategic pay?

Start from standalone value, 10x Rs 200 crore, Rs 2,000 crore. Synergies are Rs 50 crore pre-tax, Rs 37.5 crore after tax, from year 2 for ever: a perpetuity worth Rs 340.9 crore at the start of year 2, Rs 307.1 crore today. Integration costs Rs 60 crore after tax in year 1, Rs 54.1 crore today. Net synergies are worth about Rs 253 crore, so Veerbhadra's walk-away price is about Rs 2,253 crore, or 11.3x. Paying that hands every rupee of synergyExtra profit the combined business earns that neither would earn alone, here from shared factories, sourcing and distribution. value to the seller, so it is a ceiling, not a bid.

The most each bidder can pay for Chaitanya, Rs crore2,000standalone at 10x253synergies less integrationVeerbhadra (strategic)2,253, 11.3x800debt at 4.0x980equity for 20% IRRAshvamedh (sponsor)1,780, 8.9xgap 473to strategicEBITDA today Rs 200 crore. Each bar is the price at which that buyer earns exactly its required return.
Veerbhadra can pay up to Rs 2,253 crore, Rs 2,000 crore of standalone value plus Rs 253 crore of net synergies, while Ashvamedh can pay up to Rs 1,780 crore, Rs 800 crore of debt plus Rs 980 crore of equity, so the strategic can outbid by about Rs 473 crore.
Step 3What can the sponsor pay?

Work backwards from the exit. Year 5 EBITDA is Rs 200 crore grown at 8% for five years, Rs 293.9 crore, and at 10x the business sells for Rs 2,939 crore. Debt starts at Rs 800 crore and falls by Rs 300 crore, leaving Rs 500 crore, so exit equity is Rs 2,439 crore. To earn 20% a year, the sponsor can invest at most Rs 2,439 crore divided by 1.2 to the fifth, about Rs 980 crore, so its price is that plus Rs 800 crore of debt: Rs 1,780 crore.

A sponsor's price is worked backwards from the exitExit value2,939293.9 x 10Less debt left-500800 - 5 x 60Exit equity2,439what the fund getsEquity today980divide by 1.2^5Plus debt+8004.0x of 200Most it pays1,7808.9x EBITDAThe 20% hurdle does the damage: Rs 2,439 crore in five years is worth onlyRs 980 crore today, so the sponsor pays 8.9x for a business it plans to sell at 10x.
The sponsor's maximum price is back-solved from a Rs 2,939 crore exit: less Rs 500 crore of remaining debt, discounted at 20% for five years to Rs 980 crore of equity, plus Rs 800 crore of entry debt, Rs 1,780 crore.
Step 4When would the sponsor win instead?

Name the conditions with numbers. Here even a strategic that delivered no synergies at all would value Chaitanya at about Rs 1,946 crore, above the sponsor's ceiling, because the sponsor demands 20% when the market prices the business on a lower return. To match Veerbhadra's Rs 2,253 crore, the sponsor would need to exit at about 14.0x or accept about 11% a year. More leverage helps only a little: at 5.0x debt with the same repayments, its ceiling rises to about Rs 1,900 crore. Sponsors win when the strategic has few synergies and its own shares are cheap, when credit is loose, or when the sponsor can buy add-ons at low multiples. In practice the strategic need not bid its ceiling: it needs to beat about 8.9x and keep the rest of the synergy for its own shareholders.

Where candidates lose it

Candidates answer from memory that sponsors pay less because they lack synergies, and stop. The interviewer wants the sponsor's number, back-solved from the exit, and the conditions under which leverage and a hot credit market let a sponsor win.

The second miss is counting synergies at their pre-tax, undiscounted value, Rs 50 crore times a multiple, which overstates the strategic's ceiling and ignores integration cost.

What the interviewer asks next

  • The sponsor can exit at 11x instead of 10x. What is its maximum price now?
  • Should Veerbhadra pay in cash or shares if it is unsure the synergies will arrive?
  • Why might a seller accept the sponsor's lower bid?
  • How do revenue synergies change the strategic's ceiling, and how much would you haircut them?

Asked at Nomura, Investment Banking, New York, 2026 (Wall Street Oasis): Would Blackstone or Nike pay more to acquire Adidas and why?
Asked at Houlihan Lokey, Mergers and Acquisitions, Los Angeles, 2026 (Wall Street Oasis): Who is typically willing to pay more for an acquisition - a sponsor or a strategic?

Company names and figures are illustrative.