Quick answer: The management case is the seller’s projection of the business. The buyer case is the buyer’s own version, built from the seller’s model with adjustments to starting earnings, growth, margins, timing and the cost of reaching the plan. A buyer pays for what it believes, so the gap between the two cases is where price is negotiated or where part of the price moves into an earnout. Evidence tied to each assumption narrows the gap.
Key points
- The buyer case is usually built by adjusting the seller’s own model, not by starting over, so the seller’s structure decides where the disagreement lands.
- Buyers adjust the same areas in most cases: starting earnings, growth that is not yet contracted, price and margin gains, the timing of anything new, and the cost of achieving the plan.
- A seller defends a case by layering it, with proven run-rate earnings first, then contracted growth, then planned actions, so the argument is won where evidence exists and conceded where it does not.
- What remains of the gap after diligence is settled through price, an earnout, a seller note or rollover equity, and the structure decides who carries the risk that the forecast is wrong.
Two cases for one business
The management case is the seller’s own projection, built by the people who run the business and presented in the confidential information memorandum and the management presentation. The buyer case is the buyer’s version, used to set its price, win approval from its investment committee and raise debt. Private equity buyers often call theirs the sponsor case or underwriting case, and lenders commonly build a more conservative lender case of their own.
A buyer rarely starts from nothing. It takes the seller’s model, keeps what the evidence supports and changes the rest. That is why a driver-based model helps the seller: the buyer’s changes land on named inputs and not on a single growth rate.
In a private company sale the headline price is usually a multiple of normalized earnings that already exist, so a forecast rarely sets the price directly. The buyer case shapes the multiple a buyer will use, how much a lender will provide against the business and how much of the price is paid at closing. The guide to LTM, run-rate and forward EBITDA explains which earnings period a buyer prices.
Where buyers adjust a management case
Buyers change the same few areas in most cases. The table lists them with the question behind each change and the evidence that moves a buyer.
| Area | What the buyer case usually does | The question behind it | Evidence that moves the buyer |
|---|---|---|---|
| Starting earnings | Begins from the buyer’s own normalized EBITDA, which can sit below the seller’s adjusted figure | Which add-backs survive testing? | Documents for each adjustment |
| Growth from existing customers | Keeps renewals and trims expansion | Has the customer said it will buy more? | Customer-level history and written volume commitments |
| New customers and products | Excludes them or weights them heavily | Has anyone ordered yet? | Purchase orders, pilot results, win rates by stage |
| Price increases | Includes only those already accepted | What did earlier increases actually deliver? | Invoices before and after, customer notices |
| Margin gains | Holds margin at today’s level until the cause is in place | What changes the cost, and is it finished? | Signed supplier terms, completed process changes |
| Timing | Moves start dates later and lengthens ramps | How long did the last launch take to reach full rate? | Dated history of earlier launches and hires |
| Cost of achieving the plan | Adds the people, equipment, inventory and receivables that growth consumes | What does the plan use in cash? | Capacity analysis, hiring plan, capital budget |
| Owner and contract transition | Adds the cost of replacing the owner’s role and removes revenue under contracts a customer can end when ownership changes | What leaves when the owner does? | Customer relationship map, transition plan, contract terms |
Two of these deserve a closer look. Starting earnings matter most because every forecast year inherits the difference. A buyer that rejects add-backs lowers each year by the same amount even if it accepts every growth assumption. The cost of achieving the plan is the adjustment sellers overlook most often, because growth that needs inventory, receivables and equipment uses cash that EBITDA does not show. The guide to projecting margins, capital spending and working capital covers how to put that cost into the forecast.
A reconciliation from one case to the other
Illustrative example: From a management case to a buyer case
A seller’s management case shows second-year EBITDA of $4,200,000 from adjusted starting EBITDA of $3,000,000. The buyer’s accountants reject $200,000 of add-backs, and its deal team rebuilds each increment of growth. The table reconciles the two cases.
| Item | Management case | Buyer case | Difference | Why the buyer differs |
|---|---|---|---|---|
| Starting EBITDA | 3,000,000 | 2,800,000 | (200,000) | Add-backs without documents |
| Growth from existing customers | 400,000 | 250,000 | (150,000) | Renewals accepted, expansion not yet requested |
| Price increases | 300,000 | 100,000 | (200,000) | Only the increase already accepted |
| New product | 500,000 | 0 | (500,000) | No orders yet |
| Sourcing savings | 250,000 | 100,000 | (150,000) | Only the supplier quote already signed |
| Added overhead | (250,000) | (400,000) | (150,000) | Replacement for the owner’s role, new systems |
| Second-year EBITDA | 4,200,000 | 2,850,000 | (1,350,000) |
The gap of $1,350,000 contains three kinds of disagreement. The rejected add-backs, $200,000, are a documents question that diligence settles. The new product, $500,000, is one separable item that can be priced or measured on its own. The remaining $650,000 is judgment about growth, price, savings and overhead, where evidence and negotiation decide. A seller who reads the gap this way knows which part to document, which part to structure and which part to argue. These numbers are invented to show the reconciliation and are not benchmarks.
Defending assumptions with evidence
Defense begins before the buyer’s case exists. The steps below follow the order in which they are usually needed.
- Show the record of past budgets. Compare each prior year’s budget with its result. A business that met its budgets starts with credit, and one that missed explains the cause and what is different now.
- Layer the case by certainty. Present run-rate earnings and renewals first, then contracted growth, then planned and funded actions, and last anything that still requires a win. Buyers usually accept the early layers, so the argument is won where evidence exists, and the last layer can be conceded in advance instead of defended and lost.
- Put the proof beside the assumption. Give each material assumption a support sheet in the data room holding the contract, the invoices, the quote or the history.
- Report the current year against the plan each month. The opening months of the forecast year are the strongest evidence in either direction, and buyers reprice on them.
- Include the cost of getting there. A plan that shows growth without the hires, equipment and inventory it needs looks incomplete and invites the buyer to add larger costs of its own.
- Argue drivers, not conclusions. The multiple and the discount rate belong to the buyer. Volume, price and timing are the seller’s to prove.
- Keep one set of numbers. The model, the CIM and the management presentation must agree, because a figure that changes mid-process makes buyers doubt the rest. The guide to how buyers test projections shows what they check.
Closing the gap through price and structure
Different gaps call for different tools.
| Kind of gap | How deals usually handle it | What the seller checks |
|---|---|---|
| Missing documents for an adjustment | The buyer’s number stands until support arrives, and price follows the number | Whether the support exists and can be produced quickly |
| One separable initiative | An earnout measured on that initiative | The metric, who controls it and the definitions |
| Timing only | Part of the price deferred in a seller note, or an earnout measured over a longer period | Security and ranking of the deferred amount |
| Broad disagreement about growth | A lower price, or rollover equity so the seller shares in the future | Whether the seller wants to carry that risk |
| Dependence on the owner | Employment or consulting terms, with part of the price tied to the transition | Duties, duration and what happens if the role ends early |
The earnouts guide explains why a seller should value the contingent part below its face amount, since the buyer controls the company once the sale closes. A gap that survives diligence is useful information because it records what each side believes about the future. If the buyer case then falls further, often because current-year results fall behind plan, the result is a price reduction after the letter of intent, which the guide to retrades covers. Building the base, upside and downside cases ahead of time gives the seller the numbers for those conversations, and the complete guide to sale projections places this step in the wider sequence.
Frequently asked questions
What is a management case in M&A?
The management case is the set of financial projections prepared by the seller’s management for a sale. It reflects management’s plan, is built from the company’s own drivers and is usually presented in the CIM and the management presentation. Buyers treat it as a starting point and as evidence of how well management understands the business, not as a figure they have agreed to pay for.
What is a buyer case?
A buyer case is the buyer’s own version of the projections, used to set price, support its investment approval and arrange financing. It usually starts from the seller’s model and changes the starting earnings, growth, margins, timing and costs. Lenders often prepare a more conservative version of their own, sometimes called a lender case.
Why do buyers discount management projections?
Projections are written by the people who benefit from a higher price, and the buyer carries the risk if they are wrong. Plans also tend to run later and cost more than expected, even when the direction is right. A buyer reduces the parts that lack evidence and keeps the parts that have it.
Do buyers pay for projected growth?
Only to the extent they believe it. Buyers usually pay a multiple of earnings that already exist, and they credit growth that is contracted or clearly under way. Growth that still depends on future wins is more often paid for through an earnout, or through a higher multiple when the evidence is strong.
What happens when the buyer case is below the management case?
The parties accept the buyer’s lower view of value, bridge the difference with structure such as an earnout, a seller note or rollover equity, or end talks. The seller’s best tools are evidence for the disputed drivers and a clear view of which part of the gap a contingent payment could cover.
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Related guides
- Earnouts Explained: How Contingent Consideration Works in a Sale: An earnout ties part of the purchase price to future results. Learn how earnouts are structured, why buyers propose them and how sellers can value the risk.
- How Buyers Test Your Projections in Diligence, Test by Test: How buyers evaluate financial projections in a sale: the bridge from LTM, forecast accuracy, backlog and pipeline checks, customer calls, capacity and sensitivities.
- Retrades in M&A: Why Buyers Cut the Price After the LOI and How a Seller Responds: A retrade is a buyer’s price cut after the letter of intent. Learn the fair and tactical triggers, how to prepare, a response playbook and when to walk away.
- Base, Upside and Downside Cases: Scenario Analysis for Sale Projections: Scenario analysis for a sale: what moves between base, upside and downside cases, how to label assumptions and how lenders and buyers use the downside.
- LTM, Run-Rate and Forward EBITDA: Which Period Buyers Price: LTM, run-rate and forward EBITDA compared: how each is built, why buyers price the trailing twelve months, and when seasonality or growth changes the answer.
- Driver-Based Forecasting for a Business Sale: Build a Model Buyers Can Test: Driver-based forecasting builds a sale projection from units, price, utilization and retention. See driver trees for a manufacturer and a services firm.
This guide is general education. It is not a valuation opinion, appraisal, investment advice, or legal or tax advice. How these guides are made.