Why Private Equity?
So you’ve made it through your first 6 months in banking alive. Your waist is bigger from all those tiramisu desserts, but luckily your bank account has gotten even fatter than your stomach.
And your bank account is set to get even fatter in the future – if you can successfully break into private equity.
Which is a problem – because the last thing PE guys want is a banker or consultant who wants to do PE simply because he/she hates banking or consulting or because everyone else doing it.
Why Does This Matter?
While PE firms want people who are technically proficient (one reason why consultants face a more difficult time getting in, at least in the US), fit is even more important than in banking because firms are an order of magnitude smaller.
Whereas the top banks have tens of thousands to hundreds of thousands of employees, the biggest PE firms in the world only have a few hundred – and there are thousands of PE firms with fewer than 10.
Unlike banks, private equity firms have no need to hire an army of analysts to do grunt work: they’re not creating pitch books and competing for sell-side, buy-side, and financing mandates all day, and if they’re understaffed they can say “no” to potential investments.
The interview process can also be much more of an extended affair in PE, with many firms below the mega-fund level conducting interviews over months rather than the days or weeks you see in banking (the mega-funds do it much more quickly).
As a result, fit is critical and if the Partners doubt your motivations for wanting to do PE, they won’t give you an offer.
What NOT to Say
As with some other interview questions, there’s a temptation to say something stupid in response to “Why private equity?”:
- “I don’t like the hours in banking, and I want a better lifestyle.”
- “You can make much more money in PE because you’re an investor rather than an advisor!”
- “Well… all my friends are doing it!”
- “I want to control companies rather than taking orders from my MD all day.”
I doubt you would say anything this bad in a real interview, but your actual answer may not be significantly better, either.
All the reasons above are bad answers, for different reasons:
- While the lifestyle may be a bit better at smaller firms, it’s still far from a 9-5 job. And at mega-funds it’s banking all over again.
- The pay is also not that much better, especially when you first start. Yes, Steve Schwarzman makes more than any MD in banking but he’s also the Co-Founder of the best-known and oldest PE firm in the world, with 30+ years of experience.
- If you want to become an investor, you want to demonstrate independent thought as opposed to following what all your friends are doing.
- You don’t “control” companies as an analyst or associate, you manipulate spreadsheets.
In short, any variant of “I don’t like my current job and PE would be better because [Insert Reason Here]” is bad because it’s too negative.
And anything where you sound like you expect to conquer the world and become a trillionaire also sounds bad because it shows that you don’t have a clue about how the industry works.
PE: The Promised Land? Fact and Fiction…
You might have had dreams of becoming a baller at KKR or Blackstone making $100 million per year, but you should pinch yourself and wake up since that will never happen.
I often group IB and PE together on this site because the work is not much different.
If you don’t like Excel, if you think EBITDA is boring, or if you have no interest in analyzing financial statements or reading about different companies, you should stop right now and do something more creative like advertising instead (I hear Don Draper is hiring…).
There are advantages and your role differs from what you do in banking, but if you fundamentally do not like analyzing and valuing companies, you’re going to hate it.
You do get more responsibility at certain firms, sometimes you’ll get to observe Boards of Directors and sit in on meetings, and you don’t get the stupid fix-the-printer-and-fetch-coffee tasks that you see in banking.
But please do not assume that it’s a night-and-day difference just because a bunch of 22-year old students in your finance club say it is.
Better Answers to “Why PE?”
To answer this question successfully, you need to avoid the clichés above and point out positive differences between PE and banking or between PE and whatever you’re moving in from (consulting, corporate development, etc.).
But you need to do that by highlighting what you’re looking for rather than what you don’t like about your current job.
Examples of solid reasons:
- You want to work with companies over the long-term instead of just on a single deal.
- You want to get exposed to the operations of companies and understand all aspects rather than just the financial ones (note: “exposed to,” not “control” or “improve”).
- You want to contribute to companies’ growth by looking at add-on acquisitions and other expansion opportunities that only an investor would be able to execute.
- You see yourself as an investor in the long-term, and want to learn all aspects of the process and how to evaluate whether a company can deliver solid returns.
It’s not “wrong” to make a direct comparison between PE and other fields (see the first 2 reasons) but you always want to downplay the negative part.
Ideally, you’ll tie the investments a PE firm makes to what you’ve done previously in school or work:
- The engineer-turned-banker has a much better story to tell if he recruits for a tech PE firm or growth equity firm and explains how he’s interested in applying his knowledge of IT and finance to investing in IT companies.
- If you’ve worked in Restructuring or Distressed M&A, you have a much better story if you recruit for a firm that specializes in turnarounds or distressed investments.
- If you’ve done consulting for restaurants or food chains, you’ll have a much better story to tell when you recruit for a PE firm that specializes in those types of investments, or even in the consumer sector as a whole.
- If you’ve done corporate development at a media or broadcasting company, you’ll have a much better story to tell when you interview with Bono at Elevation Partners.
The exact reasons depend on your background and where you’ve worked before, but you should combine these points – industry / company / deal focus + investing and working with companies in the long-term – to frame your answer:
- The banker would talk about how he wants to work with companies over the long-term and learn how to assess whether they can deliver solid returns so that he can become an investor in the future.
- The consultant would talk about how he wants to learn both the financial and the operational aspects of companies, and how he wants to be involved with decisions that a company implements rather than just recommendations.
- The corporate development guy/girl would talk about how he/she wants the opportunity to work with all different types of companies in the market rather than just one.
It’s not rocket science: highlight the positive differences between PE and your current field and why you’re interested in pursuing them as you transition into becoming an investor yourself.
If you’re coming from a banking or consulting background, you may get questions about PE vs. other exit opportunities:
Why PE Over VC?
If the PE firm you’re interviewing with asks you this one, say that VC is too far in the operational direction for you, and how you feel it’s more about predicting the next Google/Facebook/Zynga than analytical reasoning.
You prefer PE because it’s a blend of both operations and finance and because you can help Founders with well-established businesses make them even better via solid analysis and research rather than just guesswork.
And, of course, if you’re interviewing for VC you want to take the opposite position and say that PE is all about financial engineering with little value-add and that you can truly help early-stage companies take off because they’re more in need of help than established ones.
Why PE Over Hedge Funds?
This one is harder to answer because there are so many types of hedge funds and the strategies used and the fund sizes can make for completely different experiences.
But the main difference between most hedge funds and most PE firms is that in PE you invest in entire companies (at least, in developed markets) whereas at hedge funds you make much smaller investments and it’s often closer to trading.
You prefer PE because you want to understand how entire businesses work – at a hedge fund you would only get the financial aspect and your skill set would be more limited.
Why PE Over Corporate Development?
This one also has a more subtle distinction: the main difference is that in PE you look at all sorts of different investment opportunities and companies, whereas in corporate development the scope is more limited and you’re always looking at deals and partnerships for your own company.
So that’s exactly what you say in your answer: you want to gain a broader horizon and work in industries and sub-industries outside your own.
You’re more likely to get this type of question if you’re already in a corporate development role and you’re moving into PE – as a banker or consultant it’s not terribly likely unless you say you’re also interviewing for corporate development jobs (um, don’t do that).
Is Any of This True?
For all these “Why PE” examples I’ve been referencing the mix of operational and financial work and working with companies over the long-haul – so you might rightfully wonder if any of that is true.
It’s somewhere in between: some firms do focus more on add-on acquisitions and operational improvements, whereas others really are just about financial engineering and using as much debt as possible to boost returns.
Even if the firm you’re interviewing with is more focused on finance, though, you will still learn more about operations because you do a ton of due diligence before you actually invest (in banking you mostly just send these documents to other parties).
Unless you start or work at a real company, you’ll never learn the ins and outs of how it “really” works, but you will at least learn more than you would as a banker – so it’s more true than the bad “Why PE?” answers in the beginning.
Hopefully not because you have delusions of grandeur and you’re planning out which beach in Thailand you’ll buy with your first $10 million.
Focus on the positive differences, link your reasons to your background and long-term goals (just like with the “Why investment banking?” question), and don’t fall prey to any of the bad answers about pay or lifestyle.
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Why You Can’t Get an Investment Banking or Private Equity Job via Recruiters – And What to Do About It
While most of the interviews on this site have been with job seekers or with current investment bankers, today we’re going to change things up and speak with an investment banking and private equity recruiter who works at a well-known recruiting firm.
You’re about to learn some little-known, highly valuable, and controversial information about the finance recruiting industry.
Keep reading to find out how to impress recruiters and interviewers and land PE and investment banking offers.
Where Did It All Begin?
Q: Can you tell us about your firm and what types of candidates you focus on?
A: Sure. We started off specializing in placing ex-military candidates, and since then we’ve expanded into almost 20 other industries, including accounting and finance.
Within investment banking and private equity, we focus on $200K – $1M total compensation per year positions. This corresponds to entry-level positions up through the mid-level – we do a few Partner and MD-level searches occasionally, but they’re not our core focus.
We work with a wide range of banks, but on the buy-side we concentrate on funds below $1B AUM and usually funds in the $50 – $500MM AUM range.
Q: How’d you get started doing this? I know sometimes investment banking analysts make the move over to the recruiting side – were you coming from that background?
A: No, I started off doing recruiting for general “Analyst” positions across all industries.
That was ok, but I found that I liked private equity and investment banking recruiting more because the fees were better and placement took more time – so you could focus more on a few key clients rather than spreading yourself thin.
While some investment banking analysts want to make the move into recruiting, they often fail to realize that technical skills matter very little for recruiting – it’s a sales job, not an analytical job.
You need to be a quick thinker and good on the phone – knowing the in’s and out’s of models and how an M&A deal works is ok, but you only need to know these topics at a very high level.
Q: You mentioned that you don’t do many Partner-level searches – but wouldn’t you earn far higher fees by placing these types of candidates rather than lower-level people?
A: While the fees are higher, there are a couple problems with Partner-level searches:
- Usually it takes 6-8 months to place a single candidate.
- All searches at that level are highly confidential, so making introductions and maneuvering the process has an added layer of complexity.
Overall, we’ve found that sub-$1MM range candidates are the best to work with because the chances of placing them are higher and because it’s not quite as extended a process.
How to Boost Your Interviewing Skills by 200% in 15 Minutes
Q: When you first emailed me, you mentioned 3 qualities that every successful investment banking or private equity candidate needs to show when they’re interviewing – what are they?
A: You need to demonstrate 3 specific skills when you interview:
- How you made money for your firm in the past.
- How you saved them money.
- How you improved a process.
The #1 mistake that you can make is focusing too much on your technical prowess and not enough on how much money you will make for a bank or PE firm.
Talking about models in interviews is fine, but you always need to tie them back to business results.
I get people who come in and start rambling about deferred tax liabilities and their hyper-advanced LBO models, and they miss something very important: most VPs and MDs don’t even remember how to build a model or use Excel.
What they do understand is making money or saving money, so you need to re-frame everything you’ve done in that context.
Q: Right, that makes sense – but a lot of people may not have “business results” to point to. Let’s say you’re working on a deal that never goes anywhere – how would you talk about how much money you made or how much money you saved your client?
Here’s an example: let’s say you’re creating a list of potential acquisitions for your client and you’re making recommendations on which ones they should pursue.
Even if this deal doesn’t advance to the final stages, you could easily talk about how much money you saved them if you can point to any acquisitions that you crossed off the list:
“I had to research potential acquisitions for our client – we got it down to a list of 10, and then I recommended taking 4 of the companies off the list because they weren’t a fit with the client’s product line. Any one of those would have cost them over $100 million, so I helped them to avoid a potentially bad acquisition and saved money in the process.”
If you worked on a merger that never went anywhere, you could talk about your model and key findings within that got your client a higher price if they were selling, or a lower price if they were buying.
Or you could always tie your work to the client coming back to you for more engagements in the future:
“The client was impressed with our work and especially the recommendation to avoid those acquisitions, so they decided to come back to us for 2 more engagements – I did the work that led to those, with a total fee potential of $10 million.”
Q: Right, that makes a lot of sense. Firms want people who can make them money or save them money – but is this true even of non-Partner-track positions?
If someone is just going to work there for 2-3 years and then go to business school does it really matter?
People come to me all the time and say, “So, where will I be in 10 years if I go to this firm? Can you give me an exact blueprint of my future career?”
Sure, here’s your blueprint: you make a lot of money for your firm and you move up. You don’t, and you’re out.
It’s really that simple: no matter what they say about you, if they see in you the potential to make them a lot of money in the future, you move up.
Q: Ok, I see – so there’s less of a “path” than most people think. What other key mistakes do candidates make when recruiting for finance jobs?
A: I could probably write a book about key mistakes, but here are just a few more:
- Not proving that you can evaluate and run a deal by yourself.
- Focusing too much on features and not enough on benefits.
- Relying on pedigree rather than results.
For #1, private equity firms might look at hundreds of deals each month, but might only invest in 2-3 per year max. Principals don’t have time to sift through all the information and evaluate every single detail – they need someone who can step up and do everything on their own.
Even at the entry-level in private equity, you’ll be coordinating with lawyers, bankers, the debt financing team, the company’s executives, and more – and you need to be comfortable doing all the work for everyone else and driving the process.
On #2, this is just a classic sales mistake: too many people go in there and say, “Well, I have a 4.0 GPA from Harvard and I worked at Goldman Sachs.”
Guess what? Those are features, not benefits.
How will you make me money? How much money have you made or saved for other people in the past?
Whenever I meet a candidate for the first time, I make him/her write down 10 things that are great about himself/herself.
Even if it’s “I’m great at baking cookies, so you can enjoy great food if you hire me” that’s better than nothing – the point is to always present benefits rather than features.
#3 is related, but I see a lot of people from Ivy League schools and bulge bracket banks expecting the world just because they have well-known names on their resumes.
It doesn’t work like that: you need to deliver results if you want to advance.
Often, candidates from less privileged backgrounds perform better because they’re twice as motivated.
Q: I also get lots of questions from people with Liberal Arts backgrounds who want to do banking or PE – how should they position themselves?
A: Actually, if you have a liberal arts background that can often be a big advantage because you’re probably much better at talking and BSing than math/science/finance nerds.
You want to position yourself as someone who can tell a good story around the numbers rather than just cranking out models all day long.
When they ask about your weaknesses, don’t say your analytical skills even if you’re tempted to mention that – pick something more qualitative and show how you’ve improved over time.
How to Work Effectively with Recruiters
Q: Thanks – those tips should be really helpful to anyone preparing for interviews right now.
What do recruiters actually do? Is it just a matter of screening resumes and making introductions?
A: We do some filtering of candidates, but it’s more than just looking through resumes and deciding which ones we want to pass along.
To give you some numbers on how the process works, here’s what I did over the past year:
- Received 7,000 resumes or inquiries.
- Got interviews for 42 candidates.
- Successfully placed 10 candidates.
These numbers improve a lot when the economy is better.
A lot of what I do on a daily basis is helping clients find very specific candidates – they no longer just come to us and say, “We need an investment banking analyst.”
These days it’s more like, “We want an investment banking analyst from Barclays Energy Group who worked on a specific recent deal, grew up in the UK, spent time in the Middle East, and can also play golf with under an 85 handicap.”
A lot of my time is spent looking for these types of people, and also with preparing our candidates for interviews and helping them to sell themselves more effectively.
It’s a huge myth that recruiters only forward resumes to firms.
Recruiters are also your best source if you want to do a secretive job search and keep everything on the DL – if you just go directly to an MD, he won’t care about your privacy. He’ll just call your current MD and ask how good you are.
Q: I get a lot of questions from readers without investment banking or private equity experience wondering if they should contact recruiters to help with the job search process.
Is there any point in doing this?
A: Short answer: no. Over the past 2 years I haven’t placed a single candidate who wasn’t a 9/10 match for the job.
If the economy is booming and banks have ramped up their hiring, you can still potentially come in with an unrelated background (e.g. do marketing at a Fortune 500 company for 2 years and then move into IB), but it’s pretty rare otherwise.
It’s not that you’re unqualified – but we just have so many people who do have finance experience lining up for jobs that it’s almost impossible unless you’re the Chairman’s son or you can bring a unique skill set to the table.
Q: OK, so what should people without the required experience do? How do you get noticed if you’re not a perfect match for the job?
A: Become your own recruiter. Make a list of firms you want to go after, go to LinkedIn, look up people at those places, contact them, call them, visit in-person and start introducing yourself like that.
Then once you get to know a bunch of people at a specific firm, you can come back to me and say, “Hey, I’ve made some inroads on my own and know these 10-15 people – now that I’ve done that, what can you do for me?”
That puts you in a much better position to interview there, and we can help you a lot more if you’ve already done some of the work yourself.
Also, look up jobs on Indeed.com – other sites are OK, but I’ve found that Indeed is the best for finance. Just search for “banking analyst,” don’t narrow down the region, and see what you can find there.
Some of these listings are for “ghost jobs” – they’re not actively recruiting at the moment, but they’re collecting resumes and will contact you when they’re ready.
A lot of bankers apply and expect to hear back the second they submit their resumes, but it doesn’t work like that – expect to wait up to 3 days for any “live” jobs.
Q: You’ve mentioned how much more specific clients have become with their requests. What else has changed over the years, and specifically what happens when the economy has softened?
A: A lot of regional boutiques and lesser-known firms suddenly get the attitude that they can pick up analysts at top bulge bracket / boutique banks simply because the market is bad.
They come to us and say, “So, can you pull out the top analyst at Goldman or Moelis and send him to us right away, for half the pay?”
But it doesn’t work like that – even in a terrible market, top performers are unlikely to leave unless they have a really, really good reason to do so.
Some candidates have decided to go and speak with these types of firms anyway, but very few actually make the move from a top bank or group to something lesser-known.
Q: Awesome, thanks for your time – learned a lot!
A: No problem. And let me know if you know of anyone who shoots under 85 and is a killer chef so I can refer them to my clients…
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Private Equity Case Studies in 3,017 Words
Since I was getting approximately 53 emails per day about this one, I decided to make it easier and just tell you everything you need to know about private equity case studies.
Lots of people are going through private equity recruiting this time of year, so let’s take a look at what to expect and how to tackle the case study – a critical part of most buy-side interviews.
Note that these “case studies” are completely different from the “case interviews” you get in management consulting (not that I would even waste space on consultants here, but just to clarify…).
Although I labeled these “private equity case studies” above, you’ll encounter them in almost every buy-side interview, from mega-funds to tiny 4-person firms to everything in between.
Not all hedge funds do them, but any fund that does some long-term investing (as opposed to effectively day-trading) will usually make you complete some type of case study as part of the interview process.
Sometimes they’re formal and sometimes they’re informal, but they’re always important – if you screw yours up, you probably won’t be moving onto the next round or getting an offer.
No matter your profile or previous background, you’ll encounter case studies if you’re trying to move into private equity.
So even if you’re a consultant or you’re moving in from a different field altogether, you will still have to complete case studies.
No one ever says, “Oh, well you you didn’t do much modeling so we can just skip that part of the interview.”
Instead, they assume that you know how to do it and then weed out people who don’t.
Even if you are applying to PE firms straight out of undergrad, or you’re applying as an intern, you’re still likely to get case studies – multiple friends who did this had case studies pretty much everywhere.
The only exception here is senior-level hires – but then, if you’re reading this right now you’re probably not interviewing for Partner-level positions…
The case study is designed to answer 1 simple question: “Should we invest in this company?”
The firm could ask you to complete the case study in a couple different ways:
- Most Common: You get materials on the company they want you to analyze (financial statements, 5-10 page document describing it, maybe some outside research) and you have anywhere from a few days to a week to complete a short presentation.
- Part of the Interview: Some places will make the case study a part of the interview itself – they might give you basic information on the company and then give you 2-3 hours to do your work and present to them immediately afterward. More common at mega-funds.
- Just the LBO Model: This is less common, but they could also give you 30 minutes to create a “simple” LBO model of a company just to verify that you actually know how to do this.
This article will focus mostly on #1 and #2, since #3 is just a sub-set of those.
Hedge funds are less “formal” than PE firms if they ask you to do a case study at all, and in other fields like corporate development and venture capital you’ll either have more of an informal case study, or you won’t do one at all.
Case Study Ingredients
At the bare minimum, you’ll usually get some type of Word document describing the company in question (called an “Information Memorandum” (IM) or “Offering Memorandum” (OM) or “Executive Summary” in banker terminology).
It might be short (10 pages or less) or it might be quite long – dozens or even 100+ pages. If you’re analyzing a public company, they might just point you to the 10-K or 10-Q (annual report and quarterly report, respectively) instead.
It’s rare to get extremely detailed operating models because you don’t have time to go into pages of detail. Outside research is similarly rare.
The firm usually won’t give you guidance on how to value the company or how to build your models, but that’s for an entirely different reason: they want you to figure it out.
Structure: Simple FTW!
Simplicity is the most important word for your case study.
If they don’t give you a structure to adhere to, I would recommend the following:
- 1 Summary slide in the beginning.
- 2-3 Qualitative slides discussing the market, management, and anything unique to the deal.
- 3-4 Quantitative slides that go into the appropriate valuation, and what kind of returns the firm can expect.
- 1 Conclusion slide summing up everything and giving a yes/no investment decision.
Yes, for actual portfolio companies (in PE) and clients (in banking) your presentations and models will be more complex, but you do those over months and years.
Have a maximum of 3 or 4 (large) bullet points on each slide – and if you’re showing graphs or the output of valuations or your LBO model, don’t squeeze 25 different things on one page. Keep it to a max of 3-4 different charts or graphs per slide (roughly 1 per quadrant) or it gets very confusing.
Rather than trying to fit a huge mass of text on each slide – as you might do in pitch books – you want to focus on the main points only because you’re going to present live to your interviewer(s) later on.
Put too much text in your presentation and the interviewers will focus on the text rather than what you’re saying.
Do the following in 3-4 major bullets:
- Do we invest in this company? Yes or no – no “maybes” or “conditional upon” statements – they want a decision one way or the other.
- Support your decision with major points: Give 1-2 bullets to support your decision, focusing on the major items – not tiny details that don’t matter.
- Hedge your decision by pointing out the key investment risk: No investment is perfect, and everything has risks associated with it – point out the major 1 or 2 risks that are apparent with your company right here.
This may sound stupid to you, but a Partner at a middle market PE firm once told me that over half the interviewees failed to make a decision one way or another in their case studies.
Here’s an example of what you might write in your summary slide if we were considering the buyout of Harrah’s casino chain back in 2006:
- Harrah’s is a compelling investment that could generate a 5-year IRR of 15-20% with reasonable assumptions
- Supported by strong market fundamentals, success in recent international expansion, and healthy cash flow
- Current public market valuation under-values company by approximately 10%, creating solid investment opportunity
- Key investment risk is strength of US economy and risk of consumer spending falling
Yes, I realize this deal was a great example of an investment gone horribly wrong once the casino industry imploded, but these points are for illustrative purposes.
These slides are highly dependent on the company you’re analyzing – at a minimum, though, you need to think about the following:
- Market: Is this an industry that’s growing? Will it grow more quickly/slowly in future years? Do you see positive or negative trends due to technology / regulations / competitors? Where does this company stand next to the competition?
- Competition: How does this company fare against its competitors? Does it have some type of unique advantage that others can’t replicate? What about the barriers to entry?
- Growth Opportunities: How quickly can the company grow in the future? Is there any “low hanging fruit” or room to easily win more customers / revenue in the future? Do you expect it to grow faster or slower than the market as a whole?
- Risks: Every investment carries with it risks – are the key risks here related to the market, or the economy as a whole? To the competition? To government regulations? And is there any way of mitigating these risks?
- Other: If there’s anything especially notable about the management team, the products/services or other items unique to the deal, you can mention them as well – but stay away from saying, “The CEO is great!” because you have no way of knowing that.
Focus on the first 4 items because those are the main ones that impact your investment decision.
These slides should address valuation and expected returns.
The biggest mistake you can make is going into an unnecessary level of detail by doing any of the following:
- Spending hours and hours searching for EBITDA add-backs and adjustments for each company in their filings.
- Spending hours debating which pub comps and transaction comps you should be using.
- Creating a detailed LBO model that handles 500 different cases and also adjusts perfectly for items that no one cares about.
No one is going to look at how you came up with these numbers, so keep it simple and use Capital IQ (or whatever information service you use) to gather the data automatically.
A sample structure for this section might look like:
- Valuation Overview: How much is this company worth, and what methodologies are you basing it on? This is where your “football field” chart goes.
- Valuation Detail: Here you can show the pub comps and transaction comps you picked, along with your DCF output. Depending on the company and situation, you may be using different or additional methodologies as well – this is most common for real estate, energy, and financial services.
- LBO Model Output: Don’t go into a ton of detail here – just show your assumptions and the output of the model under a range of sensitivities (even though this is a simplified model, it’s still important to show sensitivity tables on the IRR and it takes 2 seconds to add).
Depending on how much output you have, these sections could comprise anywhere between 3 and 4 slides. Resist the temptation to write 20 slide chock-full of numbers – this isn’t banking.
Do a simple Capital IQ search for companies in the same industry with revenue or market caps in the same range, and if you know anyone at the relevant industry group at your firm, request that information from them.
If you’re not in banking and/or you don’t have Capital IQ access, this section will be more difficult to complete – try to get a friend who has access to send you login information, or get the information directly from friends with access.
And if you absolutely can’t get access or you are under extreme time pressure (it’s an “on the spot” case study), you can skip parts of this and just show a DCF (or DDM if it’s a financial company, etc.) to support your valuation.
You definitely need to give some indication of value here – but if you don’t have or can’t get access to all the information you need, focus on what you can do (e.g. DCF in place of public/transaction comps).
Forget about all the complex LBO models you’ve built: you want to make this as simple as possible. I’ve already written at length about what a PE interview LBO model needs to include in the article on private equity interviews, but just to recap some of that here:
- Assumptions – Purchase/Exit EBITDA multiples, leverage, growth, and profitability.
- Sources & Uses – How much debt / equity you’re using, and then how much of that is being spent on acquiring the company vs. transaction fees / paying off debt.
- Simple Income Statement / Cash Flow Statement / Debt Schedule – The Balance Sheet is not necessary if you think about it, so I would only include it if they specifically ask for it, or you need it because of an unusual investment scenario. Excluding the Balance Sheet saves you time without detracting much from your model.
- Returns & Sensitivities – Do a simple IRR calculation and show IRR over a range of purchase/exit multiples and your other assumptions.
Forget about multiple tranches of debt, PIK, PP&E schedules, asset write-ups, book/cash tax reconciliations, management option pools, and focus on the bare minimum.
You may have to stray from this if your company has NOLs (Net Operating Losses) and anything unusual that needs to be taken into account (minority interests, other unusual investments, pending divestitures etc.) but you should still focus on what you need rather than what looks cool.
The LBO modeling course in Breaking Into Wall Street covers the type of model that you could use for PE interviews.
This should not be much different from your Summary Slide in the beginning – just re-state what you had there in different words, and perhaps add more detail.
Instead of just making a yes/no investment decision, for example, you can also specify here at what price level you’d invest, either in dollars per share (public companies) or as a lump sum (private companies / divestitures).
You may also want to go into more detail on what can be done to mitigate the risks you brought up here or on the Intro slide.
Reading all this, you might be wondering, “But wait – how do I actually make an investment decision?”
And that tells you exactly why investors don’t have it easy: it’s never a clear-cut decision. But remember that your actual yes/no decision doesn’t really matter that much – what matter is how you back it up and support it with your work.
Making investment decision goes way beyond the scope of this article, but here are a few guidelines:
- The numbers matter, but mostly for initially testing whether or not something could work – if a company is already over-valued by 50%, for example, chances are it will be a bad investment. If your LBO model never shows the IRR going above 10% even with crazily optimistic assumptions, it’s also a bad idea.
- Your decision should ultimately come down to qualitative factors, with the valuation and returns you calculated to be used as support.
Your support shouldn’t be “We should invest in this company because it’s under-valued by 10%.”
You want to say, “We should invest in this company because it’s set to grow faster than the overall market, it’s light-years ahead of its competition, and on top of all that we could get a 20% IRR even with very conservative assumptions.”
So, What Matters?
Anyone reviewing your case study will be most concerned with your thought process – unlike banking, formatting and small details don’t matter much.
Your communication skills are more important than your knowledge of finance for these case study exercises – if you can’t explain your points simply and reach a solid conclusion, you won’t get an offer.
So don’t get preoccupied with minutiae – focus on your investment thesis and the major reasons you’re recommending or not recommending an investment.
Factors Outside the Slides
Your presentation style, the number of people watching, and how much time you’re given can also come into play, but it’s very difficult to generalize here because each firm does it differently.
You might present to just 1 interviewer, or it might be to all Partners at the firm – in which case you better know your stuff.
A lot of this comes down to public speaking, which again is beyond the scope of this article – but here are a few guidelines I’ve followed when giving speeches and making presentations:
- Have some notes with you, but don’t write down word-for-word what you’re going to say.
- Speak twice as slowly as you normally would and look at different people in your “audience” every few seconds (only applicable if you are presenting to multiple people, of course).
- Always practice beforehand, even if you only have 15 minutes – just practice running through it in front of the mirror and going through all your points, without reading anything word-for-word.
How Much It Matters
The case study certainly weighs in heavily, though it’s not the only factor in private equity interviews – top firms usually have many, many rounds of interviews, and even smaller and middle-market firms can take weeks or months to make a decision, simply because they can afford to be very selective about who they hire.
I would compare a case study in private equity interviews to technical questions in investment banking interviews: doing a poor job can kill your chances, but being a superstar won’t necessarily help you. Case studies are more of a way to weed out people than anything else.
As with any other type of interview, your success comes down to “fit” questions and your “story” after you’ve cleared the technical hurdles – if everyone likes you and is confident you’d do well, you have a good shot at getting an offer.
Also note that while private equity interviews are very competitive, you would be mistaken to overestimate the competition.
Most candidates have terrible “stories” and also have no idea why they actually want to do anything in life – from getting into investment banking or consulting to moving into private equity.
The last thing a PE firm wants to see is yet another person who’s trying to get in because they heard it was cool, because all their friends were doing it, or because they want to make a lot of money and have no idea how else to do it.
So if you make sure your “story” is solid, come across as a likable person, and do your case study reasonably well, you stand a good shot at getting an offer no matter how “competitive” it is.
No, I Don’t Have Any Sample Case Studies and I Don’t Have a Guide (Yet)
Before anyone asks: no, I don’t have any sample case studies because I lost all my documents from banking.
If you want to “practice,” I would suggest getting a CIM or OM on a company you don’t know well and running through the exercise above – or just pick a random public company and go through their filings.
I receive many questions on a PE interview guide, but again I don’t have anything at the moment – PE interviews are less about specific technical questions (except at mega-funds) and more about your deal / client experience and the case study. If I were to create such a guide, it would be mostly example-based and next year is the earliest it would be out.
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