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Private Equity Interviews 101: How to Win Offers

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Private equity interviews can be challenging, but for most candidates, winning interviews is much tougher than succeeding in those interviews.

You do not need to be a math genius or a gifted speaker; you just need to understand the recruiting process and basic arithmetic.

Still, there is more to PE interviews than “2 + 2 = 4,” so let’s take a detailed look at the process:

How to Network and Win Private Equity Interviews

The Private Equity recruiting process differs dramatically depending on your current job and location.

Here are the two extremes:

• Investment Banking Analyst at a Bulge Bracket or Elite Boutique in New York: The process will be highly structured, and interviews will finish at warp speed. In some ways, your bank, group, and academic background matter more than your skill set or deal experience. This one is known as the “on-cycle” process.
• Non-Banker in Another Part of the U.S. or World: The process will be far less structured, it may extend over many months, and your skill set and deal/client experience will matter a lot more. This one is known as the “off-cycle” process.

If you’re in between these categories, the process will also be in between these extremes.

For example, if you’re at a smaller bank in NY, you may complete some on-cycle interviews, but you will almost certainly also go through the off-cycle process at smaller firms.

If you’re in London, there will also be a mix of on-cycle and off-cycle processes, but they tend to start later and move more slowly than the ones in NY.

We have covered PE recruiting previously ( overall process and what to expect in the on-cycle process ), so I am not going to repeat everything here.

Interviews in both on-cycle and off-cycle processes test similar topics , but the importance of each topic varies.

The timing of interviews and start dates, assuming you win offers, also differs.

The Overall Private Equity Interview Process

Regardless of whether you recruit in on-cycle or off-cycle processes, or a combination of both, almost all PE interviews have the following characteristics in common:

• Multiple Rounds: You’ll almost always go through at least 2-3 rounds of interviews (and sometimes many more!) where you speak with junior to senior professionals at the firm.
• Topics Tested: You’ll have to answer fit/background questions, technical questions, deal/client experience questions, questions about the firm’s strategies and portfolio, market/industry questions, and complete case studies and modeling tests.

The differences are as follows:

• Timing and Time Frame: If you’re at a BB/EB bank in NY, and you interview with mega-funds, the process starts and finishes within several months of your start date at the bank (!), and it moves up earlier each year. Interviews at the largest firms start and finish in 24-48 hours, with upper-middle-market and middle-market firms beginning after that.

By contrast, interviews start later at smaller PE firms, and the entire process may last for several weeks up to several months.

• Importance of Topics Tested: At large funds and in the on-cycle process, you need to complete modeling tests quickly and accurately and spin your pitches and early-stage deals into sounding like real deals; at smaller funds and in off-cycle interviews, the reasoning behind your case studies/modeling tests and your real experience with clients and deals matter more.

Firm-specific knowledge and fitting your investment recommendations to the firm’s strategies are also more important.

• Start Date: You interview far in advance if you complete the on-cycle process, and if you win an offer, you might start 1.5 – 2.0 years later. With the off-cycle process, you start right away or soon after you win the offer.

Private Equity Interview Topics

There is not necessarily a correlation between the stage of interviews and the topics that will come up.

You could easily get technical questions early on, and you’ll receive fit/background and deal experience questions throughout the process.

Case studies and modeling tests tend to come up later in the process because PE firms don’t want to spend time administering them until you’ve proven yourself in previous rounds.

However, there are exceptions even to that rule: For example, many funds in London start the process with modeling tests because there’s no point interviewing if you can’t model.

Here’s what to expect on each major topic:

Fit/Background Questions: “Why Private Equity?”

The usual questions about “ Why private equity ,” your story , your strengths/weaknesses , and ability to work in a team will come up, and you need answers for them.

We have covered these in previous articles, so I’ve linked to them above rather than repeating the tips here.

Since on-cycle recruiting takes place at warp speed, you’ll have to draw on your internship experience to come up with stories for these questions, and you’ll have to act as if PE was your goal all along.

By contrast, if you’re interviewing for off-cycle roles, you can use more of your current work experience to answer these questions.

While these questions will always come up, they tend to be less important than in IB interviews because:

• In on-cycle processes, it’s tough to differentiate yourself – everyone else also did multiple finance internships and just started their IB roles.
• They care more about your deal experience, whether real or exaggerated, in both types of interviews.

Technical Questions For PE

The topics here are similar to the ones in IB interviews: Accounting, equity value and enterprise value , valuation/DCF, merger models, and LBO models.

If you’re in banking, you should know these topics like the back of your hand.

And if you’re not in banking, you need to learn these topics ASAP because firms will not be forgiving.

There are a few differences compared with banking interviews:

• Technical questions tend to be framed in the context of your deal experience – instead of asking generic questions about the WACC formula , they might ask how you calculated it in one specific deal.
• More critical thinking is required. Instead of asking you to walk through the financial statements when Depreciation changes, they might describe companies with different business models and ask how the financial statements and valuation would differ.
• They focus more on LBO models, quick IRR math , and your ability to judge deals quickly.

Most interviewers use technical questions to weed out candidates , so poor technical knowledge will hurt your chances, but exceptional knowledge won’t necessarily get you an offer.

Talking About Deal/Client Experience

This category is huge, and it presents different challenges depending on your background.

If you’re an Analyst at a large bank in New York, and you’re going through on-cycle recruiting, the key challenge will be spinning your pitches and early-stage deals into sounding like actual deals.

If you’re at a smaller bank, and you’re going through off-cycle recruiting, the key challenge will be demonstrating your ability to lead, manage, and close deals .

And if you’re not in investment banking, the key challenge will be spinning your experience into sounding like IB-style deals.

Regardless of your category, you’ll need to know the numbers for each deal or project you present, and you’ll need a strong “investor’s view” of each one.

That’s quite a bit to memorize, so you should plan to present, at most, 2-3 deals or projects.

You can create an outline for each one with these points:

• The company’s industry, approximate revenue/EBITDA, and multiples (or, for non-deals, estimated costs and benefits).
• Whether or not you would invest in the company’s equity/debt or acquire it (or, for non-deals, whether or not you’d pursue the project).
• The qualitative and quantitative factors that support your view.
• The key risk factors and how you might mitigate them.

If you just started working, pick 1-2 of your pitches and pretend that they have progressed beyond pitches into early-stage deals.

Use Capital IQ or Internet research to generate potential buyers or investors, and use the company-provided pitch materials to come up with your projections for the potential stumbling blocks in the transaction.

For your investment recommendation, imagine that each deal is a potential LBO, and build a quick, simple model to determine the rough numbers, such as the IRR in the baseline and downside cases.

For the risk factors, reverse each model assumption (such as the company’s revenue growth and margins) and explain why your numbers might be wrong.

If you’re in the second or third categories above – you need to show evidence of managing/closing deals or evidence of working on IB-style deals – you should still follow these steps.

But you need to highlight your unique contributions to each deal, such as a mistake you found, a suggestion you made that helped move the financing forward, or a buyer you thought of that ended up making an offer for the seller.

If you’re coming in with non-IB experience, such as internal consulting , still use the same framework but point out how each project you worked on was like a deal.

You had to win buy-in from different parties, get information from groups at the company, and justify your proposals by pointing to the numbers and qualitative factors and addressing the risk factors.

Firm Knowledge

Understanding the firm’s investment strategies, portfolio, and exits is very important at smaller firms and in off-cycle processes, and less important in on-cycle interviews at mega-funds.

If you have Capital IQ access, use it to look up the firm.

If not, go to the firm’s website and do extensive Google searches to find the information.

Finding this information should not be difficult, but the tricky point is that firms won’t necessarily evaluate your knowledge by directly asking about it.

Instead, if they give you a take-home case study, they might judge your responses based on how well your investment thesis lines up with theirs.

For example, if the firm makes offline retailers more efficient via cost cuts and store divestitures, you should not present an investment thesis based on overseas expansion or roll-ups of smaller stores.

If they ask for an investor’s view of one of your deals, they might judge your answer based on your ability to frame the deal from their point of view.

For example, if the firm completes roll-ups in fragmented industries, you should not look at a standard M&A deal you worked on and say that you’d acquire the company because the IRR is between XX% and YY% in all scenarios.

Instead, you should point out that with several roll-ups, the IRR would be between XX% and YY%, and even in a downside case without these roll-ups, the IRR would still be at least ZZ%, so you’d pursue the deal.

Market/Industry

In theory, private equity firms should care about your ability to find promising markets or industries.

In practice, open-ended questions such as “Which industry would you invest in?” are unlikely to come up in traditional PE interviews.

If they do come up, they’ll be in response to your deal discussions, and the interviewer will ask you to explain the upsides and downsides of your company’s industry.

These questions are more likely in growth equity and venture capital interviews, so you shouldn’t spend too much time on them if your goal is traditional PE (for more on these fields, see our coverage of venture capital interview questions and the venture capital case study ).

And even if you are interviewing for growth equity or VC roles, you can save time by linking your industry recommendations to your deal experience.

Case Studies and Modeling Tests

You will almost always have to complete a case study or modeling test in PE interviews, but the types of tests span a wide range.

Here are the six most common ones, ranked by rough frequency:

Type #1: “Mental” Paper LBO

This one is closer to an extended technical question than a traditional case study.

To answer these questions, you need to know how to approximate IRR, and you need practice doing the mental math.

The interviewer might ask something like, “A PE firm acquires a $150 EBITDA company for a 10x multiple using 60% Debt. The company’s EBITDA increases to $200 by Year 3, $225 by Year 4, and $250 by Year 5, and it pays off all its Debt by Year 3.

The PE firm sells its stake evenly over Years 3 – 5 at a 10x EBITDA multiple. What’s the approximate IRR?”

Here, the Purchase Enterprise Value is $1.5 billion, and the PE firm contributes 40% * $1.5 billion = $600 million of Investor Equity.

The “average” amount of proceeds is $225 * 10 = $2,250, and the “average” Exit Year is Year 4 (no need to do the full math – think about the numbers – and all the Debt is gone).

So, the PE firm earns $2,250 / $600 = 3.75x over 4 years. Earning 3x in 3 years is a ~45% IRR, so we’d expect the IRR of a 3.75x multiple in 4 years to be a bit less than that.

To approximate a 4x scenario, we could take 300%, divide by 4 years, and multiply by ~55% to account for compounding.

That’s ~41%, and the actual IRR should be a bit lower because it’s a 3.75x multiple rather than a 4.00x multiple.

In Excel, the IRR is just under 40%.

Type #2: Written Paper LBO

The idea is similar, but the numbers are more involved because you can write them down, and you might have 30 minutes to come up with an answer.

You can get a full example of a paper LBO test, including the detailed solutions, here .

You can also check out our simple LBO model tutorial to understand the ropes.

With these case studies, you need to start with the end in mind (i.e., what multiple do you need for an IRR of XX%) and round heavily so you can do the math.

Type #3: 1-3-Hour On-Site or Emailed LBO Model

These case studies are the most common in on-cycle interviews because PE firms want to finish quickly.

And the best way to do that is to give all the candidates the same partially-completed template and ask them to finish it.

You may have to build the model from scratch, but it’s not that likely because doing so defeats the purpose of this test: efficiency.

You’ll almost always receive several pages of instructions and an Excel file, and you’ll have to answer a few questions at the end.

The complexity varies; if it’s a 1-hour test, you probably won’t even build a full 3-statement model .

They might also ask you to use a cash-free debt-free basis or a working capital adjustment to tweak the Sources & Uses slightly.

If it is a 3-hour test, a 3-statement model is more likely (the other parts of the model will be simpler in this case).

Here’s a free example of a timed LBO modeling test ; we have many other examples in the IB Interview Guide and Core Financial Modeling course .

IB Interview Guide

Land investment banking offers with 578+ pages of detailed tutorials, templates and sample answers, quizzes, and 17 Excel-based case studies.

Type #4: Take-Home LBO Model and Presentation

These case studies are open-ended, and in most cases, you will not get a template to complete.

The most common prompts are:

• Build a model and make an investment recommendation for Portfolio Company X, Former Portfolio Company Y, or Potential Portfolio Company Z.
• Pick any company you’re interested in, build a model, and make an investment recommendation.

With these case studies, you must fit your recommendation to the firm’s strategy rather than building a needlessly complex model.

You might have 3-7 days to complete this type of case study and present your findings.

You might be tempted to use that time to build a complex LBO model, but that’s a mistake for three reasons:

• The smaller firms that give open-ended case studies tend not to use that much financial engineering.
• No one will have time to review or appreciate your work.
• Your time would be better spent on industry research and coming up with a sold investment thesis, risk factors, and mitigants.

If you want an example of an open-ended exam like this, see our private equity case study article and follow the video walkthrough or article text.

Your model could be shorter, and your presentation could certainly be shorter, but this is a good example of what to target if you have more time/resources.

Type #5: 3-Statement/Growth Equity Model

At operationally-focused PE firms, growth equity firms, and PE firms in emerging markets such as Brazil , 3-statement projection modeling tests are more common.

The Atlassian case study is a good example of this one, but I would change a few parts of it (we ignored Equity Value vs. Enterprise Value for simplicity, but that was a poor decision).

Also, you’ll never have to answer as many detailed questions as we did in that example.

If you think about it, a 3-statement model is just an LBO model without debt repayment – and the returns are based on multiple expansion, EBITDA growth, and cash generation rather than debt paydown .

You can easily practice these case studies by picking companies you’re interested in, downloading their statements, projecting them, and calculating the IRR and multiples.

Type #6: Consulting-Style Case Study

Finally, at some operationally-focused PE firms, you could also get management consulting-style case studies, where the goal is to advise a company on an expansion strategy, a cost-cutting initiative, or pricing for a new product.

We do not teach this type of case study, so check out consulting-related sites for examples and exercises.

And keep in mind that this one is only relevant at certain types of firms; you’re highly unlikely to receive a consulting-style case study in standard PE interviews.

A Final Word On Case Studies

I’ve devoted a lot of space to case studies, but they are not as important as you might think.

In on-cycle processes, they tend to be a “check the checkbox” item: Interviewers use them to verify that you can model, but you won’t stand out by using fancy Excel tricks.

Arguably, they matter more in off-cycle interviews since you can present unique ideas more easily and demonstrate your communication skills in the process .

What NOT to Worry About In PE Interviews

The topics above may seem overwhelming, so it’s worth pointing out what you do not need to know for interviews.

First, skip super-complex models.

As a specific example, the LBO models on Macabacus are overkill; they’re way too complicated for interviews or even the job itself.

You should aim for Excel files with 100-300 rows, not 1,000+ rows, and skip points like circular references unless they specifically ask for them (for more, see our tutorial on how to remove circular references in Excel )

Next, skip brain teasers; if an interviewer asks them, you should drop discussions with the firm.

Finally, you don’t need to know about the history of the private equity industry or much about PE fund economics beyond the basics.

Your time is better spent learning about a firm’s specific strategy and portfolio.

PE Interview X-Factor(s)

Besides the topics above, competitive tension can make a huge difference in interviews.

If you tell Firm X that you’ve already received an offer from Firm Y, Firm X will immediately become far more likely to give you an offer as well.

Even at the networking stage, competitive tension helps because you always want to tell recruiters that you’re also speaking with Similar Firms A, B, and C.

Also, leverage your group alumni and the 2 nd and 3 rd -year Analysts.

You can read endless articles online about interview prep, but nothing beats real-life conversations with others who have been through the process.

These alumni and older Analysts will also have example case studies they completed, and they can explain how to spin your deal experience effectively.

PE Interview Preparation

The #1 mistake in PE interviews is to focus excessively on modeling tests and technical questions and neglect your deal discussions.

You can avoid this, or at least resist the temptation, by turning your deals into case studies.

If you follow my advice to create simplified LBO models for your deals, you can combine the two topics and get modeling practice while you’re preparing your “investor’s views.”

If you’re working full-time in banking, use your downtime in between tasks to do this , outline your story , and review technical questions.

If you only have 10-15-minute intervals of downtime, break case studies into smaller chunks and aim to finish a specific part in each period.

Finally, start preparing before your full-time job begins .

You’ll have far more time before you start working, and you should use that time to tip the odds in your favor.

The Ugly Truth About PE Interviews

You can read articles like this one, memorize PE interview guides, and get help from dozens of bank/group alumni, but much of the process is still outside of your control.

For example, if you’re in a group like ECM or DCM , it will be tough to win on-cycle interviews at large firms and convert them into offers no matter what you do.

If the mega-funds decide to kick off recruiting one day after you start your full-time job in August, and you’re not prepared, too bad.

If you went to a non-target school and earned a 3.5 GPA, you’ll be at a disadvantage next to candidates from Princeton with 3.9 GPAs no matter what you do.

So, start early and prepare as much as you can… but if you don’t receive an offer, don’t assume it’s because you made a major mistake.

So You Get An Offer: What Next?

If you do receive an offer, you could accept it on the spot, or, if you’re speaking with other firms, you could shop it around and use it to win offers elsewhere.

If you’re not in active discussions with other firms, you’re crazy if you do not accept the offer right away.

If You Get No Offer: What Next?

If you don’t get an offer, follow up with your interviewers, ask for feedback, and ask for referrals to other firms that might be hiring.

If you did reasonably well but came up short in a few areas, you could easily get referrals elsewhere .

If you did not receive an offer because of something that you cannot fix, such as your undergraduate GPA or your previous work experience, you might have to consider other options, such as a Master’s, MBA, or another job first.

But if it was something fixable, you could take another pass at recruiting or keep networking with smaller firms.

To PE Or Not to PE?

That is the question.

And the answer is that if you have the right background, you understand the process, and you start preparing far in advance, you can get into the industry and win a private equity career .

And if not, there are other options, even if you’re an older candidate .

You may not reach the promised land, but at least you can blame it on someone else.

Additional Reading

You might be interested in:

• The Search Fund Internship: Perfect Pathway into Investment Banking and Private Equity Roles?
• Private Equity Analyst Roles: The Best Way to Skip Investment Banking?

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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49 thoughts on “ Private Equity Interviews 101: How to Win Offers ”

Brian, What about personality tests? What is their importance in the overall hiring process eg if you get them as the last stage?

They’re not that important, and even if you do get them, you can’t really “prepare” in any reasonable way (barring a brain transplant to replace your personality and make it more suitable for the firm). It’s also highly unusual to get one in the final stage – a firm doing that is probably just paranoid that you are secretly a serial killer and they want to rule out that possibility.

Hey- for the Fromageries Bel case study, can’t quite make sense of the Tier 4 management incentive returns, what’s the calculation for each tier? Would think it’s Tier 2 less tier 1 * tier 1 marginal profit

Tier 4 is based on a percentage of all profits *above* a 2.5x equity multiple. Each tier below it is based on a percentage of profits between specific multiples, which correspond to specific EUR proceeds amounts.

I have an accounting background (CPA & several years removed from school) and a small amount of finance experience through internships. I’m interviewing for a PE analyst position and managed to get through the first round of interviews. The firm itself doesnt just hire guys with a few years of banking, their team is very diverse with some backgrounds similar to mine.

The first round interview was a mix of technical questions plus a lot about myself and my experience. No behavioral questions. The first round was with an associate for 30 minutes, the second round is an hour with a partner. I managed to answer a lot of the questions about LBO models and what types of companies are good LBO candidates. Thanks to your website for that.

Any advice for a second round interview for a guy like me who doesnt have deal making experience or much experience in finance? Will the subsequent interviews after the first round be more technical-based questions? Or do they lean more on technical questions in round 1 to weed out candidates?

They will usually become more fit-based if they’ve already asked a lot of technical questions in earlier rounds. I would focus on your story and answers to the Why PE / Why This Firm / Are you sure you want to switch?-type questions.

Is it likely too difficult to access the on-cycle process from the CLT office of an In-Between-a-Bank that it would make more sense to focus one’s energy on the MM/LMM? Is the new era of Zoom making geography/distance less of a factor or is the perceived prestige of NY still an obstacle?

Location is somewhat less of a factor now, but it still matters, and working from home will not continue indefinitely into the future. It will be very difficult to participate in on-cycle recruiting at the mega-funds if you’re working in Charlotte at Wells Fargo if that’s your question, but plenty of MM funds are realistic.

What are some of the larger funds that you would consider realistic?

There are dozens of funds out there (it’s not like bulge bracket banks or mega-fund PE firms where there’s only a defined set of 5-10), so I can’t really give you a specific answer. My recommendation would be to look up people who worked at WF on LinkedIn and see the types of funds they are now working at.

I remember I saw a video of yours (might have been YouTube) where you explained the PE process. You talked about do pe firms really add value and then you went over how when a pe firm buys a company, they do a little “trick” where they create a shell company to acquire the target so the debt isn’t on the pe firms books. I’ve been looking all over for this video. Do you know which video I’m referring to?

Yes, that is no longer in video form. It’s still in the written LBO guide but the video from the old course was removed because it was way too long and boring for a video and was better explained in text.

Hi Brian, can you elaborate more on ‘Understanding the firm’s investment strategies, portfolio, and exits’ when you talk about smaller firm and off-cycle processes, simliar point came up under *Type 5*: you must fit your recommendation to the firm’s strategy rather than building a needlessly complex model. What exactly should I pay attention on? I felt funds I checked their investment strategy descirption are pretty broad, and they invest in various type of deals, say even in one industry, they do different purchase range. Also, when talking about growth equity, you mentioned you can practice case by picking companies you’re interested in, downloading their statements, projecting them. What if they are not public companies, how can I get those information? Are you recommending only those companies with 20F available? Or can you just elaborate more on how can I follow your instruction? Thanks

All you can do is go off their website and possibly a Capital IQ description if you have access. See if they focus on growth, leverage for mature companies, operational improvements, or add-on acquisitions and pick something that fits one of those.

You can pick public companies for growth equity or find a public company that is similar to a private one the firm has.

Hey Brian! I have an interview with a family office for a private equity analyst position. The firm is small and not much about it online. I haven’t had much time to prepare as it was not an interview I was expecting. What would you say the most important elements to focus on are for the interview considering the time constraint? I am an undergrad, third year, second internship. (first internship was for a large construction/developer as project coordinator, not finance based)

Focus on your story, the firm’s portfolio companies and strategies, and a few investment ideas you have for specific sectors. Technical questions are fine, but you probably won’t have much time to prepare at the last minute.

How would PE interviews / Technical questions look like for straight out of undergrad PE role look like

e.g Blackstone internships, Goldman Merchant Banking internships etc

Similar to IB ones, with a focus on LBOs?

Largely the same, but less emphasis on deal experience and deal-related questions at the undergraduate level. They may ask slightly more questions on LBOs, but at the undergrad level, they assume you know very little, so questions will span a wide range of topics.

Have you written or seen similar articles on PE operating partner interviews?

No, sorry. There’s hardly any information on that level of interview online because you can’t really make an interview guide or other product to prepare for it, and most people at that level would need 1-on-1 coaching more than a guide. My guess is that they will focus almost exclusively on your past experience turning around and growing businesses and assess how well you can do it for their portfolio companies. They’re not going to give you LBO modeling tests or case studies.

“Next, skip brain teasers; if an interviewer asks them, you should drop discussions with the firm”

Could you please elaborate on this? Almost every IB interview includes brain teasers so I am wondering why a PE interview shouldn’t?

Brain teasers are not that common in IB interviews in most regions unless you count any math/accounting/finance question as a brain teaser. They are far more common in S&T, quant fund, and prop trading interviews.

The point of this statement is that it’s OK if an occasional brain teaser comes up, but if the interviewer asks you brain teasers for 30 minutes, which have exactly 0% correlation to the real work in PE, you should leave because it’s a sign that the people working at the firm are idiots who don’t know how to conduct proper interviews or test candidates.

This is helpful. I find myself at a fix, I do not think I have had the right exposure, although in a BB I support teams with standard materials in a particular industry group in M&A. However I have interviews with a top global PE next month. Any guidance on how should I prepare for it ?

Thanks in advance

Follow everything in this article… practice spinning/discussing your deals… practice LBO questions and simple case studies.

Brian – thank you for your concise and candid remarks. do you have any insights or advice for someone with 5yrs of BB ECM & DCM experience now at a top full-time MBA program looking to break in?

It’s going to be very difficult if you just have capital markets experience and you’re already in business school. You should probably move to an M&A or strong industry team at a large bank (BB or EB) after business school and then go into private equity from there. It’s tough, but still easier than trying to move into PE directly out of an MBA program with only capital markets experience.

My next interview will highly likely involve a statement/growth equity modeling case. I tried to find the Atlassian Case interview but i am unable to open the link.

Would it be possible to share an example case or more information on that topic?

Many thanks,

The Atlassian case study is all we have. I don’t know why you can’t open the files, but I just tried and they seemed to work. Maybe try again or use a different browser.

Hi M&I team,

I have an opportunity to interview for an Analyst level opening at a boutique PE fund. This is a shop that has just started operations so I am directly communicating with the Partner. I doubt they have any structured recruitment process at this stage of their existence. He asked me to send some written work (memos and spreadsheets) on any public listed co that demonstrates my understanding of investing (basic balance sheet analysis, ratio analysis, valuation multiples).

So I am just wondering what to do? Should I work on projections and prepare a DCF model or do something simpler? I’d really appreciate your guidance on this.

Thanks again for the amazing work you’ll have been doing!

Yes, just create simple projections, a simple valuation/DCF, and maybe a simple LBO model since it is a PE fund that intends to buy and sell companies.

Could you provide some advice for preparing interviews for principal investing role ?

Thank you in advance Laura

We don’t really focus on that, but the articles on private equity and funds of funds on this site might be helpful.

Just wanted to say thank you! After reading everything on this site including all the CV and interview material I have managed to transition from a second year engineering undergrad with no prior experience/spring weeks/insight days, into an intern at Aviva Investors (UK buy side) within the space of one year.

The information you have posted is invaluable and “breaking in” is definitely doable with the right mindset and appetite for rejections!

Thanks again.

Thanks! Congrats on your internship offer.

Hi Brian/Nicole – Im an Economics student from the UK in 3rd year out of a 4 year course at a semi-target college, with 2 finance internships done up until now(not FO). I plan on doing a Msc Finance when I finish and eventually break into IB or Sales/Trading (I know I still haven’t decided which one I really want more). Through a family friend I have an offer to do a short internship this summer in NY in a post-trade regulatory commission. As this isn’t actually sitting at a trading desk experience, or anything related to IB should I decide to go down that road, would this add genuine value to my CV ? How are internships in regulatory commissions looked at for students looking to break into sales/trading? Surely even having any NY Finance experience on the CV will add more substance over here in London when going for internships compared to the majority of UK students who don’t? Appreciate any advice on this matter, Thanks!

I don’t think it would help much because you already have 2 non-FO internships, and a regulatory internship would be yet another non-FO internship. If it’s your best option, you can take it, but you would be better off getting something closer to a real front-office role.

Hey Brian. I am graduating after this semester going into Management consulting (Deliote, AT Kearny, Accenture)but I’m hoping to make a switch into either IB or PE after a couple years. I have one search fund internship which was enough to get me a few 1st and second round ib/pe FT interviews but no offers.My plan is to get into the best online MSF program I can and switch into Finance once I’m done. Do you think, given how close I was to getting in my 1st try, a high GPA from a reputable MSF and good experience in consulting will be enough or should I try to somehow get an IB internship before I apply?

I think you will probably need another internship just before the MSF starts or while it is in progress, not necessarily in IB, but something closer to it. Otherwise you’ll get a lot of questions about why you went from the search fund to consulting.

Thanks. As far as my story is concerned, is it better to do another finance internship before consulting so it’s search fund->ib->consulting->MSF (or MBA not sure)? I only ask because I may be able to get on some m&a projects with the consulting firm and my story could be when exposed to those deals, I realized how big my passion for finance was and that’s when I decided to get my MSF and switch to IB.

No, I think that would make less sense because then you would have to explain why you went from IB to consulting… and are now trying to go back to IB. Saying that you got exposed to M&A deals during the consulting experience would be a better story (and you would still ideally pair it with a transaction-related internship before/during the MSF).

Got it, thanks!

Probably missing something here, but for the first example, where does the 300% and 55% come from?

300% = 4x multiple. If compounding did not exist, we could just say 300% / 4 = 75% annual return. Because of compounding, however, the actual return does not need to be 75% per year in order for us to earn 300% by the end of 4 years. Instead, it can be a fair amount less than that, and we’ll still end up with 300% at the end.

To estimate the impact of compounding, you can multiply this 300% / 4 figure by a “compounding factor,” which varies based on the multiple and time period, but which is around 55% for a 4x return over a standard holding period.

Do you mind explaining how you can estimate a “compounding factor” such as with the 55% here?

There’s no easy-to-calculate-using-mental-math way to get this for all scenarios, but you can memorize quick rules of thumb (based on actual numbers and looking at the ratios) for 3 and 5-year periods and extrapolate from there. I don’t really think it’s worth doing that in-depth, though, because you just have to be roughly correct with these answers.

Do you think you will do a hedge fund interview guide similar to the one you have here?

Potentially, yes, but it’s much harder to give general guidelines for HF interviews because they’re completely dependent on your investment pitches. Also, interest in HFs has declined over the years (we no longer receive as many questions about them).

On that mental paper LBO question, how is the company able to pay off 900 of debt by year 3? It sounds like proceeds from the sale will have to be used in order to fully pay off the debt because EBITDA alone only adds up to 525, and that’s assuming there’s no interest.

Favorable working capital… NOLs… asset sales… the Konami code or other cheat codes. The point is not the numbers but the thought process.

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How to prepare for the case study in a private equity interview

If you're  interviewing for a job in a private equity firm , then you will almost certainly come across a case study. Be warned: recruiters say this is the hardest part of the private equity interview process and how you handle it will decide whether you land the job.

“The case study is the most decisive part of the interview process because it’s the closest you get to doing the job,"  says Gail McManus of Private Equity Recruitment. It's purpose is to make you answer one question: 'Would you invest in this company?'

In most cases, you'll be given a  'Confidential Information Memorandum'  (CIM) relating to a company the private equity fund could invest in. You'll be expected to a) value the company, and b) put together an investment proposal - or not. Often, you'll be allowed to take the CIM away to prepare your proposal at home.

 “The case study is still the most decisive element of the recruitment process because it’s the closest you get to actually doing the job.  Candidates can win or lose based on how they perform on case study. People who are OK in the interview can land the job by showing the quality of their thinking, ” says McManus. “You need to show that you can think, and think like an investor.”

"The end decision [on whether to invest] is not important," says one private equity professional who's been through the process. "The important thing is to show your thinking/logic behind answer."

Preparing for a PE case study has distinctive challenges for consultants and bankers. If you're a consultant, you need to, "make a big effort to mix your strategic toolkit with financial analysis. You need to prove that you can go from a strategic conclusion to a finance conclusion," says one PE professional. Make sure you're totally familiar with the way an  LBO model  works.

If you're a banker, you need to, "make a big effort to develop your strategic thinking," says the same PE associate. The fund you're interviewing with will want to see that you can think like an investor, not just a financier. "Reaching financial conclusions is not enough. You need to argue why certain industry is good, and why you have a competitive advantage or not. Things can look good on paper, but things can change from a day to another. As a PE investor, hence as a case solver, you need to highlight and discuss risks, and whether you are ready or not to underwrite them."

Kadeem Houson, partner at KEA consultants, which specialises in hiring junior to mid-level PE professionals, says: “If you’re a banker you’re expected to have great technical skills so you need to demonstrate you can think commercially about the numbers you plugged in.    Conversely, a consultant who is good at blue sky thinking might be pressed more on their understanding of the model. Neither is better or worse – just be conscious of your blank spots.”

A good business versus a good investment

For McManus, one of the most important things to consider when looking at the case study is to understand the difference between a good business and a good investment. The difference between a good business and a good investment is the price. So you might have a great business but if you have to pay hugely for it it might not be a great business. Conversely you can have a so-so business but if you get it a good price it might make a great investment. “

McManus says as well as understanding the difference between a good business and a good investment, it’s important to focus on where the added value lies.  This has become a critical element for private equity firms to consider  as competition for assets has become even more fierce, given the amount of dry powder that funds now have at their disposal through a wide array of funds.   “Because of the competition for transactions generally you have to overpay to win a deal. So in the case study it’s really important you think about where the value creation opportunity lies in this business and what the exit would be,” says McManus.

She advises candidates to be brave and state a specific price, provided you can demonstrate how you’ve arrived at your answer.

Another private equity professional says you shouldn't go out on a limb, though, and you should appear cautious: "Keep all assumptions conservative at all times so as not to raise difficult questions. Always highlight risks, downsides as well as upsides."

Research the fund – find the angle

One private equity professional says that understanding why an investment might suit a particular firm could prove to be a plus. Prior to the case study, check whether the fund favours a particular industry sector, so that when it comes to the case study, you can add that to the investment thesis. “This enables you to showcase you have read up on the firm’s strategy/unique characteristics Something that would make it more likely for the fund you’re interviewing with winning the deal in what’s a very competitive market, said the PE source, who said this knowledge made him stand out.

However, the  primary purpose of the case study  is to test  the quality of your  thinking - it is not to  test you on your knowledge of the fund. “Knowing about the fund will tick an extra box, but the case study is about focusing on the three most critical things that will drive the investment decision,” says McManus. 

You need to think through these questions and issues:

We spoke to another private equity professional who's helpfully prepared a checklist of points to think about when you're faced with the case study. "It's a cheat sheet for some of my friends," he says.

When you're faced with a case study, he says you need to think in terms of: the industry, the company, the revenues, the costs, the competition, growth prospects, due dliligence, and the transaction itself.

The questions from his checklist are below. There's some overlap, but they're about as thorough as you can get.

When you're considering the  industry, you need to think about:

- What the company does. What are its key products and markets? What's the main source of demand for its products?

- What are the key drivers in that industry?

- Who are the market participants? How intense is the competition?

- Is the industry cyclical? Where are we in the cycle?

- Which outside factors might influence the industry (eg. government, climate, terrorism)?

When you're considering the company, you need to think about:  

- Its position in the industry

- Its growth profile

- Its operational leverage (cost structure)

- Its margins (are they sustainable/improvable)?

- Its fixed costs from capex and R&D

- Its working capital requirements

- Its management

- The minimum amount of cash needed to run the business

When you're considering the revenues, you need to think about:

- What's driving them

- Where the growth is coming from

- How diverse the revenues are

- How stable the revenues are (are they cyclical?)

- How much of the revenues are coming from associates and joint ventures

- What's the working capital requirement? - How long before revenues are booked and received?

When you're considering the costs, you need to think about:

- The diversity of suppliers

- The operational gearing (What's the fixed cost vs. the variable cost?)

- The exposure to commodity prices

- The capex/R&D requirements

- The pension funding

- The labour force (is it unionized?)

- The ability of the company to pass on price increases to customers

- The selling, general and administrative expenses (SG&A). - Can they be reduced?

When you're considering the competition, you need to think about:

- Industry concentration

- Buyer power

- Supplier power

- Brand power

- Economies of scale/network economies/minimum efficient scale

- Substitutes

- Input access

When you're considering the growth prospects, you need to think about:

- Scalability

- Change of asset usage (Leasehold vs. freehold, could manufacturing take place in China?)

- Disposals

- How to achieve efficiencies

- Limitations of current management

When you're considering the due diligence, you need to think about: 

- Change of control clauses

- Environmental and legal liabilities

- The power of pension schemes and unions

- The effectiveness of IT and operations systems

When you're considering the transaction, you need to think about:

- Your LBO model

- The basis for your valuation (have you used a Sum of The Parts (SOTP) valuation or another method - why?)

- The company's ability to raise debt

- The exit opportunities from the investment

- The synergies with other companies in the PE fund's portfolio

- The best timing for the transaction

BUT: keep things simple.

While this checklist is important as an input and a way to approach the task, w hen it comes to presenting the information, quality beats quantity.  McManus says: “The main reason why people aren’t successful in case studies is that they say too much.  What you’ve got to focus on is what’s critical, what makes a difference. It’s not about quantity, it’s about quality of thinking. If you do 30 strengths and weaknesses it might only be three that matter. It’s not the analysis that matters, but what’s important from that analysis. What’s critical to the investment thesis. Most firms tend to use the same case study so they can start to see what a good answer looks like.”

Houson agrees that picking out the most important elements in the case study are more important than spending too much time on an elaborate model.   “You don’t necessarily need to demonstrate such technical prowess when it comes to building the model. But you need to be comfortable about being challenged around the business case. Frankly it’s better to go for a simple answer which sparks a really interesting conversation rather than something that is purely judged from a technical standpoint.  The model is meant to inform the discussion, not be the discussion itself.”

Softer factors such as interpersonal skills are also important because if the case study is the closest thing you’ll get to doing the job, then it’s also a measure of how you might behave in a live situation.  McManus says: “This is what it will be like having a conversation at 11am  with your boss having been given the information memorandum the day before.  Not only are the interviewers looking at how you approach the case study, but they’re also looking at whether they want to have this conversation with you every Tuesday morning at 11am.”

The exercise usually takes around four hours if you include the modelling aspect, so there is time pressure. “Top tips are to practice how to think in a way that is simple, but fit for purpose. Think about how to work quickly. The ability to work under pressure is still important,” says Houson.

But some firms will allow you do complete the CIM over the weekend. In that case on one private equity professional says you should get someone who already works in PE to check it over for you. He also advises getting friends who've been through case study interviews before to put you through some mock questions on your presentation.

But McManus says this can lead to spending too much time and favours the shorter method. “It’s fairer and you can illustrate the quality of your thinking over a short space of time.”

The case study is conducted online, and because of Covid, so too are many of the follow-up discussions, so it’s worth thinking about how to present yourself on zoom or Teams. “Although a lot of these case studies over the last couple of years have been done remotely, in many ways that’s even more reason to try to bring out a bit of engagement and personality with the people you’re talking to." 

“ There’s never a right or wrong answer. Rather it’s showing your thinking and they like to have that discussion with you. It’s the nearest you get to doing the job. And that cuts both ways – if you don’t like the case study, you won't like doing the job. “

Contact:  [email protected]  in the first instance. Whatsapp/Signal/Telegram also available (Telegram: @SarahButcher)

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• How To Prepare For A Private...

How To Prepare For A Private Equity Case Study Interview

Over the last couple of weeks, hiring within private equity funds has certainly slowed down. However, there are some funds that are continuing with their hiring plans and where possible looking at starting candidates remotely. Therefore, if you are a candidate looking to make a move to the buy-side, one thing is for certain; the number of jobs available has reduced and your competition has increased for the available jobs.

Most candidates who are looking to move to the buy-side are worried about the case study rounds of the interview process. It is also the stage where you commit the most amount of your time and will form a significant part of the firms hiring decision on your application.

As a result, I thought I would share some useful tips for the case study round for candidates still interviewing or looking to resume their search once the COVID-19 crisis is behind us.

Make a decision. 

Candidates are sometimes too concerned with making the wrong suggestion to invest or not, some even avoid deciding all together or decide with several caveats. This is not going to work. There is no harm in highlighting a key risk, or at least you should think of the risks for when you are questioned on the investment. Decide, have an opinion and show logic behind that opinion. The last point is crucial. You will feel under pressure, perhaps run out of time and might not get everything right. But what you have done, it needs to make sense. I had one client that said they don’t mind if a candidate doesn’t finish a case study, if what they have done shows their thinking is along the right path. Some candidates under pressure and running out of time have guessed, made poor assumptions and both are hard to justify. Use your common sense. It’s important to state, whilst some firms don’t mind if the case study is not finished, all will expect you have got far enough to form an investment decision.

Modeling isn’t everything. 

Looking for a job in private equity without solid LBO modeling skills is probably not going to work. A fund doesn’t have time to train you in basic modeling, so you need to make sure you have practised this. However, in case studies I have known candidates spend too long on the modeling section and over complicate this aspect, to the point that it impacts their ability to finish the case study. The model should guide your investment recommendation, but you will have to analyse several topics in detail that the model doesn’t show. Which ultimately will make the decision to invest or not. A candidate who produces an excellent model but has not thought out their investment decision and isn’t succinct in their presentation is unlikely to get the job. Leave yourself time to think how you are going to articulate your decision. Funds want concise, structured and logical recommendations. Some funds will forgive slight errors in your modeling work if the rest of the interview goes well.

Investor mindset. 

Following on from how modeling isn’t everything, you need to be able to demonstrate you have an investor mindset. Most candidates for a Private Equity role will be coming from M&A teams in Investment Banks, where the work usually stops once the acquisition is complete and it’s onto the next deal. Private Equity is all about the long term and how that business is going to perform over typically a 3-5-year period and ultimately how the fund is going to get their exit from that investment. You need to demonstrate you have considered factors which are going to impact the business performance during that period (management team, customer base, competitors, location etc)

Think of the firm. 

Just because an investment in the case study could appear attractive from a return’s perspective, think of the firm you are interviewing for and does it fit into their investment strategy. Research their current investments and if you are interviewing for a sector specific fund, make sure you understand key ratios and multiples used in that sector. I had a candidate interview for a special situations fund and whilst the case study from a technical perspective went well, they felt the candidate lacked genuine enthusiasm for special situations and it came across as this is one of many different avenues the candidate is considering. This will not be enough in most circumstances.

So, if you are currently going through an interview process with a fund, I hope the above is helpful for preparing for case studies. If you have any future questions about how to prepare for the case study in a private equity interview, contact our team for more information. 

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To make sure you are one of the 1% of PE applicants that gets the job, this course contains 15+ hours of LBO modeling tests, detailed information about the industry, interview Q&As, and networking tips. By the end of this, you will know how to build connections and ace interviews!

Who is this Course for?

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Professionals looking to prepare for the recruiting process and transition to a career in private equity

Key Outcomes

Show your mastery in lbo modeling tests.

In this course, you will master the theory and practical skills behind the different LBO modeling tests required to ace your private equity interview.

Unlocking the Door to Private Equity Success

After completing the Private Equity Interview Course, you'll have a strong edge over other candidates in landing a position in private equity.

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Once you finish this course, you'll feel more confident in your private equity interviews, which will increase your odds of a move to the buy-side and earning a higher salary.

This course has helped our students and young professionals land and thrive at positions across all top Private Equity firms, including:

WHAT’S INCLUDED

A step-by-step course to help you ace your private equity interviews.

Module 1: Interview Questions

In this module, we cover three crucial question categories: Technical, Fit, and Brainteasers. This module also includes our proprietary Flashcards feature to gain access to 30,000+ interview questions filtered by firm, group, and much more. 

Module 2: LBO Modeling Tests

In this module, we'll help you master all the types of LBO modeling tests that you can expect in your PE interviews. We take you in-depth through multiple LBO modeling tests to ensure you get the reps in to excel at them.

Module 3: Case Studies

We teach you how to create an LBO model using the information provided (such as an annual report and due diligence reports) in an interview and present the outcome in a PowerPoint presentation and ace the case study portion of your interview.

Module 4: Interview Process Support Materials

In this module, we teach you various important concepts (such as the various kinds of debts and valuation methods) to help you show your interviewers that you have in-depth knowledge of the private equity industry.

Module 5: Recruiting Overview

In this section, we are going to talk about the different career paths that you can pursue within private equity. Whether you're starting with an undergraduate degree or planning to pursue an MBA and beyond, there are exciting paths to explore.

Module 6: PE Deal Lifecycle

In this module, you'll discover the intricacies of a PE deal lifecycle. From the standard deal process to deal selection, deal funnel, and deal lifecycle, this module content equips you with the knowledge to excel in the dynamic world of private equity.

Module 7: PE Industry Backdrop

In this module, we focus on how the PE industry evolved and developed over time. We also take a closer look at the industry's structure, including the various types of PE firms, and examine the different types of PE deals that shape this sector.

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How much is the private equity interview course worth, consider this your first investment in a long career....

After all, you've likely already spent tens of thousands of dollars on college (and perhaps tens of thousands more on an MBA)...

When you start your coveted finance job, you'll be making well over $200,000.. .

...over $350,000 if you have an MBA...

And that's just the beginning of a long and very lucrative career that could easily net you millions...

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How much is the wso all access worth.

When you start your coveted finance job, you'll be making well over $100,000.. .

...over $200,000 if you have an MBA...

Even at thousands of dollars and your ROI would still be huge…

At a fraction of that price, the ROI is even better... When you do the math, it's a no brainer. And that doesn't include the time you'd have to spend figuring all of this out and the hours of sleep these courses will save you.

Even if you used the free info online, you'd still have to find it, organize it, vet it and test it to get it to work. That would take months… and at that point, you may have missed your window.

The WSO Private Equity Interview Course gives you everything you need to be super-efficient and get ready for your Private Equity interview… quickly and easily.

But we're not going to charge you thousands...

We won't even ask for half of that..., get unlimited lifetime access to the private equity interview course for, this offer (+bonuses) is limited-time only, 12 month money-back guarantee.

Your investment is protected by our 12-Month Risk-Free Guarantee -- easily the most generous in the market.

If, for any reason (or no reason), you don't think the WSO Private Equity Interview Course is right for you, just do the following within 365 days of your enrollment:

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We'll refund every penny. No questions asked . We bear the risk and will eat the transaction fees because we're that confident you'll love it.

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Course Reviews

Here’s what professionals like you think of the course., answers to popular questions.

No, you don't need an MBA to land a Private Equity job. In fact, if you don't have private equity experience prior to an MBA, it becomes even more difficult to break in since there are fewer seats for post-MBAs.

Yes, although PE firms used to recruit strictly from IB, they have opened up recruiting for consultants over the past decade. However, you'd have to work a lot harder to make up for the gaps in your IB/MBB experience.

Yes, most PE funds want to see your thought process as an investor.  They want to learn how you think and if you are able to ask the proper questions when given some details on a potential investment opportunity. You need to be well prepared to answer these types of questions since they are very common and where most candidates slip up. Our interview course has all this covered along with several cheat sheets you can use to ace this section of the interview.

No, they are not.  Private equity interviews are more than just LBOs and case studies. The problem is that most candidates now prepare well for these technical tests and ace them. Hence, interviewers go the extra mile to test you on a lot more than just technical skills. Some test you on your knowledge of the industry, while others throw in brain teasers and mental math.

Any other questions?

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S T R E E T OF W A L L S

Private equity interview, private equity recruiting process.

The lion’s share of the recruiting process for pre-MBA private equity associates truly begins in the first year of standard investment banking and consulting analyst programs. This may surprise some people, but the recruiting cycle is very structured, even though it can start at a moment’s notice (depending upon when the leading firms in the space begin their process). Prospective private equity candidates must be ready for the process early in their investment banking analyst programs in order to be successful in landing a private equity job. That said, recruiting for some other PE jobs will take place year-round. Thus if you happen to miss the main recruiting process for PE jobs, you’re a leg down, but not out. You may still be able to find available opportunities. This chapter will detail this timeline more thoroughly.

The pre-MBA recruiting process for PE positions is truly unique. After banking, exiting to a position as a private equity associate is very prestigious, and PE firms want to make sure that they don’t miss the most qualified applicants. You’ll need to be prepared for the process to start at any time. Once one of the leading PE firms begins its search for the incoming associate class for its firm, the rest of the firms will generally start recruiting directly afterward. For the majority of the firms, the entire recruiting process will be finished within several months once the leading firms start recruiting.

This “leader and followers” pre-MBA recruiting process is primarily driven by the “megafunds” (KKR, TPG, Blackstone, etc.). When they decide to start the recruiting process, most of the other large PE firms, with associate classes ranging from 8-15 professionals per year, will then launch their processes right away. The middle market/smaller PE firms will typically follow shortly after that.

Note that venture capital firms and smaller private equity firms will typically recruit outside of this standard recruiting cycle, and thus the notes above about the process tend not to apply to them. That said, overall most hiring for next year’s summer start dates will be completed by July or August—nearly a full year in advance!

The competition for these jobs is very tough. You’re going to be up against a large pool of talented, driven investment bankers, and will be working against a tight timeline. Therefore it’s very important that you plan out your process well ahead of time.

Even before the official private equity process begins, the initial step for pre-MBA recruits is to meet with headhunters. They are essentially the “gatekeepers” for the interviews with most firms. Headhunters will contact a pre-MBA candidate in the first year of his/her analyst program (up to three months in advance of the start of the recruiting season).

For post-MBA candidates, note that the recruiting process is a bit different. These candidates can rely a bit more heavily on their graduate schools’ career centers, since most PE firms will go directly to MBA program candidates to begin recruiting them. In this respect, post-MBA recruiting is more predictable and standard, as it conforms to the overall MBA student recruiting timeline.

The typical recruiting cycles for pre-MBA and post-MBA associate positions are illustrated below:

For pre-MBA candidates, after the headhunter interview the candidates go on to meet with the private equity firms directly. The overall process is a lot faster and more intense than investment banking. Candidates in this process truly need to be prepared for anything and everything. The recruiting process can be over very rapidly! A specific firm’s interview process can range from days to weeks, depending on the market conditions, how many firms are recruiting at the same time, and how quickly the firm in question finds prospective associates it wants to hire and who want to work for them.

Some investment banking analysts recruiting for PE firm jobs have encountered first-round interviews called “super-days,” where they meet with 8-10 people in one day and receive full-time offers at the end of the day. If this occurs, the PE firm will expect the candidate to accept (or reject) the offer within a few days! In other cases, the process is a bit slower, with several rounds of interviews spread out over a couple of weeks.

The traditional components of a private equity recruiting process include the standard behavioral and technical interviews conducted by junior PE associates—this part of the process is similar to investment banking recruiting. Where the process differs is in two primary places: the testing for investing acumen, and the testing for superior and LBO-specific technical ability.

Testing for investing acumen can come in the form of a broad 20-minute, consulting-like case study, or a detailed 3-5 hour investing exercise wherein the candidate has to research a company, go through the company’s filings, and write an investment memo on the sample target company. Unlike in a hedge fund recruiting process, PE associate candidates will very rarely be asked to pitch an investment idea. Instead, they may be asked what characteristics they would look for in a good LBO candidate.

LBO-specific technical ability screenings can come in the form of a financial modeling test, such as a paper LBO (in which the candidate must do LBO math in his/her head or on a piece of paper), or in a several-hour modeling test wherein the candidate has access to a computer and Microsoft Excel. Different firms like to administer this portion of the interview process differently, so for example, some will have modeling tests at the beginning of their process, while others may have it as the last stage of the process.

Therefore, you need to be prepared for every possibility if you hope to maximize your chance of landing a private equity associate position successfully. That said, don’t be afraid. The following sections and chapters in this guide will help you navigate the recruiting cycle and also help to prepare you for the modeling tests.

Initial Preparations: Before Headhunter Recruiting Starts

Given the short timeframe of the recruiting process, investment banking and consulting analysts need to be as prepared as possible for the process to start. In addition, no one knows exactly when the recruiting process is going to start until it does!

The first thing to do, then, is to make sure you’re interested in private equity. If so, make sure you understand the industry thoroughly, and know what the firms in the industry are going to be looking for in a good candidate.

The key thing that private equity firms look for is that the candidate is skilled at thinking like an investor rather than just being capable of performing the tasks needed for deal execution, which would mean being skilled at operating like an investment banker . Remember, private equity involves making successful investments rather than cranking out many transaction closings. For the banker, the firm’s revenue and profit are not affected by the post-transaction performance of the clients. In private equity, the firm’s success is heavily dependent upon how the client/target performs after the transaction is completed. Therefore, a successful PE associate will need to be able to help his colleagues make successful transaction decisions.

If this does not sound like something you’re interested in doing, then PE is probably not the right destination for you. If it is, then you will need to know how to best position yourself and market yourself to the interviewer with all of this in mind. Start thinking like an investor now, if you’re not already doing so—it will pay huge dividends for you when the PE recruiting process begins.

• Prepare and know your resume inside and out.
• Mega/large fund or middle market fund?
• Investment style (buyout, growth capital, etc.)?
• Culture and lifestyle: Do you prefer small or larger deal teams?
• Geographic location of PE firm or fund: What are your top three preferred city locations?
• Think about the focus of the position offered: Generalist vs. industry-focused? Do you prefer to concentrate on many industries or specifically on one industry?
• Use headhunters/recruiters: Many firms hire exclusively through recruiters even if you have personal contacts at a particular firm. Schedule screening interviews early with the top recruiters as their capacity for candidates is limited. Make a good first impression.
• Prepare to interview extensively by practicing with others. A typical interview process will last 3 to 5 rounds (including the headhunter) with most rounds consisting of numerous individual interviews. Because the competition will be very strong, intense preparation in this phase of the recruiting process will be crucial.
• Be able to talk through the stages and return drivers of an LBO model.
• Prepare by reading up on the relevant industry/industries and learning about what opportunities may be available there, or what transactions are taking place there.
• Modeling tests range from 4-hour computer based tests to “LBO on paper” exams. Be prepared to excel at all of them.

Private Equity Headhunter Interview

Now that you know how to prepare for the early stages of the PE recruiting process, we’ll discuss what the headhunter interview entails. Recruiters, or headhunters, play a large role in private equity searches. These recruiting firms source top candidates for private equity interviews. Traditionally, headhunting recruiters seek out and work with top-ranking first-year analysts at investment banks and top-tier consulting firms. Recruiters are essentially the “gatekeepers” into the private equity industry, so candidates need to take these relationships very seriously.

A good headhunter interview can make a tremendous difference in the number of PE interview opportunities a candidate will be presented with. It is very important for candidates to realize that headhunters are working for their private equity clients , and will therefore only show candidates that they believe are sufficiently qualified for the client and fit the firm’s criteria. If you do not come across as highly qualified and a good fit for the client, the number of opportunities you will be given will certainly suffer as a result.

Headhunters will often reach out to prospective candidates in their first year as analysts, often within 4-6 months of being on the job, so bankers need to make sure they’re ready early on in their analyst position if they want to do well in PE recruiting. For those who do not receive phone calls from headhunters, it doesn’t mean you are not desirable; it simply means you may have to reach out to the recruiters yourself. Well-known private equity headhunters that you can reach out to include SG Partners, GloCap, CPI, Amity Search Partners, Oxbridge Group, and Search One.

• Walk me through your resume and past deal experience.
• What type of investment banking transactions or consulting projects have you worked on?
• Do you have excellent financial modeling skills?
• Why did you choose your particular college and major?
• Why do you want to work at a private equity firm?
• What type of private equity investing are you interested in?
• What size of fund are you seeking?
• Are there any particular firms you are interested in? In terms of geography, what are the three top locations (cities) in the U.S. to which you would be willing to relocate?

Important! Headhunter Interview Tip: Make sure not to give the recruiter/headhunter any attitude. You are one of many candidates with whom headhunting firms will be working, and headhunters will have no problem never working with you again. They need to feel confident about you being a strong candidate, and just as importantly , being presentable to their own clients. Displaying an attitude of “you will make money off of me” is just not a good way to get the attention you want. Your attitude should be confident, yet humble, thoughtful and gracious.

• Know your story: You need to be able to communicate effectively with headhunters. Realistically, you’ll be giving the same pitch to them as you will give during your private equity interviews. You’ll have to explain where you’re from, why you chose your college, and why you chose your current job.
• Know exactly what you’re looking for: The last thing headhunters want to do is figure out what positions you fit into. If you’re really interested in private equity, you need to have a reason why, and be able to effectively communicate your rationale. You need to display your passion for private equity and why they should put you in front of their clients.
• Show your personality: Headhunters meet with dozens of investment bankers every day, so you need to be able to stand out with your own unique personality. Beyond the actual interview, create small talk with all of the people you meet at the headhunting firm and be able to talk about more than just finance. They want to know that you’re personable and someone with whom they could have a casual conversation.
• Financials, growth rates, multiples paid, investment theses, and alternative transaction and strategic opportunities are all things to have a firm grasp on as they relate to transactions you’ve worked on.
• Focus on M&A experience where available, but also know all types of transactions on your resume.
• Headhunters will want to know that you’ve been given a lot of responsibility by your banking superiors.
• Practice superior communication: All the headhunters have had experience in some sort of finance, but in reality they’re more removed from that part of their careers. They are most focused on whether you are presentable to the client and less focused on the content. So you need to be professional, concise and confident.

Private Equity Interviews

The Behavioral Part of the Interview Process: If the headhunter is comfortable putting you in front of his/her private equity clients, your resume will be submitted to the PE firm for selection. If selected, you will begin a typical interview process that will most likely consist of 2 to 4 rounds of interviews. On the first round, the private equity firm will host numerous 30-minute behavioral interviews to make sure you have the right background, strong communication skills (for example, to make sure you are capable of engaging appropriately with investment target companies, portfolio companies, bankers, and consultants), and that you have thoughtful, genuine reasons for pursuing a private equity career. Make sure at this stage to describe what sets you apart from the other candidates. That’s how you’ll stick in their memory and stand out from the dozens of other applicants.

• Why did you choose investment banking/consulting?
• Why do you want to pursue a career in private equity?
• What characteristics do you think are needed to be a successful private equity professional?
• How does your experience translate into success in private equity?
• Do you currently invest, perhaps via non-work-related investing?
• What is the most recent book you have read?
• What happened when you worked in a team and one member wasn’t contributing appropriately? How did you respond?
• What do you feel are your greatest strengths? Greatest weaknesses?
• Are you risk-averse or risk-seeing? Under what conditions do you seek risk the most and why?
• If I asked your senior manager, what would he or she say about you?
• Are you interested in [add private equity firm’s industry expertise]?
• Where do you see yourself in five years?
• Give an example of a time when you demonstrated that you were very driven/committed?
• What motivates you?
• Why should we hire you?
• What is the biggest risk you took in your life?
• What is the firm’s or fund’s investment strategy? (e.g. size, geography, industry, type of control, primary/secondary, minimum operating results, timing)
• What would be the potential responsibilities for an associate at the firm? Is sourcing involved? How so?
• What is the firm’s hierarchy? Fund investment structure? Investment committee structure?
• Is there a path to direct promotion within the firm, or an expectation that associates will pursue an MBA? Where have past associates gone?
• How have the firm’s funds performed historically? What was the typical IRR on previous funds?
• What is the firm’s history and what are some key past portfolio experiences for the firm?

The Technical Part of the Interview Process: If you receive a second-round interview, you can expect to reach the more technical part of the process. Typical private equity firms look to hire pre-MBA and post-MBA associates who have very strong financial accounting and modeling skills, and an appetite for quantitative analysis and data-driven decision making. Be prepared for technical questions similar to ones you received in the investment banking interview process. One major distinction in private equity interviews, though, is that candidates will often have to complete a financial modeling case study that illustrates his or her proficiency in financing modeling and accounting concepts. Candidates could be tested on this in a variety of ways, including analyzing a full LBO model, a growth capital case study, a paper LBO, or a consulting-like case study. A candidate may be handed one sheet of paper that consists of various assumptions and/or a laptop computer that has a blank excel sheet to build out an investment scenario. These modeling tests will be detailed later in the guide.

Some sample technical questions include:

• What is an LBO?
• Walk me through the mechanics of an LBO model.
• How do you assess credit risk?
• What are the different types of PE firms?
• What makes a good LBO investment candidate?
• What are the different ways to find the valuation of a company?
• How would you spend a million dollars if it were given to you?
• Company A has a potential IRR of 23% and Company B has a potential IRR of 30%. What 2 questions would you ask before you decide which one to invest in?
• What are the 4 main drivers of the change in IRR for an LBO scenario?
• How do you model in PIK notes?
• Walk me through the calculation of Free Cash Flow.
• Why would a private equity firm use a convertible preferred note?
• How do you calculate amortization of intangible assets?
• What are the uses of excess cash flow?
• What makes for a good management team?
• What 3 questions would you ask a CEO of a company you were looking to invest in?
• You have two companies with different EV/EBITDA multiples in different industries. What are some reasons why their EBITDA multiples might be different?
• What is the difference between senior and subordinated notes?
• What are the key considerations to structuring a carve-out transaction?
• How would you decide what amount of leverage to use in building a company’s capital structure?
• Company A has depreciation that is overstated by $10 million. Walk me through the impact of this overstatement on the financial statements.
• Tax depreciation is $20 million over 10 years, while financial statement depreciation for the asset is $10 million over 10 years. Walk me through the impact of these differences on the financial statements, assuming a tax rate of 40%.
• Assume that your company bought an asset for $10 million, of which $7 million was financed through debt. Walk me through the impact of this transaction on the financial statements.
• Assume that your company sold an asset for a loss of $10 million (it had originally been bought for $20 million). Walk me through the impact of this transaction on the financial statements.
• Your company sells a yearly subscription for $120. Walk me through the impact that this sale has on the financial statements.
• What is the difference between gross revenue and net revenue?
• The New York City subway currently costs $2.50 to ride one way. Pretend that tomorrow, the cost is going to increase to $3.00. Assuming you can lock in the $2.50 rate in the future by paying for the future rides now, how many coins would you purchase? What are the key considerations to make?
• What is the angle (in degrees) formed by the minute and hour hands on a clock when the time is 3:15?

Sample Questions to Ask

During the PE associate interview process, you will have the opportunity to ask the interviewers a few questions that will show them how interested you are in working for the firm. The following list provides good examples of questions to ask to demonstrate this interest.

• Can you elaborate on the typical day-to-day activities and responsibilities for this position?
• How did you get interested in private equity?
• What did you take into consideration when you chose this firm?
• What is one thing you like about working at this firm and what is one thing you thing you would improve about the firm? (This question shows that you are trying to get more insight into the reality of working at this specific firm.)
• What differentiates a good analyst from a great analyst?
• What’s your favorite deal that you’ve worked on at the firm?
• Have you completed any transactions while working at the firm?
• How is the quality of the investment opportunity sourcing at the firm?
• Can you elaborate on your past successes that led you to this firm?
• What are the key characteristics that you expect from an individual that will be selected for this position?
• In brief, what are the firm’s long-term goals?
• Is there an opportunity for an associate to build his or her career at this firm over the medium to long-term?
• What qualities do you have that helped you succeed in private equity?
• Why did you choose this career path?
• How do you manage work, family, and community involvement?
• What part of this job do you find the most rewarding and challenging?

The questions you ask should be selected carefully so that you receive the maximum amount of information about the job. This information will help you select the right firm for your background and personality. You will want to make sure you work with a group of people that you can get along with and will enjoy working with as part of the investment team. You will be spending a lot of time with this group, and making the right choice is critical.

• Private Equity

Private equity interviews can be daunting. The competition is fierce, the questions are challenging, and the stakes are high. But with the right preparation, you can confidently navigate these interviews and increase your chances of landing that coveted private equity role. In this article, we will provide you with a comprehensive guide on how to prepare for private equity interviews. From researching the firm to mastering technical questions and showcasing your fit, we will cover all the essential strategies and tips that will help you stand out from the crowd and impress even the most discerning interviewers in this highly competitive industry. So buckle up, get ready to dive into the world of private equity interviews, and let’s secure that dream job together!

Table of Contents

1. Research the firm

Researching the firm is a critical step in preparing for private equity interviews. While it may seem obvious, many candidates overlook the importance of thoroughly understanding the firm they are interviewing with. This goes beyond simply reading their website and memorizing their key statistics. It requires digging deeper to understand their investment thesis, industry focus, and recent deals they have executed. By doing so, you can articulate why you are specifically interested in working for this firm and how your skills align with their investment strategy.

When researching a private equity firm for an interview, it’s important to not only analyze their past deals but also consider their future prospects. Are they actively fundraising? Do they have any new partnerships or investors on board? Understanding these dynamics can give you an edge during the interview process by allowing you to ask thoughtful questions about the firm’s growth plans and strategic direction.

Additionally, pay attention to any notable news or updates about the firm that could potentially impact its operations or culture. This could range from leadership changes to controversies surrounding previous investments. Being aware of such information demonstrates your diligence and shows that you are genuinely interested in joining a firm that aligns with your values.

In summary, thorough research about a private equity firm prior to an interview can help you stand out from other candidates by demonstrating your knowledge of both past accomplishments and its future aspirations.

Related Blog –  Senior Leadership Hiring In Private Equity

2. Understand the Industry

Private equity interviews are notoriously rigorous, demanding a deep understanding of the industry and its nuances. Taking the time to thoroughly research and comprehend the intricacies of private equity is essential for success in these interviews. This requires candidates to not only understand the fundamental principles of private equity investing but also to keep abreast of current market trends, valuation methodologies, and deal structuring.

One key aspect that candidates often overlook is gaining a comprehensive understanding of the specific strategies employed by different private equity firms. Some firms may focus on leveraged buyouts (LBOs), while others specialize in growth capital investments or distressed debt. Familiarizing yourself with these distinct approaches will allow you to tailor your answers during interviews and demonstrate your alignment with each firm’s investment philosophy.

Moreover, it is critical to grasp how new technologies are shaping the future of private equity. With advancements in artificial intelligence and data analytics, firms have more tools at their disposal for sourcing deals, conducting due diligence, and optimizing portfolio company performance. Demonstrating an awareness of these technological developments can impress interviewers and showcase your ability to adapt in an ever-evolving industry.

By putting effort into truly understanding the industry as a whole – its strategies, trends, and technologies – candidates can go beyond surface-level knowledge and present themselves as thoughtful contenders for positions within private equity firms.

3. Prepare for technical questions:

Preparing for technical questions is a crucial step in acing private equity interviews. While these questions may seem intimidating, with the right approach and preparation, you can confidently navigate through them. One of the first things to do is to familiarize yourself with common technical topics in private equity, such as financial analysis techniques, valuation methods, and deal structuring.

In addition to theoretical knowledge, it’s important to practice applying this knowledge in real-life scenarios. This can involve analyzing case studies or working on mock deals. By simulating actual deal processes and decision-making, you can develop a better understanding of how different concepts and tools are applied.

Furthermore, keeping up-to-date with current market trends is essential. Familiarize yourself with recent private equity transactions and industry news. This will not only help you gain deeper insights into private equity practices but also enable you to demonstrate your industry knowledge during interviews.

By taking time to prepare for technical questions before your private equity interviews, you’ll enhance your confidence levels and increase your chances of impressing potential employers with your expertise in the field. So be proactive in researching relevant topics, practicing the application of concepts, and staying updated on market trends – and watch as your interview performance soars!

Related Guide – How To Get A Job In Private Equity

4. Practice case studies

• One key aspect of preparing for private equity interviews is practicing case studies. These are simulated scenarios that allow candidates to demonstrate their analytical skills and problem-solving abilities in a real-world context. By working through different case study examples, candidates become familiar with the types of questions and challenges they may encounter during an actual interview.
• A successful approach to practicing case studies involves studying various industries and sectors in order to develop a holistic understanding of the business landscape. This can be achieved by reading industry reports, analyzing financial statements, and staying updated on current events within the investment world. By immersing themselves in this knowledge, candidates can better solve complex problems quickly and efficiently during their interviews.
• Additionally, it is crucial for candidates to focus on developing strong communication skills while practicing case studies. Being able to clearly articulate their thought process, assumptions made, and conclusions drawn is just as important as arriving at the correct answer itself. Private equity firms value candidates who can effectively communicate complex ideas and present them in a concise manner.

5. Develop your story

It’s crucial to approach PE interviews with a clear understanding of your own story and how it aligns with the firm you’re interviewing with. While technical skills and academic achievements are important, private equity firms are often looking for candidates who can demonstrate their ability to think critically and solve complex problems.

In order to develop your story effectively, it’s essential to highlight your relevant experiences and achievements that demonstrate your unique skillset. This could include internships or previous work experience in finance or related fields, as well as any extracurricular activities or leadership positions that have helped you develop key qualities such as teamwork, analytical thinking, and decision-making abilities. Additionally, consider how your personal background has shaped your perspectives and values, as private equity firms often value diverse viewpoints when making investment decisions.

Lastly, be prepared to explain why you are specifically interested in working in private equity and what sets this industry apart for you. Show passion for the field by discussing specific deals or investments that have inspired you or discussing trends within the industry that have caught your attention. Remember, an authentic story that showcases both your skills and passion will make you stand out among other candidates during a private equity interview.

Hire your next PE Executive with GeniusMesh –  https://www.geniusmesh.com/private-equity-executive-search-firm

In conclusion, private equity interviews are a crucial step in the recruitment process for aspiring professionals in this field. Preparation is key to success, and candidates should focus on honing their technical knowledge, showcasing their analytical skills, and demonstrating their ability to think critically under pressure. It is also important to research the specific firm and its investment strategies beforehand to tailor responses effectively. Additionally, practicing with mock interviews and seeking feedback can greatly enhance one’s performance. By following these tips and dedicating time to preparation, candidates can maximize their chances of standing out in the competitive world of private equity. So, start preparing today and get ready to ace your next private equity interview!

The GeniusMesh team is a group of experts who are pioneers in executive hiring, unparalleled expertise in identifying and securing top-tier leadership talent. We have people from the top 30 Business schools across the globe who write thought-provoking content on Private Equity, Healthcare, Supply chain, Manufacturing, Technology, Finance, Venture Capital & other niches.

GeniusMesh is a  pre-vetted network of 12k+ Executive MBAs who have over 16 years of operational & functional experience.

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• Leveraged Buyouts and LBO Model Tutorials

Paper LBO Example: Full Tutorial for Private Equity Interviews

In this tutorial, you’ll learn how to complete a “paper LBO” test in a private equity interview and how to approximate the IRR in a leveraged buyout using pencil and paper.

• Tutorial Summary
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• Premium Course

Paper LBO Definition: In a “paper LBO” test, a private equity firm describes the leveraged buyout of a company and asks you to approximate the IRR or money-on-money multiple in the deal without using Excel or a calculator .

Key Tips for Paper LBO Tests

Paper LBOs are not true “financial modeling tests” in the same way that other Excel-based exercises are; they’re more like extended mental math questions.

To succeed with paper LBO tests, you must round and simplify the numbers as much as possible so you can finish the calculations within the time limit (often 30 minutes or less).

It’s also important to start with the end in mind so you can check yourself along the way.

For example, if the PE firm is targeting a 25% IRR over 5 years, you should know that it corresponds to a 3x multiple of the initial Investor Equity (see: our tutorial on how to calculate IRR manually ).

If you finish most of the exercise and you can tell that the deal will generate nothing close to a 3x multiple, you can immediately reject it.

It’s best to simplify the transaction assumptions as well, which means “ignore the transaction and financing fees” and “assume all deals are cash-free, debt-free” (i.e., that the target company’s Cash and Debt immediately go to 0 after the deal closes).

Finally, you may assume that the Debt issued to fund the leveraged buyout stays the same or that 100% of the company’s Free Cash Flow is used to repay the Debt principal.

More complicated assumptions, such as “cash flow sweeps,” make it too difficult to track the numbers and calculate everything with pencil and paper.

Paper LBO Example: Real Case Study

Click here to get the case study prompt for this exercise .

In short, the PE firm is acquiring a company for 10x EBITDA and using 6x Debt to fund the deal.

They provide numbers for the company’s revenue, EBITDA, cash flow line items, and the details of the Debt funding, such as the interest rates and principal repayments.

The PE firm is targeting a 20% IRR over 5 years, so we have to complete this paper LBO and recommend or reject the deal based on this target.

You can click here to get the full solutions to this exercise , but we’ll present the highlights below:

Paper LBO, Step 1 – Determine the End Goal

You should know that a 20% IRR over 5 years is approximately a 2.5x multiple of invested capital because a 2x multiple is a ~15% IRR over 5 years, and a 3x multiple is a ~25% IRR.

The case document gives us the company’s initial EBITDA of $250 million.

Since the company spends 60% of Revenue on COGS and 15% on SG&A, its EBITDA Margin equals 1 – 60% – 15% = 25%.

So, the company’s Revenue is $250 / 25% = $1,000.

A 10x purchase multiple means a Purchase Enterprise Value of $2,500, and the deal is funded with 6x Debt and 4x Equity, so the Investor Equity is $2,500 * 40% = $1,000.

Therefore, this deal must generate $1,000 * 2.5x = $2,500 in Equity Proceeds to be viable.

We need to determine the Year 5 EBITDA and the Year 5 Debt to see if that happens.

Paper LBO, Step 2 – Project Revenue and EBITDA

The case document gives us the initial numbers:

To project the Revenue figures, we can use approximations. For example:

• $1,000 * 5% –> This is easy; it’s an increase of $50.
• $1,050 * 7.5% –> This is halfway between $52.5 and $105, so we can round it to $80.

Once we have all the Revenue figures, we can use a similar strategy for EBITDA.

For example, if we know the Year 1 Revenue is $1,050 and the EBITDA Margin is 24%, we can approximate the Year 1 EBITDA like this:

$1,050 * 24% –> $1,050 is a bit higher than $1,000, and 24% is a bit lower than 25%, so we can say the EBITDA is still $250.

After completing these steps, we arrive at these estimates for Revenue and EBITDA:

Paper LBO, Step 3 – Calculate the Annual Free Cash Flow

In the context of this simplified “model,” we can define Free Cash Flow like this:

Free Cash Flow = EBITDA – Interest – Taxes +/– Change in Working Capital – CapEx – Purchases of Intangibles.

CapEx, Purchases of Intangibles, and the Change in Working Capital are all simple percentages of Revenue, so we can group them together:

FCF = EBITDA – Interest – Taxes – “Other Items.”

CapEx = –8% of Revenue, Intangible Purchases = –4%, and Change in WC = +2%.

The first two are negative, and the Change in WC is positive, so “Other Items” represents negative 10% of Revenue.

To calculate the Taxes and Interest, we need the Taxable Income first.

Taxable Income = EBIT – Interest, and EBIT = EBITDA – D&A.

The D&A is simple, but the Interest changes each year as the company repays Debt.

So, let’s start with the D&A: it’s 5% of Revenue, so we can multiply each of the “Other Items” above by 50% to estimate it.

The Interest Expense is the toughest part because the company repays its Term Loan balance over time, and many of the numbers are interdependent:

Interest: Depends on the Debt balance, but the Debt balance depends on FCF.

FCF: Depends on the Interest and Taxes.

Taxes: Depends on the Interest.

We have to complete this process iteratively , starting with the Interest in Year 1.

The initial Term Loan is $1,000, or $250 * 4, and the initial Senior Notes are $500, or $250 * 2, so the initial Interest Expense is $1,000 * 5% + $500 * 10% = $100:

The Term Loans have 2% annual principal repayments, which might seem complicated at first.

But since the company’s FCF is higher than 2% * $1000 = $20 per year, we can combine the mandatory and optional repayments and assume that 100% of the company’s FCF is used to repay Debt principal.

The Senior Notes stay the same at $500 per year, so only the Term Loan balance changes.

Once we have the Year 1 numbers, we can continue to Year 2, where Interest = 5% * $975 + 10% * $500.

We round all the Interest numbers to units of 5 or 10 to simplify the math.

The company’s FCF never changes by a huge amount, so we use figures such as $25, $30, and $35 in each period.

We also round all the Tax numbers to ones that end in 5 or 0, as shown below:

Once we have the numbers for Years 1 and 2, we go through the same process for each of the following years.

It’s impossible to track all these numbers in your head, so it’s essential to write down the whole schedule on paper.

The finished “ Debt Schedule ” looks like this:

Paper LBO, Step 4 – Calculate the Exit Proceeds

To finish, we need to calculate the Exit Enterprise Value, Exit Equity Value, money-on-money multiple, and IRR.

We know the Year 5 EBITDA is approximately $300 and the Year 5 Exit Multiple is 12x (from the case document):

$300 * 12 = $300 * 10 + $300 * 2 = $3,600 for the Exit Enterprise Value ($3.6 billion).

We have no information on the Cash balance, but we know it has NOT changed because all the company’s FCF was used to repay the Term Loan .

Since the remaining Debt in Year 5 is $1,360, the Exit Equity Value = $3,600 – $1,360 = $2,240; we can round this to $2,200 or $2,300.

This range produces a multiple of 2.2x to 2.3x because $2,200 / $1,000 = 2.2x and $2,300 / $1,000 = 2.3x.

To get a 20% IRR over 5 years, we need a 2.5x multiple on the $1,000 of Investor Equity.

Therefore, this deal is not viable .

The exact IRR here is probably between 15% and 20%, so it’s not a bad outcome – but it’s also below what the PE firm was targeting.

The “Paper LBO” in Excel Format

If you want to “see” this paper LBO in Excel format, click here to download the Excel recreation , which has the exact numbers rather than approximations.

Note that it’s completely pointless to build this model in Excel because the purpose of a paper LBO test is to finish it using pencil and paper and mental math.

If you use Excel, you might as well try a full-blown LBO modeling test that takes 2-3 hours to complete.

How Important is the Paper LBO in Private Equity Interviews?

Some private equity firms like to administer paper LBO tests, but you’re more likely to get real Excel-based modeling tests and case studies.

So, if you’re going through the private equity interview process , it’s worth practicing a few paper LBO tests, but don’t go through dozens of exercises or spend days on them.

You should spend that time improving your story, reviewing and discussing your deal experience, and practicing real LBO modeling tests.

Paper LBOs, when they do come up, tend to occur in earlier rounds of interviews and are mostly used to eliminate candidates.

You’re never going to win a private equity job offer because you ace a paper LBO test.

But if you perform poorly, you could easily lose a job offer.

About Brian DeChesare

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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Paper LBO: A Step-By-Step Guide with Interview Examples

Preparing for private equity or growth equity interviews is quite an undertaking. Whether it’s your first interview or your tenth, there’s a lot you need to prepare. 

Preparing for that first one is especially tricky, though, because you’re facing your first paper LBO exercise. 

The paper LBO requires knowledge of the ins-and-outs of a leveraged buyout model, as well as strong analytical skills, knowledge of the deal, and a quick mind for mental math. 

Once you know how to do it, be sure to practice – you don’t want to have the additional challenge of feeling pressured while you think. 

In this article, we’ll cover what a Paper LBO model is, how to prepare, and example prompts so you can go into it feeling extremely confident.

What is a paper LBO?

At its most basic level, a paper LBO highly is a simplified LBO model that uses certain simplifying assumptions that allow you to either calculate using pen and paper (or verbally).  It allows you to estimate returns for a deal quickly without a full model.  

The paper LBO is not actually used much “on the job” but it is often asked for during private equity interviews (and even growth equity interviews). 

In an interview situation, the interviewer will commonly ask the candidate to pencil out a paper LBO for a company or deal they’ve worked on in their previous job.  In other cases, the interviewer might present a new company and supply the candidate with assumptions and financial metrics to use.

Because the paper LBO simplifies the math, usually you can complete a paper LBO using paper & pen, or verbally in an interview.  Sometimes interviewers will lead you along with questions, as you complete the Paper LBO live on the fly.  

Usually the paper LBO exercise will last 5-20 minutes during an interview.

Paper LBO in Interviews

Paper LBO calculations are mostly for private equity interviews , although they can show up in growth equity interviews as well.  

The Paper LBO assesses many key skills for private equity and growth equity jobs and internships :  

First, it’s an excellent way to quickly assess your knowledge of the mechanics of LBO modeling. 

It’s also a great way for an interviewer to assess your communication and quantitative skills. Can you make quick calculations on the fly?  Can you sift through financial metrics in your head and calculate orally with confidence? 

Additionally, the Paper LBO allows the interviewer to dig into a deal on your resume by asking you to sketch out a Paper LBO for the deal.  This allows in-depth follow up questions.

Finally, because usually the Paper LBO is requested for a company/deal you’ve worked on, it tests your level of preparation for the interviews, because in order to complete it successfully you need to remember or memorize key financial metrics for the company and deal.

Paper LBO vs full LBO model

The paper LBO you might encounter in an interview is a highly simplified version of a full leveraged buyout model. 

Here are a couple key ways that paper LBO models differ from full LBO models:

• Instead of building a full 3-statement model, simply focus on projecting Revenue, EBITDA, and free cash flow every year (memorize these for the entire projection period for all your deals!)
• Since you are memorizing financial numbers for Revenue, EBITDA, and FCF, it’s OK to use figures that are rounded to the nearest $5 million 
• Often, you’ll assume growth in metrics over the projection period is linear, allowing you to memorize the year 0 and year 5 metric values (and assume linear growth between them)
• No need to build out balance sheet or debt schedule; you’ll capture their impact by simply projecting FCF

Sometimes interviewers will throw in a complicating factor or two, but the calculations are all designed to be completed without a computer in less than ~20 minutes.  

Step-by-step process for Paper LBO

In many ways, completing a paper LBO is the same as completing any other financial model. 

For any model, you can remember the ASBICIR process.  This stands for the following steps:

• A ssumptions – gather all your operating and entry assumptions (incl. pro forma valuation and debt figures); start with the purchase price and debt/equity financing split. 
• S ources and uses – using the assumptions, fill out your sources and uses, which shows where the cash flows to and from in the acquisition transaction.  Ultimately, this will get you to your “Sponsor Equity” which is the investment amount upon which you should base your IRR
• (Pro forma) B alance sheet – With your Sources & Uses done, you can now complete your pro forma balance sheet, and start laying the foundations for projecting it forward until the exit year.  This includes setting up your debt schedule, if your modeling an LBO
• I ncome statement – next, you can start projecting forward your income statement, all the way down to net income; notably, do not yet integrate interest expense; leave this blank for now
• C ash flow – with your income statement and balance sheet up, you can project forward your cash flows.  This and the prior two steps will be iterative as you set up schedules and make calculations that are interdependent on multiple statements (e.g. D&A)
• I nterest – finally, once your 3-statements are connected and projected forward, always the last step is to calculate interest expense and connect it to the income statement; turn on model iterations
• R eturns – the last step is to make an assumption about your exit, and to calculate your returns by comparing the entry investment amount to the exit investment amount

For the paper LBO, the only differences are:

• No need for B alance Sheet and I nterest Expense steps; these are both excluded; given this, you’re left with the Paper LBO short version: ASICR
• Instead of building a full 5-year projection, instead build up the model for Year 0 and Year 5 (from memory).  To estimate the intervening years, you can either assume linear growth or you can use the “average” method
• To estimate the debt balance at exit (year 5), take the average of Year 0 FCF and Year 5 FCF.  This will give you average FCF across all 5 projection years.  Then take this number and multiply it by 5.  This is an estimate of the total amount debt will decrease during the hold period
• Round numbers to the nearest $5 million

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Paper LBO format

Sometimes your interviewer will give you calculation aids like a calculator or basic Excel functionality (which you shouldn’t count on).

However, most of the time your interviewer will want to hear you talk through your thought process. After all, they are hiring human talent, not a calculating robot. (AI isn’t coming for private equity – yet.) 

Follow the ASICR flow above as you calculate and speak. 

Plan anywhere between 5 and 20 minutes for total exercise time, both calculating and speaking. 

As you practice, record yourself going through the entire thing, both to time yourself and to assess your confidence and speaking ability.

Paper LBO Example

This is a sample paper LBO prompt you might be given in an interview situation. 

The assumptions here are pretty standard, but if there are any different ones in your interview, you will know about them. The final result of your paper LBO calculations will be the IRR and MoM for the deal. 

Here’s the sample prompt:

Imagine our firm is considering an LBO of Company X, and you’re on our investment team.  Right now, create a paper LBO live with your interviewer to estimate the IRR and Multiple-on-Money return for the deal. Use the following assumptions: All dollar amounts are in millions.  Year 0 revenue: $100  Revenue growth: $10 every year Year 0 EBITDA margin: 40% in Year 0 EBITDA margins: remain constant every year Entry timing: at end of Year 0 Entry multiple: 10x LTM EBITDA Pro forma debt: 6.0x LTM EBITDA with blended average interest rate of 5%  Year 0 D&A: $5, flat across projection CapEx = D&A throughout projection Working capital: Cash investment of $10 every year Tax rate: 40% Entry timing: at end of Year 5 Assume entry-exit multiple parity

When you pencil out this Paper LBO, what IRR do you get?  I get ~21% or 2.6x MoM.

Below are the key steps with outputs.

Step 1/2: Assumptions + Sources & Uses

Steps 3/4: Income & Cash flow Statements

Step 5: Returns

Special tricks for solving

• Follow the flow. The interviewer wants to see that you know how to think like an investor, and wants to see a clear, logical train of thought from beginning to end. Logical shortcuts are fine, as long as the interviewer can follow what you are doing. 
• IRR is tough to calculate, but the multiple on money, or cash-on-cash return, is easy to calculate. You will need the beginning and ending equity values for the company. Then, you can use this to help you find IRR.
• Since IRR involves time value of money, it’s tricky to find without Excel or a calculator. A good rule of thumb is the Rule of 72. The Rule of 72 states that the time it takes to double your money is 72 divided by the MoM rate of return. There are also IRR tables you can memorize for common IRR values over a 5-year horizon, but the Rule of 72 has the advantage of being more flexible and easier to remember.

Paper LBO prep plan

Private equity headhunters and interviewers alike are looking for one thing: expertise. 

Since the paper LBO calculation is one of the most technical things you will cover in your interview, it is worth your while to practice.  Timing yourself is also key. 

Memorize key deal financials

For each of the major deals you list on your resume, memorize the following financial metrics:

• Revenue- Year 0 (entry) and Year 5 (exit)
• EBITDA – Year 0 and Year 5 
• FCF (calculated from EBITDA) – Year 0 and Year 5 
• Entry valuation multiple
• Exit valuation multiple
• IRR & MoM of deal

If the deal wasn’t an LBO or acquisition, you should still memorize these figures because you might be asked to pencil out an LBO for it anyway.

Memorize the Rule of 72 and Rule of 115

These will help you go from multiple on money to IRR calculations for a 5 year period.

Practice with pen and paper

If you are working from pen-and-paper case studies, see if you can get your time down to 5-10 minutes for a straightforward case study, or 10-15 for a more complex example (e.g. read more about private equity case studies ). 

Practice with your deals

You can also use deals on your private equity resume to generate paper LBO calculations. Go through each deal you completed and create a paper LBO scenario. 

Basically, you need to reduce the full model from the actual deal to a simplified paper calculation. Ensure that the relevant ending metrics, such as the internal rate of return and the cash-on-cash return, are the same between the original and simplified versions (within rounding error). 

Since it has more meaning to you than a case study, you should be able to memorize each paper LBO scenario for previous deals. Not only will this help you become more efficient with your paper LBO calculations, but it will also make you a more confident interviewee. 

FAQ: How long should a paper LBO take?

A simple case study with pen and paper provided and no complicating factors can be completed in five minutes. 

A more complex calculation where Excel is allowed should not take more than five minutes either. 

If the LBO study has complicating factors like multiple investors or a one-time cash outflow within the case study timeline, it can take longer, but no more than about 20 minutes including discussion time. 

FAQ: Are paper LBOs actually on paper?

Yes!  Sometimes.

They can be on paper. Some firms may choose to do a simplified Excel version for more complex LBO examples. 

Other firms may have paper or may simply do a fully verbal interview with a simpler example.

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