Due Diligence Case Interview: Complete Guide (2026)

Author: Taylor Warfield, Former Bain Manager and Interviewer


Due Diligence Case Interview


Due diligence case interviews are one of the most common types of cases in consulting interviews. They can be challenging because they require you to analyze the market, company, synergies, and financials to develop a strong recommendation.

 

I’m a former Bain interviewer and this guide will walk you through everything you need to ace due diligence case interviews.

 

But first, a quick heads up:

 

Learning case interviews on your own can take months.

 

If you’re looking for a step-by-step shortcut to learn case interviews quickly, enroll in my case interview course and save yourself 100+ hours. 82% of my students land consulting offers (8x the industry average).

 

What is a Due Diligence Case Interview?

 

A due diligence case interview asks you to help a client evaluate whether to acquire or invest in a target company. The client is usually a private equity fund, but it can also be a corporation looking to make a strategic acquisition.

 

Your job is to determine if the deal makes sense.

 

Due diligence cases test your ability to analyze both the market the target operates in and the target company itself. You'll need to identify risks, quantify potential benefits, and ultimately recommend whether your client should move forward with the acquisition.

 

These cases are popular with interviewers because they mirror real consulting work. For example, Bain's private equity group conducts hundreds of due diligence studies annually. BCG's post-merger integration practice does similar work. 

 

If you join one of these firms, there's a good chance you'll work on actual due diligence projects.

 

Why Private Equity Firms Conduct Due Diligence

 

Before we dive into how to solve due diligence case interviews, it’s helpful to understand why private equity firms conduct due diligence in the first place.

 

Private equity funds make money by buying companies, improving their operations or financial performance, and selling them at a higher valuation several years later. They typically use significant amounts of debt to finance these acquisitions, which amplifies both returns and risks.

 

Because PE firms are putting hundreds of millions or even billions of dollars on the line, they need to thoroughly assess potential investments. They hire consulting firms to conduct commercial due diligence, which examines the market opportunity and the target company's competitive position.

 

This is separate from financial due diligence, conducted by investment banks, and legal due diligence, conducted by law firms. 

 

As a consultant, you focus on the commercial aspects: 

 

  • Is the market attractive?
  • Can the target win?
  • What are the risks?

 

The Two Main Types of Due Diligence Case Interviews

 

Due diligence cases generally fall into two categories: good company in a bad market, or bad company in a good market.

 

Good Company, Bad Market

 

Your target has been successfully raising prices and has strong management, but revenues are declining for the third year in a row. 

 

The culprit?

 

The market is shrinking faster than the company can adapt.

 

This scenario tests whether you can separate company performance from market dynamics. Even an excellent company may be a poor investment if the market is in terminal decline.

 

Bad Company, Good Market

 

The market is growing steadily at 5% per year with healthy margins. The target's revenues are also growing, but cash collections are dropping and receivables are stretching out.

 

Here, you need to determine if the company's operational problems can be fixed, or if they indicate deeper issues that make it a poor investment regardless of market tailwinds.

 

Both scenarios require you to weigh contradictory indicators and develop a nuanced recommendation. This is where strong candidates shine.

 

The Due Diligence Case Interview Framework

 

No single framework will work for every due diligence case interview. 

 

Your job is to develop a structure tailored to the specific situation. That said, most due diligence cases follow a similar sequence of steps: 

 

  1. Evaluate the fundamentals
  2. Determine the valuation

 

Step 1: Evaluate the fundamentals

 

Before you figure out what to pay for a company, determine if you'd want to own it at any price. This usually requires a market analysis and a company analysis.

 

Market Analysis

 

Start with the market. Ask yourself:

 

  • How large is the market? A market needs to be big enough to support the target's growth ambitions. If your target aims to triple revenue in five years, is there enough total addressable market to make that realistic?

 

  • How fast is the market growing? With rare exceptions, you need a growing market to justify an investment. A shrinking market presents serious headwinds.

 

  • Who are the major players? Is the market concentrated among a few large companies, or is it fragmented? Fragmentation often signals opportunity for consolidation.

 

  • What are the barriers to entry? Regulatory requirements, high capital costs, or specialized expertise can protect the target's position.

 

Company Analysis

 

Once you've determined the market is attractive, turn to the company itself.

 

  • Look at the financials: Are revenues growing? Is the company profitable? More importantly, are profits growing?

 

  • Assess differentiation: A highly differentiated company has natural moats protecting its market share. What makes this company special? Why do customers choose it over competitors?

 

  • Evaluate the management team: Do they have relevant experience? Have they successfully scaled businesses before?

 

  • Check for intangible assets: Patents, proprietary technology, exclusive partnerships, or a powerful brand can all add significant value.

 

Step 2: Determine the valuation

 

If you've decided the fundamentals justify investment, move to valuation.

 

You might be given comparable company valuations (trading multiples) and asked to calculate a reasonable range based on the target's earnings. 

 

Or, you might receive an expected exit value and the fund's hurdle rate (minimum acceptable return), then back into the maximum purchase price.

 

For example: 

 

  • If the target currently has $100M in EBITDA, and comparable companies trade at 10x EBITDA, the current enterprise value would be roughly $1B

 

  • If you expect EBITDA to reach $150M in four years, and you can still sell at 10x, the exit value would be $1.5B

 

  • That's a $500M gain over four years, or roughly $125M per year on a $1B investment, giving you a 12.5% annual return

 

  • If the fund's hurdle rate is 10%, this deal clears the threshold

Due Diligence Case Interview Example

 

Let's walk through a full example of a due diligence case interview.

 

Case Prompt


Your client is a growth equity fund analyzing a potential investment in a fast-growing toy manufacturer that specializes in high-quality wooden blocks and music boxes. The client has asked for your help coming to an investment decision, including a point of view on valuation.

 

Clarify the Situation

 

First, take notes on the key facts. Jot down that the client is a growth equity fund, the target is a toy manufacturer, and it's fast-growing with a focus on wooden blocks and music boxes.

 

Confirm your understanding: 

 

"Just to make sure I have this right, our client is a growth equity fund looking at acquiring a toy company that makes old-fashioned toys like wooden blocks and music boxes. The company is growing quickly, and we need to determine if this is a good investment and what price makes sense. 

 

Is that correct?"

 

Ask Clarifying Questions

 

Before diving into your framework, ask a few critical questions.

 

  • What's driving the interest in this particular target? Are they looking for growth, market consolidation, or something else?

 

  • Is there a specific timeline or investment period we're working with?

 

  • What do we know about the fund's typical investment criteria or hurdle rate?

 

Present Your Structure

 

Take a minute to outline your approach. You might say:

 

"I'd like to look at this in four parts: the market opportunity, the target company's position, key risks and concerns, and valuation.

 

First, for the market analysis, I want to examine market size and growth, competitive landscape, and any regulatory or secular trends affecting the industry.

 

Second, for the company assessment, I'll review the target's financial performance, competitive differentiation, operational capabilities, and management team strength.

 

Third, for risks, I'll identify the key red flags we've discussed and determine whether they're addressable post-acquisition or represent fundamental problems.

 

Fourth, for valuation, I'll need some additional information from you on comparable companies, the fund's return expectations, and any synergies or operational improvements the buyer could realize."

 

Analyze the Market

 

Start by asking about market size and growth. You learn the US toy market is over $25 billion and growing at roughly 5% annually.

 

That's positive. The market is large enough to support significant growth, and 5% exceeds GDP growth, suggesting healthy tailwinds.

 

But you also learn the market is highly concentrated among three major players: Hasbro, Mattel, and LEGO. This raises a concern about the competitive intensity.

 

Still, the target is growing faster than 5%, which means they're taking share despite the competition. That's promising.

 

Ask about market segmentation. You discover that action figures and youth electronics are growing below market rate, while building sets and games are growing above market rate.

 

This aligns perfectly with the target's focus on old-fashioned toys. They've identified a high-growth segment within the broader market and positioned themselves well.

 

Analyze the Target Company

 

Request three years of financial data. When you receive it, quickly calculate revenue growth. You confirm the company has been growing at 10%+ annually, double the market rate.

Now probe on why. 

 

What's driving this outperformance?

 

Your hypothesis: The target identified wooden toys, puzzles, and board games as resurgent categories. While the big three competitors focus on licensing-driven segments, this company carved out a niche in high-growth, nostalgia-driven products.

 

Ask about the team. Are they experienced? Do they have a track record of successfully scaling businesses? Strong management dramatically reduces risk.

 

Check if they have any patents, proprietary manufacturing processes, or exclusive supplier relationships. These would strengthen their competitive position.

 

Determine Valuation

 

You've concluded the market is attractive and the company is well-positioned. Time to figure out what to pay.

 

The interviewer provides some guidance: Current EBITDA is $100M, expected to grow to $150M in four years. The fund expects to buy and sell at a 10x multiple. Their unlevered hurdle rate is 10%.

 

Work through the math:

 

  • Current value: $100M × 10 = $1B

 

  • Future value: $150M × 10 = $1.5B

 

  • Value creation: $1.5B - $1B = $500M

 

  • Annualized return (simplified): $500M ÷ 4 years = $125M per year

 

  • Return rate: $125M ÷ $1B = 12.5%

 

This exceeds the 10% hurdle rate. The deal makes sense financially.

 

Deliver Your Recommendation

 

Pull everything together into a clear recommendation.

 

"I recommend the fund should acquire the toy manufacturer.

 

First, the market is attractive. At over $25 billion with 5% annual growth, there's significant runway for expansion. More importantly, the specific segments the target focuses on - traditional toys like puzzles and wooden blocks - are growing even faster than the market average.

 

Second, the company is exceptionally well-positioned. They've grown at 10%+ annually, double the market rate, by identifying and capturing a high-growth niche while major competitors focus on slower-growth licensing products. This demonstrates both market insight and execution capability.

 

Third, the financial returns are compelling. At a 12.5% unlevered return, this exceeds the fund's 10% hurdle rate. With leverage, returns could potentially reach 15-20%.

 

The main risks to consider are cultural fit and integration complexity. The target should maintain operational independence to preserve the agility that's driven their success. I'd also want to dig deeper into the management team's experience scaling operations before finalizing the deal."

 

Common Mistakes in Due Diligence Case Interviews

 

Here are the most common mistakes candidates make in due diligence case interviews.

 

1. Being Too Binary

 

Weak candidates give simple yes/no answers. Strong candidates acknowledge complexity. A typical due diligence question doesn't have a perfect answer. There are always trade-offs.

 

Show you understand the nuance. Even when recommending to proceed with an acquisition, mention the key risks and how you'd mitigate them.

 

2. Ignoring Market Dynamics

 

Some candidates focus entirely on the target company and forget to analyze the market. This is a critical error.

 

Even the best company is a poor investment in a dying market. Always assess market size, growth, and competitive dynamics before diving deep on the company.

 

3. Forgetting the "Why"

 

Ask yourself: Why is the client interested in this acquisition? What problem are they trying to solve?

 

Are they looking for growth? Trying to consolidate a fragmented market? Seeking access to new technology or talent? The motivation shapes your entire analysis.

 

4. Overcomplicating Valuation

 

In a real due diligence project, valuation gets extremely complex with DCF models, sensitivity analyses, and detailed assumptions about leverage.

 

In a case interview, keep it simple. The interviewer will guide you and provide the numbers you need. Your job is to demonstrate logical thinking, not to be a human Excel spreadsheet.

 

5. Not Asking Questions

 

Due diligence cases have a lot of moving parts. You'll need information to build your analysis.

 

Don't be afraid to ask questions. In fact, interviewers expect it. Asking smart questions shows you understand what matters.

 

Due Diligence Case Interview Practice

 

Here are some prompts you can use to practice due diligence cases with a partner:

 

Example 1

 

Case prompt: A private equity fund is considering acquiring a regional anesthesiology practice. The healthcare market is stable with 3-4% annual rate increases, but the target's cash collections are dropping. Should they invest?

 

  • Investigate whether declining collections stem from billing inefficiencies, payer mix deterioration, or increasing bad debt from patient responsibility

 

  • Examine days sales outstanding (DSO) trends and compare denial rates to industry benchmarks

 

  • Assess whether the issue is fixable post-acquisition through better revenue cycle management or indicates deeper problems like losing key payer contracts

 

Example 2

 

Case prompt: A buyout firm is evaluating an investment in a direct mail company that's been raising prices but seeing revenues decline for three years. What would you want to examine?

 

  • Analyze customer retention rates and volume trends to determine if clients are reducing mail volumes or leaving entirely due to pricing

 

  • Investigate whether the industry is experiencing secular decline as customers shift to digital channels

 

  • Review the competitive landscape to assess if the company can maintain pricing power or if volumes will continue declining regardless of price adjustments

 

Example 3

 

Case prompt: Your client wants to acquire a fast-growing SaaS company. The market is projected to grow 20% annually, but the target has high customer churn. How would you evaluate this opportunity?

 

  • Calculate customer lifetime value (LTV) relative to customer acquisition cost (CAC) to determine if the business model is economically viable

 

  • Segment churn by customer cohort, size, and acquisition channel to identify if specific customer types are problematic

 

  • Assess whether churn indicates product deficiencies, poor customer success operations, or targeting the wrong customer profile—and whether these are fixable

 

Example 4

 

Case prompt: A growth equity fund is looking at a specialty coffee roaster with strong brand recognition but limited geographic presence. What factors would drive your recommendation?

 

  • Evaluate unit economics in existing markets to determine if the business can profitably expand while maintaining brand positioning

 

  • Assess distribution strategy and capital requirements for geographic expansion—direct-to-consumer, wholesale, or retail locations each have different scalability profiles

 

  • Investigate competitive dynamics in target markets and whether brand strength translates beyond the current region or requires significant marketing investment

 

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