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Stretch: Should Cedarline Dental acquire a 12-clinic group in Alberta?
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
Cedarline Dental runs 40 dental clinics in Western Canada. It has been offered a group of 12 clinics in Alberta for CAD 36 million. The data pack shows the numbers. Should Cedarline buy, and on what terms? Write a one-page recommendation.
Format note: Difficulty: Stretch. Format: written case, with a data pack. Industry: Healthcare services. Region: Canada. Interview length: about 40 minutes. The company is fictional and all figures are illustrative.
2. Answers to clarifying questions
Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.
If asked: How is the price set?
Answer: The seller asks 8 times this year's EBITDA (earnings before interest, tax, depreciation and amortisation), which is CAD 4.5 million (illustrative).
If asked: What can Cedarline bring?
Answer: Its buying terms would cut the group's supply costs by about 2 percent of revenue, and a shared back office would save CAD 0.9 million a year (illustrative).
If asked: How are dental groups valued?
Answer: For this case, assume groups like Cedarline are valued at about 9 times EBITDA (illustrative).
3. The hypothesis a strong candidate states
Listen for an early, testable guess like this one. It does not need to match word for word.
Cedarline can run the clinics more cheaply than the seller. My hypothesis is that the price is fair once the savings are counted, but that the deal depends on keeping the dentists.
4. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Deal value = EBITDA with savings x what the market pays for it - price paid, and what could take the EBITDA away
- Price against today's EBITDA and margin
- Key: Savings: supply buying terms and a shared back office
- Value created at the multiple dental groups trade at
- Dentist retention, and paying part of the price later
Exhibit 1
Reveal to candidate: when they ask for this data, say "Open Exhibit 1" (they press "Show exhibit 1" on their screen).
| Item | Value |
|---|---|
| Clinics | 12 |
| Revenue (CAD millions a year) | 30 |
| EBITDA (CAD millions a year) | 4.5 |
| Asking price (CAD millions) | 36 |
| Supply savings Cedarline can bring (% of revenue) | 2 |
| Back-office savings (CAD millions a year) | 0.9 |
| EBITDA of the three clinics run by owner-dentists (CAD millions a year) | 1.5 |
So-what
A third of the EBITDA sits in three clinics whose owners plan to leave, so the terms of payment matter as much as the price.
5. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: Margin today
What a strong candidate does: EBITDA of CAD 4.5 million on CAD 30 million of revenue.
EBITDA margin (%): 4.5 ÷ 30 × 100 = 15
Step 2: Price multiple
What a strong candidate does: The asking price over today's EBITDA.
Asking price as a multiple of EBITDA: 36 ÷ 4.5 = 8
Step 3: Savings
What a strong candidate does: 2 percent of revenue from supply terms, plus CAD 0.9 million from a shared back office, in CAD millions a year.
Yearly savings (CAD millions): 30 × 0.02 + 0.9 = 1.5
Step 4: EBITDA with savings
What a strong candidate does: Today's EBITDA plus the savings.
EBITDA with savings (CAD millions): 4.5 + 30 × 0.02 + 0.9 = 6
Step 5: Effective multiple
What a strong candidate does: The price over EBITDA with savings.
Effective multiple with savings: 36 ÷ (4.5 + 30 × 0.02 + 0.9) = 6
Step 6: Value created
What a strong candidate does: EBITDA with savings valued at 9 times, minus the price, in CAD millions.
Value created (CAD millions): (4.5 + 30 × 0.02 + 0.9) × 9 - 36 = 18
Step 7: Curveball: the owner-dentists retire
What a strong candidate does: Interviewer: "The three owner-dentists plan to retire within a year of the sale. If no one replaces them, their clinics' CAD 1.5 million of EBITDA is lost. For simplicity, keep the savings the same."
EBITDA with savings, without the three clinics (CAD millions): 4.5 + 30 × 0.02 + 0.9 - 1.5 = 4.5
Step 8: Multiple in that case
What a strong candidate does: The same CAD 36 million over the lower EBITDA.
Effective multiple without the three clinics: 36 ÷ (4.5 + 30 × 0.02 + 0.9 - 1.5) = 8
Step 9: Price for the other nine clinics
What a strong candidate does: At the seller's own 8 times, on the CAD 3 million EBITDA of the nine clinics not run by owner-dentists, in CAD millions.
Upfront price for nine clinics (CAD millions): (4.5 - 1.5) × 8 = 24
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
Cedarline should buy the group, but pay CAD 24 million at closing and hold back the remaining CAD 12 million until the owner-dentists' clinics keep their earnings. First, the asking price is 8 times EBITDA of CAD 4.5 million, on a 15 percent margin. Second, Cedarline's buying terms and shared back office add CAD 1.5 million a year, lifting EBITDA to CAD 6 million, so the effective price is only 6 times. At the 9 times that groups like Cedarline are valued at, that creates about CAD 18 million of value. Third, three clinics depend on owner-dentists who plan to retire. If those clinics lose their CAD 1.5 million of EBITDA, the effective price goes back to 8 times and most of the value disappears. So pay 8 times the CAD 3 million EBITDA of the other nine clinics now. Pay the rest over three years, only if the three clinics keep their earnings, for example after new dentists join. The main risk is that patients follow their dentists elsewhere. Next, meet the three owner-dentists and agree how they will hand over their patients.
Risks a strong answer names: Patients may follow retiring dentists to other clinics; The supply savings may take longer than a year to arrive.
Next steps: Meet the three owner-dentists and agree a handover plan; Check each clinic's patient numbers for the last three years in due diligence.
Strong versus weak
A strong answer
Valued the deal on EBITDA with savings, spotted that a third of the earnings sit with dentists who plan to leave, and turned that risk into the payment terms.
A weak answer
Called 8 times EBITDA expensive and walked away, missing both the savings and the option of paying part of the price later.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
Total
0 out of 25
Score all five criteria to see the band and the feedback template.
Next: another case in Partner mode
Swap roles and run the next case, so you both practise answering and scoring.