How to Ace Your Private Equity Interviews

149 Comments | Private Equity & The Buy-Side - Interviews and Case Studies

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Private Equity Interviews“Dear Andrew,

Thank you very much for your recent application to the Texas-Pacific Group. Your resume and glowing recommendation from your MD were both somewhat impressive. We applaud your efforts to transition from Banking into Private Equity, it is definitely the right move right now. We were considering extending you an offer, actually, but upon review of the quiz you inadvertently submitted to for the New York Post, we regret to inform you that we will be unable to offer you a position at our firm.

Please note that you did score an 87%, which is nothing to be ashamed of. It turns out to a B+ with our generous scaling, and you know what they say—at least you won’t be lonely at the fat part of the bell curve. We only take A’s though. Have you considered a position at Hellman & Friedman?”

-Only 87% Tool, The Leveraged Sellout

Ah, private equity.

The promised land.

What you slave away for as a banker: the chance to become the next Steve Schwarzman.

But unless you have an inside connection with Steve himself, you’ll have to go through a few interviews to get to paradise.

The Format of Private Equity Interviews

On the surface, they’re similar to investment banking interviews – a phone screen or initial in-person screening interview, followed by a “superday” where you meet with most of the Associates, Principals, and Partners.

But it’s more of an extended process and you often go through the interviews over several months rather than several weeks.

Plus, you’ll get tested on private equity case studies, LBO modeling, and the deals you’ve worked on as a banker.

PE firms are much smaller than banks, so they can afford to be more selective; they don’t really need you because there is less grunt work to begin with.

Private Equity Interview Questions

Private equity firms care about 3 points when they interview you:

  1. Can you make money for us?
  2. Can you save us money?
  3. Can you improve a process?

No one will hire you unless it results in more money for them – this is finance after all, not some save-the-world nonsense.

To assess these 3 points, PE firms will ask you 3 types of interview questions:

  1. “Fit” Questions – Similar to investment banking interviews.
  2. Technical Questions – Similar to banking interviews, but more advanced.
  3. Deal Experience Questions – These are the best way to prove the 3 points above – so you better know your deals inside and out.

Different firms emphasize different questions – for example, the mega-funds like KKR and Blackstone care more about obscure technical questions, while smaller PE firms (AUM < $1 Billion USD) spend more time on the “fit” side.

“Fit” Questions

You know the drill: know your “story” like the back of your hand, and have 2-3 mini-stories based on your work experience.

You use these mini-stories to answer teamwork, attention to detail, strengths, weaknesses, and the other standard “fit” questions.

For PE, your story needs to show why you want to be an investor rather than an advisor – especially if you’re coming from the sell-side.

So you need to add something about adding more value, learning about the operations of companies, or gaining more responsibility to the “Why you’re here today” part of your story.

Technical Questions

The key differences from investment banking technical questions:

  1. In PE interviews the questions are more advanced and require more than just rote memorization – you’re not going to get any “What’s the formula for Enterprise Value?“-type questions.
  2. Often the technical questions are tied to your deal experience or case study, so you need to know those in-depth.

If you want to prepare for these questions, the 2 best resources are the Investment Banking Interview Guide and the Breaking Into Wall Street Financial Modeling Courses.

Even though it’s labeled “investment banking,” the guide covers advanced technical questions, your story, and how to discuss deal experience (see below) so it’s perfect for PE.

The financial modeling courses include 3 different levels of LBO models, from “quick and dirty” to “super-advanced” so you can sign up for those to brush up on your modeling skills.

Deal Experience Questions

Now we get to the fun part.

These questions are among the most important in PE interviews, because they’re your chance to prove that you can make money for the firm.

So you need to be careful about which deals you talk about – as with private equity resumes, it’s best to pick:

  1. Unusual Transactions – Divestitures, distressed M&A, or anything other than the standard sell-side auction.
  2. Transactions Where You Contributed A Lot – Did your valuation raise the negotiating price? Did you uncover something that saved your client money?

Leveraged Buyouts can be good to discuss since they’re directly relevant to PE, but with limited time you should favor deals where you made a significant contribution.

You do not need to pick closed deals or even announced deals – just make them anonymous (“a pharmaceutical company”) if the information is not yet public.

How to Talk About Your Deals

You should talk about your deals similar to how you write about them on your resume.

You want a summary sentence giving the main deal parameters, and then an understanding of the 2-3 key issues / pieces of analysis you developed.

Let’s go back into ancient history – the height of the LBO boom in 2007 – and look at one of the biggest deals back then, the $45 billion LBO of TXU by KKR.

Here’s how you might introduce the deal:

“One deal I worked on was the $45 billion LBO of TXU by a KKR-led consortium of private equity firms. The Company had around $10 billion of revenue and $6 billion of EBITDA and delivered electricity to the Texas utility market.

The deal itself was about the cyclical attractiveness of the utilities sector, and how far the LBO boom had come by then – and we ran into a host of major issues, from regulatory to environmental, as the deal was in its final stages.”

So now you’ve set the stage – notice how you’ve mentioned the approximate deal size, revenue, and EBITDA as well as the crux of the deal.

The interview would now respond:

Interviewer: “Of course, that was a huge deal. Let’s talk about the financial metrics – maybe you can walk me through the numbers there.”

At this point you would go into the EBITDA purchase multiple, the company’s revenue growth and margins, and whether the deal overvalued or undervalued TXU.

You could also mention the LBO analysis you completed and the IRR your model predicted.

Interviewer: “You mentioned the regulatory issues before – I understand that as part of the deal, the company agreed not to build certain power plants.

What was the impact of that?”

So now you’d go into the financial analysis and how you set up multiple scenarios to show the impact of power plants being constructed.

This is a great opportunity to show how you earned more money or saved money for your firm – if your analysis resulted in a higher or lower price or even the possibility of a different price or different terms, point that out.

You need to prove that you will make money for the PE firm without them asking you about it first.

Interviewer: “Great. Let’s talk about the debt on the deal. Can you walk me through what kind of package your bank put together?”

Start with the total amount of debt and the number and type of tranches – bank debt? High-yield? Mezzanine? PIK?

If they ask for more detail, you can go into the approximate interest rates and give an idea of the covenants.

You do not need exact numbers on these – approximations are fine.

Other Types of Deals

These are the points you need to know for LBO deals – for regular M&A deals the discussion would be similar but you’d talk about the accretion / dilution model rather than the LBO model.

I recommend against discussing IPOs and capital markets-type deals, but if that’s all you have the basic structure is similar: summary, analysis, key issues, and what you contributed.

What If You Don’t Have Any Deal Experience?

If you’re a management consultant or you’re not coming from an investment banking background, you won’t have deal experience.

So you need to find close substitutes instead – for consulting, those might be due diligence engagements or any type of operational improvement to a company.

If you’ve done equity research or investment/asset management, discuss companies you initiated coverage on or recommended investing in.

If you’re coming from a corporate or business development background, talk about partnership deals, integration work, or any type of long-term project that required significant analysis.

And if you’re not in any of these categories, well, PE will be an uphill battle.

Private Equity Case Studies

There’s an entire article on private equity case studies on M&I, so I won’t repeat everything here.

Instead, here’s the 30-second version:

  • Usually you get an Offering Memorandum and financial documents on a company.
  • Then you have to make an investment / no investment decision and back it up with a presentation and Excel model.

The key points to keep in mind:

  • Make a decision one way or the other. You’d be surprised how many people complete case studies and never say, “Yes, invest” or “No, don’t invest.”
  • Provide a summary slide in the beginning with your investment decision and back it up with 3-5 key points. Summarize the risks, mitigating factors, and expected returns.
  • Keep your presentation to 10 slides at the most, with an intro slide, conclusion slide, and a few slides on the quantitative and qualitative aspects of the deal.
  • Don’t obsess over formatting – just make sure it’s readable.

At some firms, you will have to do this on the spot and you’ll have very limited time; other places will give you a few days to a week to craft this.

Do not go crazy and spend 100 hours doing this – think 80/20 and focus on the 20% that matters.

And do not send this over to your presentations department – rumors circulate rapidly in investment banking and you might get executed.

LBO Modeling

In addition to case studies, some PE firms give you modeling tests and expect you to build an LBO model in real-time during interviews.

Keep your models as simple as possible.

You are under extreme time pressure, so forget about 15 scenarios, 12 tranches of debt, and depreciation schedules.

Instead, do the following:

  1. Sources & Uses – Go with a simple view that has the purchase price, transaction fees, and debt/equity used. Maybe assume 1-2 tranches of debt but don’t go beyond that unless you’re asked to do so.
  2. Basic Income Statement – Make revenue growth a simple % estimate, assume that SG&A and other expenses are a percent of revenue, and go down to EBITDA and Net Income.
  3. Basic Balance Sheet – Include the basic items like Cash, Accounts Receivable, Accounts Payable, PP&E and Debt, and use simple assumptions such as % Revenue and % OpEx for the projections. Sometimes you can skip the balance sheet altogether but it depends on what the PE firm is looking for.
  4. Basic Cash Flow Statement – Start with Net Income, add back D&A and the change in working capital and subtract CapEx to reach the cash flow available for debt repayment.
  5. Debt Schedules – Assume that any excess cash flow is used to make optional prepayments (except for high-yield debt); for bank debt you should make simple percentage estimates for mandatory principal repayments each year.
  6. IRR Calculation – Include this at the end and do 1-2 sensitivity tables on variables like purchase multiple, exit multiple, revenue growth, and EBITDA margins.

If you want to learn all of this more in-depth and brush up on your financial modeling skills, sign up for the Excel & Modeling Fundamentals course – we go through 2 examples of “PE interview-ready” LBO models there.

And if you want more advanced material or you need a more complex LBO model, sign up for the Advanced Modeling course – the LBO model there borders on excessive, just the way bankers like it.

Selling vs. Buying

In addition to understanding the format of interviews, interview questions, case studies, and LBO modeling, keep in mind the following:

Do an equal amount of “selling” and “buying.”

That was very solid advice given to me by a well-known PE headhunter.

While you definitely want to “sell” yourself as much as possible, you also want to do some due diligence on the firm.

If there’s a big cultural misfit, bail out early on. If there’s a lot of cold-calling involved and you hate that, forget about the firm.

PE hiring is more long-term than banking – so you need to be 100% confident of what you’re getting yourself into.

Differences in Hedge Fund and Venture Capital Interviews

Hedge fund interviews are similar and also involve case studies and/or modeling tests.

They will focus more on your interest in the markets and how much you enjoy investing and may not be quite as precise on the quantitative side.

Venture capital interviews are even more focused on fit and less on finance/deal experience. VC firms want people who are genuinely interested in technology and startups rather than the get-rich-quick crowd.

Corporate development job interviews are somewhere in between VC and PE interviews; they won’t focus as much on modeling, but they are likely to ask about your deal experience.

Timeframe for Interview Decisions

The PE interview timeframe is generally much longer than what you see in banking.

There are some exceptions – for example, at KKR, Blackstone, and other mega-funds, they make decisions quickly and move in weeks rather than months.

Those firms start interviewing in March / April and finish up before the summer.

Middle-market and growth equity firms take much longer and often put you through multiple rounds, dinners and breakfasts and all sorts of hoopla to make a decision.

Final Words: Last-Minute Private Equity Prep

So how do you prepare for private equity interviews if you’re an investment banking analyst with limited time?

  1. Prepare Your Deal List – Make a list of everything you’ve worked on and pick the 2-3 best to speak about in interviews – think long and hard about your contributions to each one as well.
  2. Review Your Deals – Go over the background information, financial metrics, debt details, and most importantly how your work led to a higher or lower price / better terms.
  3. LBO Practice – Practice creating the simplest LBO model possible and do it so much that you can go from blank sheet to full model in 30-45 minutes.

What, you’re looking for more?

Even More

OK, fine – start by reviewing these PE and VC-related articles:

Those should get you started on the way to PE interview domination.

And if you’re still looking for more or want to brush up on your technical interview questions or modeling skills, sign up for the 2 programs I’ve been recommending throughout this article:

We don’t have a PE interview-specific product, but if you go through everything I’ve listed here you will be more than prepared to vanquish the competition and land PE offers.

About the Author

is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys learning obscure Excel functions, editing resumes, obsessing over TV shows, and traveling so much that he's forced to add additional pages to his passport on a regular basis.

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149 Comments to “How to Ace Your Private Equity Interviews”

Comments

  1. JayK says

    Hey,

    I’m pursuing a role in an Asian PE firm since the past four months. There have been couple of rounds of interviews and a written case study for which the response was moderately positive I suppose.

    In the hope of converting this, I’ve been naysaying other offers, which are ofcourse not comparable to the PE role. Now there’s this general management role in Europe which sounds pretty interesting and they are pretty much keen on deciding on a candidate within the next couple of weeks. They’ve interviewed all probable candidates, but have given me a chance to take up that role if I’m interested. I would have to let them know my decision within ten days max, can’t stall them further. And once I say yes to them, I have a sort of moral obligation to go ahead with their offer.

    Now my questions are:

    1. How do the PE guys view a non-PE competing offer (if there is something like that :))? Do they end up having a perception that maybe this guy is not fit for PE?
    2. How do I make sure I let my situation known to the PE firm, but at the same time not making them feel that I’m trying to pressurise them and more interested in the European role?
    3. By letting the PE guys know my situation would I be harming my chances of getting an offer?

    Wanted to get your perspective on what could be the best way to approach this. Thanks a lot in advance, I’ve benefited quite a lot from your articles and resources!

    • M&I - Nicole says

      1. Since its an operational role at a corporate, no I don’t believe so. Such operational experience will be beneficial to PE firms. However, some firms may question if your interest truly lies in PE so you’ll have to spin that story.
      2. Just tell them you have another offer on hand right now (no need to disclose details), and you wanted to know if they could provide you an answer in [time period] because you have to get back to the other firm
      3. No, this may actually give you leverage if you present the situation properly.

  2. Rohan says

    Which area has the most modelling work?
    M&A , DCM,ECm , corporate development , project finance?
    I think in ecm,dcm and to an extent in m&a there are legal issues which do not interest me , so which field has the most analysis,modelling type of work?

  3. Anon says

    I want to work in Medical Research PE, I didn’t do a traditional M&A internship, but did an internship doing quant modeling for a BB, working on a risk model for a portfolio over 100bn.

    Background is in Bio-med Science (still a student).

    Any advice for doing this (I really don’t want to do two years M&A). Cold calling the only option? I have no idea how to do LBO modelling etc, I can do masters level maths though.

    Thanks.

    • M&I - Nicole says

      Yes cold-calling and messaging via LinkedIn will help. And having the IBD training will help you break into PE. You may want to explore boutique/small PE firms if you don’t want to do 2-year IB training. I’d conduct research on a few PE firms – medical funds – and contact the ones closest to you area and try to gain some work experience there. http://mergersandinquisitions.com/private-equity-recruiting/ can help

  4. Alex says

    Hi Nicole,

    Thank you for answering my question earlier. How are the chances of someone getting into PE/HF/VC (specifically PE) from a valuation/transaction opinions role (FAS) at an investment bank? Would it require transitioning into M&A before making the switch to PE, or do you think the valuation and fairness opinion deal experience would be sufficient?

  5. Steve says

    Hi Nicole,

    I work at a decent BB in the real estate group and am looking to pursue generalist opportunities post-IB. What do you recommend is the best way to pitch my experience to headhunters / PE shops as there is a stigma that real estate is more specialized than the other shops?

    Thanks very much!

    • M&I - Nicole says

      Good question. Can you point to any self-study of modelling outside of real estate, or even models you’ve looked at from other deals or for other clients?
      Anything to demonstrate this would be good. One solution would be to expand on entries which represent more general modelling skills, even though it was internships a while back.

  6. D says

    Hi!
    I had an interview a week ago that went really well. Final round with seniors. I haven’t heard back yet and I’m not sure what the timing for decision they have.
    Should I follow up (again, as I emailed right after saying I was very interested, blah blah). I know they asked someone that introduced me for reference, but he was not much able to talk about my work. Should I follow up and offer real work references?
    Thanks!

    • M&I - Nicole says

      Yes I would follow up with them next week and see if there’s additional information they need from you. I may even give them a few contacts of work references who can give you solid recommendations.

  7. Clara says

    Hi Brian,

    When will PE start interviewing for summer interns (MBA level) and how could I get access to that? Should I also contact headhunters?

    Thanks!
    Yao

  8. says

    Is it more important to work on large, complex deals? Or to have lots of responsibility? I’m considering an offer from a boutique that seems to give its analysts more responsibility than BB firms do, but most of these responsibilities are “soft”–e.g. more interfacing with PE groups, more client interaction, more control/independence with building models and writing memorandums, etc. The deals, though, are lower middle market and less complex, and there’s way less modeling work. Would I be better off doing more modeling work on larger deals? Or having a larger impact on the deal but with less modeling work?

    • M&I - Nicole says

      These are valuable skills to learn, even though they are not technical skills.

      Of course, I may take a BB offer if it presents itself, since it can potentially open you a lot more doors. However, if you’re entrepreneurial and prefer to work in more tight-knit environment with more responsibilities, the boutique maybe a better option

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