PE Interview Preparation Sheet Find more on CoachingAssembly.com PRIVATE EQUITY INTERVIEW PREPARATION
PE interviews are a challenging process:
You will have to go through 3 to 10 rounds
You have usually 3 different types of rounds:
CV overview interviews (know your CV: you must be able to answer questions on anything on your CV. If you have listed several transactions then make sure you really know what happened and know the relevant numbers: Sales, EBITDA and margins, FCF generation, IRR, debt equity ratio, price, earnings multiple etc.)
LBO modeling
Case study
All firms will want to test your commerciality and business sense
Ultimately, as an entry-level candidate you need to prove that you can make the transition from the sell-side to the buy-side and think like an investor
The key to doing well in any interview is preparation
Do your homework:
On the firm
The professionals
The portfolio companies: it is always worth thinking through a couple of the investments the firm has made in the past and assessing why they were good investments (or not)
Prepare some questions that you can ask the investment professionals at the firm where you are interviewing
CASE STUDY PREPARATION
Case studies are often used during g PE process
Usually appear towards the end of the recruitment process: can be take home or live
Main objectives of a case study:
Do you think like a PE professional in your financial and commercial assessment of a situation
Can you take part in a constructive discussion around the issues relating to an investment decision. This exercise will also help determine if you have good communication and presentation skills
Usually you will get an information memorandum, and will have to complete a LBO model and a presentation that will serve during a Q&A session to discuss the investment opportunity
You will usually have to answer the following questions:
Assess the strengths and weaknesses of this as an investment opportunity.
What further information would you need to make your investment decision (through a due diligence)?
How much would you be prepared to pay (assuming a target return for the fund)?
How would you structure an investment (leverage, type of debt)?
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PE Interview Preparation Sheet Find more on CoachingAssembly.com PRIVATE EQUITY-SPECIFIC BEHAVIORAL INTERVIEW QUESTIONS
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?
H How d does your experience i translate t l t iinto t success iin private i t equity? it ?
Do you currently invest?
What happened when you worked in a team and one member wasn’t contributing appropriately?
What do you feel are your strengths? Weaknesses?
What would people who have worked with you say about you?
Where do you see yourself in five years?
Wh t motivates What ti t you??
Why should we hire you?
What is your biggest failure?
What do you do in your spare time?
PRIVATE EQUITY OR LBO-SPECIFIC QUESTIONS
What is an LBO?
Walk me through the mechanics of an LBO model.
Why would you use leverage when buying a company?
What makes a good LBO investment candidate?
What variables impact an LBO model the most?
From the companies you’ve worked with, which would make a good private equity investment and why?
How do you assess leverage capacity? credit risk?
How do you pick purchase multiples and exit multiples in an LBO model?
What are the different ways to find the valuation of a company?
What are the main drivers of the change in IRR for an LBO scenario?
How do you model in PIK notes? Walk me through the impact on the 3 financial statements
What is the difference between bank debt and high-yield debt?
What is the difference between senior and subordinated notes?
Tell me about all the different kinds of debt you could use in an LBO and the differences between everything?
Explain how a Revolver is used in an LBO model.
Walk me through the calculation of Free Cash Flow.
How important is a good management team?
Wh t is What i meantt by b the th “tax “t shield” hi ld” iin an LBO?
What is a dividend recapitalization (“dividend recap”)?
How would a dividend recap impact the 3 financial statements in an LBO? CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
PE Interview Preparation Sheet Find more on CoachingAssembly.com CRITERIA FOR GOOD LBO CANDIDATES
Strong market position and sustainable competitive advantages
Stable, recurring cash flows
Low capital expenditure requirements
Favorable industry trends
Strong management team
Clear exit route
AREAS OF DUE DILIGENCE
Commercial due diligence
Competitive Landscape and Market Position
Industry Growth/Addressable Market
Customer Base/Suppliers
Capital Requirements of the Business
Financial Performance (Historical & Projected)
Financial due diligence
Quality of earnings
Debt and debt-like items
Normal working level of capital
Tax structure
BASICS OF AN LBO MODEL
A sample LBO model given to candidates during interviews can be used to test on a variety of issues:
Determining a fair valuation for a company (including an ability-to-pay analysis)
Determining the equity returns (through IRR calculations) that can be achieved if a company is taken private, grown, and ultimately sold or taken public
Determining the effect of recapitalizing the company through issuance of debt to replace equity
Determining the debt service limitations of a company from its cash flows
Steps in building a LBO model:
Purchase price assumptions
Sources & Uses
projections j Financial p
Exit assumptions
IRR and CoC calculations
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