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Highlights

    Enhance your problem-solving skills with this medium-level practice case. This sample will familiarize you with question types and boost your readiness, preparing you for our consulting case interview process.

    Understanding the client’s goal

    Your client is a private equity firm. They have reached out to Oliver Wyman to decide whether to invest in a dairy farm in Illinois.

    Description of the case situation

    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. The client doesn’t have any investments in the dairy industry or in farming more broadly and is trying to determine which, if either, farm to invest in.

    Should they purchase a dairy farm? Develop an approach and structure to solve the problem.

    Helpful hints:

    • Identify the main objective
    • Write down key facts and important information that may be used now or later in the case
    • Feel free to ask the interviewer for an explanation over anything that is not clear to you
    • Ask for a few minutes to gather your thoughts and write down a framework for addressing the main case question/objective

    Evaluation criteria:

    • Ability to identify the key question and pertinent information
    • Ability to structure a problem in a clear and effective manner
    • Ability to verbally communicate problem structure in a succinct format

    The main objective is to evaluate the business case for purchasing a dairy farm. A sample framework may look like the following:

     

    Dairy farm profitability assessment

    • Revenue potential of both farms (for example, milk production, cow and dairy prices).
    • Costs, including fixed and variable costs such as feed, labor, veterinary services, transportation, and land-related costs of both farms.
    • Return on investment (ROI) of both farms.
    • Opportunity costs, for instance, are there other, more profitable investments?

     

    Local dairy market dynamics

    • Competitive landscape and market positioning relative to each other.
    • Current and projected demand for dairy products in the region, for example population changes, consumer preferences, and so forth.
    • Long-term growth prospects, including trends in dairy consumption, technological innovations in the dairy industry, and more.

     

    Compatibility with the client’s firm and portfolio

    • Firm’s expertise and experience in the dairy industry or related sectors.
    • Dairy farm risk profile, for instance animal health and farm management.
    • Synergies and portfolio diversification benefits.

    The main objective is to evaluate the business case for purchasing a dairy farm. A sample framework may look like the following:

     

    Dairy farm profitability assessment

    • Revenue potential of both farms (for example, milk production, cow and dairy prices).
    • Costs, including fixed and variable costs such as feed, labor, veterinary services, transportation, and land-related costs of both farms.
    • Return on investment (ROI) of both farms.
    • Opportunity costs, for instance, are there other, more profitable investments?

     

    Local dairy market dynamics

    • Competitive landscape and market positioning relative to each other.
    • Current and projected demand for dairy products in the region, for example population changes, consumer preferences, and so forth.
    • Long-term growth prospects, including trends in dairy consumption, technological innovations in the dairy industry, and more.

     

    Compatibility with the client’s firm and portfolio

    • Firm’s expertise and experience in the dairy industry or related sectors.
    • Dairy farm risk profile, for instance animal health and farm management.
    • Synergies and portfolio diversification benefits.

    Question 1: Assess competitive positioning of target farm company

    How would you assess the competitive positioning of the target dairy farm and its potential for success in the market compared to the existing competitor?

    Helpful hints:

    • Take a moment to organize your thoughts
    • Use your existing knowledge of the industry and personal experience to inform your ideas

    Evaluation criteria:

    • Ability to come up with multiple factors
    • Ability to be flexible and adapt ideas as needed and as data is presented
    • Ability to set up data in an effective structure to perform quick calculations 

    • Dairy farming is localized to a county in Illinois. The local market comprises the target farm and its competitor.
    • Farm one has 10,000 cows, and 100 units of milk are produced per cow.
    • Farm two has 5,000 cows, and 80 units of milk are produced per cow.

    Calculate the total units of milk produced at each farm and the total market share:

     

    Conclusion

    Farm one has more than 70% of the market share in terms of the number of cows and milk production volume. Thus far, the dairy farm appears to be a market leader and a strong acquisition target.  

     

    Additional criteria that may be used to assess competitive landscape and positioning (non-exhaustive):

    • Product differentiation: Assess the unique selling points and value proposition of the target dairy farm compared to the existing competitor. Consider factors such as product quality, branding, packaging, and any specialized offerings that may give them a competitive advantage.
    • Pricing strategy: Analyze the pricing strategy of both the target dairy farm and the existing competitor. Evaluate factors such as price levels, discounts, promotions, and any pricing advantages or disadvantages they may have.
    • Distribution channels: Assess the distribution channels utilized by the target dairy farm and the existing competitor. Consider factors such as the reach, efficiency, and effectiveness of their distribution networks, including processing plants.
    • Innovation and technology: Assess the level of innovation and technology adoption by the target dairy farm and the existing competitor. Consider factors such as automated milking systems, electronic sensors, data analytics, and any other technological advancements that may give them a competitive edge.
    • Regulatory environment: Consider the regulatory environment in which both the target dairy farm and the existing competitor operate. Evaluate factors such as food safety regulations, environmental regulations, and any potential regulatory changes that may impact their operations and market position.

    • Dairy farming is localized to a county in Illinois. The local market comprises the target farm and its competitor.
    • Farm one has 10,000 cows, and 100 units of milk are produced per cow.
    • Farm two has 5,000 cows, and 80 units of milk are produced per cow.

    Calculate the total units of milk produced at each farm and the total market share:

     

    Conclusion

    Farm one has more than 70% of the market share in terms of the number of cows and milk production volume. Thus far, the dairy farm appears to be a market leader and a strong acquisition target.  

     

    Additional criteria that may be used to assess competitive landscape and positioning (non-exhaustive):

    • Product differentiation: Assess the unique selling points and value proposition of the target dairy farm compared to the existing competitor. Consider factors such as product quality, branding, packaging, and any specialized offerings that may give them a competitive advantage.
    • Pricing strategy: Analyze the pricing strategy of both the target dairy farm and the existing competitor. Evaluate factors such as price levels, discounts, promotions, and any pricing advantages or disadvantages they may have.
    • Distribution channels: Assess the distribution channels utilized by the target dairy farm and the existing competitor. Consider factors such as the reach, efficiency, and effectiveness of their distribution networks, including processing plants.
    • Innovation and technology: Assess the level of innovation and technology adoption by the target dairy farm and the existing competitor. Consider factors such as automated milking systems, electronic sensors, data analytics, and any other technological advancements that may give them a competitive edge.
    • Regulatory environment: Consider the regulatory environment in which both the target dairy farm and the existing competitor operate. Evaluate factors such as food safety regulations, environmental regulations, and any potential regulatory changes that may impact their operations and market position.

    Question 2: Determine profitability

    What factors would you consider in conducting a profitability analysis for the client? How would you assess the potential profitability of the dairy farm?

    Helpful hints:

    • Take time to organize your thoughts
    • Develop and communicate your overall approach
    • Ask the interviewer for information or data points you need to effectively answer the question

    Evaluation criteria:

    • Ability to develop and verbally communicate a thought-out approach
    • Ability to identify and ask for key information needed
    • Ability to perform calculations and quantitative analysis
    • Ability to synthesize information into a meaningful insight and drive the case forward

    • Raw milk products from dairy farms in the county are sent to one processor who makes cheese, yogurt, butter, and other dairy products. The processor is supply constrained and purchases all the dairy from both dairy farms in the area. The processor produces both standard and organic products. The purchasing price for standard milk is set by the government at $20 per unit and organic milk at $30 per unit.
    • The primary variable cost is cow feed. Farm one produces standard dairy products, and feed is $10 per unit of milk produced. Farm two produces organic dairy products and feed is $15 per unit of milk produced.
    • Fixed costs scale approximately with the volume of cows. Farm one holds $5 million in fixed costs. The competitor farm two holds $3 million in fixed costs.

    To calculate the profitability of both the target farm and competitor farm:

     

     

    Conclusion

    Farm one and farm two have the same profit margin. On absolute dollar terms, farm one has $2 million in profit more than farm two. Since the selling price of milk and the variable costs are different between farms, farm two achieves the same profit margin as farm one, despite producing less milk.

     

    Example of additional creative thinking: A strong candidate will try to understand from the interviewer why the target farm can produce more units of milk per cow compared to other farms. Turns out, cows produce more milk when they are happy. Conditions for happiness include having more space to roam, more comfortable milking conditions, and when they are milked faster.

    • Raw milk products from dairy farms in the county are sent to one processor who makes cheese, yogurt, butter, and other dairy products. The processor is supply constrained and purchases all the dairy from both dairy farms in the area. The processor produces both standard and organic products. The purchasing price for standard milk is set by the government at $20 per unit and organic milk at $30 per unit.
    • The primary variable cost is cow feed. Farm one produces standard dairy products, and feed is $10 per unit of milk produced. Farm two produces organic dairy products and feed is $15 per unit of milk produced.
    • Fixed costs scale approximately with the volume of cows. Farm one holds $5 million in fixed costs. The competitor farm two holds $3 million in fixed costs.

    To calculate the profitability of both the target farm and competitor farm:

     

     

    Conclusion

    Farm one and farm two have the same profit margin. On absolute dollar terms, farm one has $2 million in profit more than farm two. Since the selling price of milk and the variable costs are different between farms, farm two achieves the same profit margin as farm one, despite producing less milk.

     

    Example of additional creative thinking: A strong candidate will try to understand from the interviewer why the target farm can produce more units of milk per cow compared to other farms. Turns out, cows produce more milk when they are happy. Conditions for happiness include having more space to roam, more comfortable milking conditions, and when they are milked faster.

    Question 3: Assess execution challenges and risks

    What are the key execution challenges and risks that our client should be aware of?

    Helpful hints:

    • Use your existing knowledge of the industry and personal experience to inform your ideas
    • Consider impacts and implications from different aspects of business, for instance, sales, operations, digital, and so forth
    • Be creative and think outside the box while keeping your ideas structured

    Evaluation criteria:

    • Ability to brainstorm and be creative
    • Ability to come up with multiple ideas
    • Ability to be flexible and adapt ideas as needed

    • Client’s industry knowledge: Lack of expertise in the dairy industry increases the risk of poor decision-making and ineffective management, potentially leading to financial underperformance and operational challenges for the client.
    • Deal dynamics: Uncertainty about the acquisition price may result in the client overpaying for the dairy farm, reducing the expected return on investment, and potentially straining the client’s financial resources.
    • Operational challenges: The dairy farm may face operational challenges such as maintaining consistent milk production, ensuring the health and well-being of the dairy herd, managing labor and staffing, and implementing efficient farming practices. These challenges can impact the farm’s productivity and profitability.
    • Market volatility: The dairy industry is subject to market volatility, including fluctuations in milk prices set by the government and customer demand. Changes in consumer preferences, dietary trends, and competition from alternative milk products can affect the farm’s revenue and profitability.
    • Input costs: The cost of inputs such as animal feed, veterinary services, and energy can impact the farm’s cost structure and profitability. Fluctuations in input costs, particularly feed prices, can significantly affect the farm’s financial performance.
    • Regulatory compliance: The dairy farm must comply with various regulations related to food safety, animal welfare, environmental protection, and labor practices. Failure to comply with these regulations can result in fines, legal issues, and reputational damage.
    • Weather and climate risks: The dairy farm may be exposed to weather and climate risks, such as extreme weather events, natural disasters, droughts, or floods. These risks can impact the availability and quality of animal feed, as well as the farm’s infrastructure and operations.
    • Technology adoption: The dairy farm may need to invest in and adopt new technologies and farming practices to remain competitive and efficient. However, the adoption of new technologies can be costly and may require specialized knowledge and training. 

    • Client’s industry knowledge: Lack of expertise in the dairy industry increases the risk of poor decision-making and ineffective management, potentially leading to financial underperformance and operational challenges for the client.
    • Deal dynamics: Uncertainty about the acquisition price may result in the client overpaying for the dairy farm, reducing the expected return on investment, and potentially straining the client’s financial resources.
    • Operational challenges: The dairy farm may face operational challenges such as maintaining consistent milk production, ensuring the health and well-being of the dairy herd, managing labor and staffing, and implementing efficient farming practices. These challenges can impact the farm’s productivity and profitability.
    • Market volatility: The dairy industry is subject to market volatility, including fluctuations in milk prices set by the government and customer demand. Changes in consumer preferences, dietary trends, and competition from alternative milk products can affect the farm’s revenue and profitability.
    • Input costs: The cost of inputs such as animal feed, veterinary services, and energy can impact the farm’s cost structure and profitability. Fluctuations in input costs, particularly feed prices, can significantly affect the farm’s financial performance.
    • Regulatory compliance: The dairy farm must comply with various regulations related to food safety, animal welfare, environmental protection, and labor practices. Failure to comply with these regulations can result in fines, legal issues, and reputational damage.
    • Weather and climate risks: The dairy farm may be exposed to weather and climate risks, such as extreme weather events, natural disasters, droughts, or floods. These risks can impact the availability and quality of animal feed, as well as the farm’s infrastructure and operations.
    • Technology adoption: The dairy farm may need to invest in and adopt new technologies and farming practices to remain competitive and efficient. However, the adoption of new technologies can be costly and may require specialized knowledge and training. 

    Question 4: Provide a recommendation

    You are in a decision-making meeting with your private equity client. What is your recommendation: Should your client purchase the dairy farm?

    Helpful hints:

    • Take a moment to gather your thoughts and review your findings from each part of the case
    • Start with a clear answer and follow with supporting details
    • Keep it concise (30-60 seconds)

    Evaluation criteria:

    • Ability to synthesize information from the entire case and highlight the most critical components
    • Ability to verbally communicate a concise recommendation in an effective, confident, and persuasive manner 

    Yes, purchase farm one.

     

    Farm one has majority market share (more than 70%) and profitable performance with a 25% profit margin. Additionally, it demonstrates better operational performance, producing 25% more units of milk per cow compared to its competitor. Adding this company to the existing portfolio will enhance returns and profitability.

     

    However, it is crucial to address critical execution risks, such as the client’s lack of experience in the dairy and farming industry, to effectively manage the farm and maximize investment profits. In addition, the firm will need to evaluate long-term growth potential and expansion possibilities. Other risks to monitor include input costs, regulatory compliance, and market volatility.

     

    No, don’t purchase a farm.

     

    While both farms exhibit strong profits, the client has no expertise in the dairy industry. They may struggle to promote further growth and profitability, hurting their return on investment. A family office, with experience in the dairy industry, may be better suited to make this investment.

     

    I think that "no" is just as valid of an answer.  The private equity firm doesn't know anything about this industry.  This is literally a "cash cow" business in good shape and private equity managers are paid to buy assets that could be performing much better, and then they try to unlock that potential.  Maybe this all suggest that the buyer should be a family office?  Anyone who knows about private equity will think this weird.

    Yes, purchase farm one.

     

    Farm one has majority market share (more than 70%) and profitable performance with a 25% profit margin. Additionally, it demonstrates better operational performance, producing 25% more units of milk per cow compared to its competitor. Adding this company to the existing portfolio will enhance returns and profitability.

     

    However, it is crucial to address critical execution risks, such as the client’s lack of experience in the dairy and farming industry, to effectively manage the farm and maximize investment profits. In addition, the firm will need to evaluate long-term growth potential and expansion possibilities. Other risks to monitor include input costs, regulatory compliance, and market volatility.

     

    No, don’t purchase a farm.

     

    While both farms exhibit strong profits, the client has no expertise in the dairy industry. They may struggle to promote further growth and profitability, hurting their return on investment. A family office, with experience in the dairy industry, may be better suited to make this investment.

     

    I think that "no" is just as valid of an answer.  The private equity firm doesn't know anything about this industry.  This is literally a "cash cow" business in good shape and private equity managers are paid to buy assets that could be performing much better, and then they try to unlock that potential.  Maybe this all suggest that the buyer should be a family office?  Anyone who knows about private equity will think this weird.