How to Land a Job

in Private Equity :
A Complete Guide
introduction
Dear Reader,

SmartRoom prides itself on being the #1 partner to the Investment Tony

Banking and Private Equity community. We feel that we understand
your business better than any data room or CRM provider in the
market, because our professionals actually worked in your market
Bellagamba
and continue to work within that market on a day-to-day basis. Vice President of Global Sales

This SmartRoom Private Equity Interview Guide was created by our

Vice President of Global Sales, Tony Bellagamba, and fact checked
and verified by 3 of the top private equity firms in the market.

Tony started his career as an Analyst at Houlihan Lokey in Chicago,

performing sell-side M&A work for Industrial Companies. After his
time at Houlihan Lokey, he moved onto the private equity world,
This PE interview guide is one of the many ways that SmartRoom
working for Baird Capital Partners. After Baird, Tony made a career
provides true business value to its clients. Our vision is to become
change and moved to SmartRoom where he became the #1 global
your true end-to-end solution for M&A. We will accomplish this
sales professional in each of his first three years at the company.
by understanding your business needs and then providing you
He then moved to Salesforce.com where less than 1.5% of
with value-added solutions that match those needs. In short,
applicants are hired. After approximately a year at Salesforce.com
we want to treat you like the true business professionals you
he came back to SmartRoom to run our global sales.
are. We are committed to building relationships with each and
Tony’s career has been built around M&A and has included many every one of you, but we want to provide you much more value
difficult and intensive interview processes, both as an interviewee than simply organizing a happy hour or taking you to a baseball
and interviewer. He is now using this experience to help reduce game. SmartRoom is the only company capable of creating a real
the learning curve for SmartRoom clients that are about to embark business partnership with you because we are the only company
upon the same difficult PE interview experience that he himself went that truly understands your business needs. This interview guide is
through successfully. just one of the many ways we prove that.

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table of contents
overview ...............................................................PAGE 4
GETTING
THE INTERVIEW ................................................PAGE 5 CONCLUSION ..........................PAGE 54

ACING APPENDIX .................................PAGE 55

THE INTERVIEW ................................................PAGE 10 LBO Case Study Example/Practice.....55

Practice Practice Practice..................................11

The Phone Interview..........................................12
The In-Person Interview.....................................13
Behavioral Interview Questions.........................20
Have a Great Story............................................24
Technical Questions..........................................28
Know Your Deals...............................................37
Modeling Test/Case Study................................45
Questions You Should Ask Your Interviewer.....52

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OVERVIEW
The Private Equity (“PE”) recruiting process seems
to start earlier and earlier every year. The reason
for this is that PE firms want to make sure they don’t BREAKING
miss out on the most qualified applicants.

What does this mean for you? It means that the PE

IT DOWN
If we are to break it down and really simplify it,
recruiting world moves fast, is ultra-competitive, and
there are two primary things that you need to
you need to be on your A-game right away. You’re
excel at with regards to private equity interviews:
going to be up against a large pool of talented and
driven candidates and will be working against a
GETTING THE INTERVIEW
tight timeline. So, you can’t afford to stumble out of
the blocks. ACING THE INTERVIEW

The following pages will walk you through some tried

and true methods for accomplishing these goals.

4
getting the interview
Before you can ace an interview you need to get an interview.
So how does one do that? Well, there are several methods:

Local Private Equity leverage your network

Networking Organizations be a hunter
headhunters

let’s dive in!

5
Local Private Equity HEadHunters
Networking Organizations
Some PE firms exclusively use headhunters for their candidate search
If you live in a city with a PE networking organization make
process while others stay as far away from them as possible. Either
sure to get involved. Organizations such as Private Equity
way, make sure you don’t rely solely on headhunters. Headhunters
Association of Chicago (PEAC) (www.peachicago.com)
don’t care who gets the job so long as they place someone into the
provide great opportunities for you to network with and meet
job. They get paid whether it is you that gets the job or the guy that
the people you need to know. They will often host recruiting
sits two cubicles down from you. They have no loyalty to you, they
events or social happy hours where you can shake hands
only have loyalty to their fees. So, again, make sure you don’t rely
with the hiring decision makers of PE firms.
solely on headhunters. Instead, use them as a supplement to your
other recruiting efforts.

PE headhunters come and go so it is difficult to know who the current

players are in the market at all times. A good place to start is to ask
the analysts from the class before you that have moved into PE.
They often have contact information for the recruiters that they were
engaged with. Recruiters will often reach out to you as well, but don’t
rely on this. You want as many recruiters pushing your name as
possible so reach out and try to proactively find them.

6
Leverage Your Network be a hunter
Make sure to leverage your network as much as possible, whether I was going to label this bullet “cold calling/cold emailing” but
it be those that went to your alma mater, fraternity brothers, past I didn’t want you to get scared away before reading further.
analysts from your current firm, current senior bankers, or even This is actually a GREAT way to land PE interviews and let me
people you met at a happy hour. Look deep into your rolodex, explain why. There are often over 100 candidates for every one
using tools such as LinkedIn, old emails, or even business PE job. The competition is fierce. And, let’s be honest, many
cards you picked up along the way and then reach out to those of the applicants appear very similar on paper. They all have
people. If you haven’t spoken to the person in a long time, reach great GPA’s, work for great investment banks, have strong deal
out anyway. Friends are people you call every week while your experience, work with a charity, etc. So when 100 resumes land
“network” is a long list of acquaintances that you can strike up on the desk of some Associate or VP trying to narrow the list
conversation with for mutual benefit despite the fact that you down to 15 or so, your resume can very easily get lost in the
barely know them or haven’t spoken to them in a long time. That’s shuffle. A great way to combat this is to develop relationships
networking and people understand the game; they won’t be with Associates and VP’s at the firms you want to interview with. If
offended. Searching for and speaking to past analysts from your the Associate in charge of choosing those 15 resumes has never
current firm is a great way to network for PE interviews. Most of heard of you then your chances of getting an interview are slim.
these people are now at PE shops and went through the same However, if you are someone that he went to coffee with or at least
process. They are often more than happy to pay it forward and spoke with on the phone a few times, your chances of getting that
help out someone from their old firm. initial interview are exponentially higher.

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what now?
So, once you have determined the list of firms you want to interview Just like networking, these people understand the game. They know
with you need to reach out to the Associates and VP’s at those firms you don’t just want to find out more about their firm. You want an
and ask if they have 15 mins for a coffee or, at the minimum, 15 interview and they know it. The actual meeting is when you ask about
mins for a phone call. You will want to soft peddle this. Tell them you the interview. After you have learned a bit about their company and
are interested in their firm and would love to learn a bit more about the person’s background they will often broach the interview topic
the firm as well as their background. When calling or emailing to themselves. If they don’t, this is when you ask. Again, soft peddle
set this appointment, you should reach out to them between 6:00 – it a bit. “You have a great firm and your experience sounds exactly
7:30pm. This is when the senior people at their office have left and like what I am looking for as I move into the buyside. I would love to
the Associates and VP’s will actually have some time to breathe, schedule an official interview with you when the time is appropriate.
meaning they are more likely to answer a phone call or email. How would I go about that?”

Your fist goal should be a face-to-face coffee meeting so that you

can develop a more personal relationship. Come prepared for your
initial phone call or email. You should have a coffee spot picked out Just like networking, these people understand the
before you even pick up the phone or send out your email so that you game...You want an interview and they know it.
can say, “I know there is a Starbucks at the bottom of your building,
are you free to meet for a coffee next Tuesday around 2:00pm?” Limit
the back and forth because they are busy just like you. If you can’t
get a coffee meeting then ask for a separate phone call to learn more
about their firm. Again, schedule the call in that 6:00 – 7:30pm time
slot so that you can better ensure their availability.

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 #1 rule
in summary of sales
(and thus job hunting since they are one in the same)
You want to use all four of these approaches as you
navigate through your search process. “Diversify Ask for the business.
your portfolio” if you will. However, if I were to
emphasize any of these approaches over the others
If you don’t ask,
it would be the “Be a Hunter” approach. The you don’t get.
other approaches all require a bit of reliance on
someone else. Don’t get me wrong, they are all great
approaches and should absolutely be used. But if
you simply rely on headhunters, PE organizations,
and/or your network to find a job for you then you will
be limiting yourself because none of these people
will care about your future employment nearly as
much as you do. So, don’t expect them to hunt and
push for you as hard as you would yourself. You
must get out there and get your hands dirty.

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 ACING the interview
Getting an interview is a long, difficult process. But, if you have studied and practiced your
You can view it like the first 3 quarters of a craft to the point of exhaustion and then
basketball game. This is where the majority of the execute on all that you have practiced, this
grunt work and sweat takes place. The interview last shot will be much easier and your odds of
itself is the end of the 4th quarter, game is on the being the hero are significantly improved.
line, and you have the ball. If you make the shot,
you are a hero. If you miss the shot, you lose and
have to start all over again.

what’s the plan coach?

practice practice practice technical questions

the phone iNTERVIEW know your deals
the in-person iNTERVIEW modeling test/case study
behavioral questions questions you should ask your interviewer
have a great story

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practice practice practice
My high school baseball coach used to say, “How you practice is Again, “How you practice is how you play.” You may only get one
how you play.” I still find this saying to be very true today. If you shot at a PE interview so you need to be ready. In order to do that,
have practiced hard enough then the game should be the easy you need to practice endlessly. I know that you already work a lot
part. It is the same with PE interviews. PE interviews are notoriously but guess what? So does the other guy that is interviewing for the
difficult. You must practice endlessly so that you are ready for the same job you are going after. You are going against some of the most
interview itself. intelligent, most successful, and most driven people in the world.
When you’re not practicing, I guarantee you that they are.
Run through the questions you feel you will be asked and have
answers prepared for each. Then recite those answers out loud.
Ask your fellow analysts to run through the questions with you
so that you can answer out loud while looking someone in the
eye. Have them mix up the questions and throw in a few random
questions in an effort to trip you up. how you
Take the same approach with your technical skills. You will most
likely be given a technical/modeling test (to be discussed later
practice
in this guide) for which you will need to be ultra-prepared. Build is how
several LBO models from scratch. Ask your analyst friends from
other firms to send you their LBO models so that you can practice you
on different model types. A good exercise that I used to use is
taking an LBO model that I had built, sending it to a friend, and play
asking them to “blow up” my model in several different ways. I
wanted them to delete a line, hardcode a number, change a link,
etc. They would then send it back to me and I would time myself
to see how quickly I could fix the model. This exercise was great in
allowing me to quickly find the pain points of any model.

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the phone interview
You will most likely start your interview process with a phone interview. Phone
interviews are difficult because it is challenging to stand out over the phone. You
will most likely be asked both behavioral and technical questions, with a heavier
weighting on behavioral questions at this point in the process. I will go into detail
on these questions further down the line. The important thing to know at this
juncture is that you have to make yourself standout. So how do you do that?

be Passionate Know your answers and your story cold

You need to come across as excited about the opportunity and As mentioned, I will go into more detail about your story, answers,
passionate about a job in PE. When first starting my PE interview etc. a bit further down the road but the point is that you need to
process I took the approach that I was a serious professional that be razor sharp. Stuttering and fumbling on your words is bad
should no longer come across as the go-getter that would kill for a form in person but it sounds even worse on the phone. You need
job. I was a successful young banker and should present myself to know your material like the back of your hand and be crisp in
as a serious man that knew his stuff. Well, that backfired on me. the delivery.
After an interview at a firm where a good friend of mine worked, he
told me I didn’t get the position because I didn’t seem like I really
wanted it. The problem was that I really did want it but I was trying
Smile
to act “professionally.” My mistake was that I didn’t come across as Sounds stupid right? Well it works. A headhunter once told
passionate about the role. A hundred people could be interviewing me to smile while on phone interviews and I thought he was a
for the same role as you are so you need to act like you really want complete idiot. But, I gave it a shot and it truly works wonders. By
the job. I’m not saying you should act desperate but you should let it smiling, your voice is automatically heightened and your passion
be known that you are excited for a chance and would love to work at and enthusiasm comes across the phone in a tangible way. I also
a great firm such as theirs. Have a bit of that “eye of the tiger.” That recommend walking around while on phone interviews. Motion
needs to come across on the phone. And to do that you need to… creates emotion.

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the in-person interview
If you ace your phone interview then you will be brought in for an in-person interview. This is your big
shot. This is where you really need to impress them. You will most likely have to go through 2-3 rounds
of in-person interviews and later a technical/modeling test but the in-person interview is where you
need to really separate yourself from the competition.

You have one shot at this and need to treat it as such. This is where we separate the men from the
boys, the women from the girls. Whereas you can slide through a phone interview with strong technical
knowledge or a great discussion about one of your M&A deals, the in-person interview is where you
must have the whole package. You will need to have personality, charisma, a strong story, technical
knowledge, professionalism, and crisp delivery. This is bottom of the 9th, 2 outs, bases loaded and
you’re down by 3, and it all comes down to you. Will you execute?

Like a good finance professional, let’s get into the details:

13
 shirt
Lighter color than suit,
preferably white or blue.

what to wear: women

I tell women to “Dress like Michelle Obama.”
You always know she is dressed very nicely but
you probably can’t remember exactly what she
wore. She looks sharp and crisp but not flashy.

You want to be remembered for your intellect

and technical abilities, not as “the person that
wore [fill in the blank].”
shoes
Low-heeled,
conservative
SUIT Color coordinated with
Black, grey, dark blue suit, preferably black

Pants or skirt of conservative length

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 shirt
Lighter color than suit,
preferably white or blue.

what to wear: men

I tell men to “Dress like Barack Obama.” You always
know he is dressed very nicely but you probably can’t
remember exactly what he wore. He looks sharp and
crisp but not flashy.

You want to be remembered for your intellect and technical

abilities, not as “the person that wore [fill in the blank].”

Leave your pinstripe suit, cuff links, and Rolex at home.

The goal is to look sharp and professional, not like
Gordon Gekko. tie
Keep is simple
Go easy on patterns,
don’t present yourself
as an optical illusion
SUIT Stick with red, blue,
Solid color or yellow

Dark grey or dark blue

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 the in-person interview checklist

bring copies of your resume eye contact and a firm handshake

Even though they will most likely have your be passionate and engaging
resume printed out, bring extra copies
just in case. The interviewer will want your ask for the business
resume to peruse over and jot notes on.
Better safe than sorry.

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Eye Contact and a Firm Hand Shake
I know, I’m getting into extreme details. But
“Great! Excited for this interview and I’m
hey, that’s the former banker in me. When
also catching my first Cubs game of the
the interviewer walks into the room, stand up, season this weekend so I’m excited about
smile, walk towards them while maintaining that as well. Can’t go wrong with sun,
eye contact, and reach your hand out for the baseball, and a cold beer.”
handshake first. Deliver a firm handshake while
once again keeping eye contact. Introduce
Guide the small talk
yourself by first AND last name. Keep smiling.
And don’t sit down until he/she makes the move in the direction you
to sit down. Then make some small talk that want it to go: “How are you
allows your personality to show. This person is doing today?”
going to possibly interview 5-10 people today so
make something stand out.
“Not bad,
This person will most likely forget your name but
how are you?”
just like that he will now remember you as the
“Cubs guy/girl” that seems like a good culture
fit because you like baseball and beer. You are
someone he can envision working with for 12
hours a day. You just aced the first part of the
Personality Interview before it even started.

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Be Passionate and Engaging Ask For The Business
I can’t emphasize this enough. You MUST come across An interview is a sale, no two ways about it. You are selling yourself to
as passionate and engaging during your interviews. the prospective employer. The great part about this sale is that you are
The interviewer should walk out of that room saying, selling the best product you will ever pitch – yourself. And as any good
“Wow! That guy/girl really wants this job and they are salesperson would do, you must close the deal. In order to do that, you
extremely personable. That’s a person I want to work must ask for the business. Remember the words I said earlier in this
with for 12 hours a day.” presentation: If you don’t ask, you don’t get.

Passion shows them that you want the job and are
willing to run through walls for them. They want to know
that you are going to be excited to come to work every
day and will give it your all even if its 2am and you have
been there for 15 hours working on a Partners’ Memo.
Also, the interviewer has committed their life to this fund
and they want to know that you respect and admire remember
the fund just as much as they do. Coming across as
ambivalent about the role is a slap in their face. They the #1 rule
probably love their job, otherwise they wouldn’t be
there, and they are looking for others that will love the
job. You demonstrate that through the passion you
of sales?
personify during your interview.
Ask for the business.
If you don’t ask, you don’t get.

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the in-person interview: can i have this job?
At the end of the interview you must deliver a closing statement in
which you essentially ask for the job. You are not outright saying,
“Can I have this job?” but more so letting them know that THIS is
the job you want, THIS is the fund you want to work for. And you
need to come across as hungry and passionate in this message.
you must stand out.
A statement such as the following will help put the nail in the coffin: leave them wanting more.
“Thank you for taking the time to speak with me today. I want to be
up front and tell you that THIS is the fund I want to work for. The
people I have met are fantastic and your investment strategy is
something I find very exciting, something I want to be a part of. If
hired, I guarantee that I will bring real value to the role and work my
tail off to help this fund find even more success. I would love the
chance to work with you.”

That’s how you close an interview. That interviewer should walk out
of the interview saying, “Damn! That guy/girl really wants this job
and I do believe they would work their tail off for us.” That is how
you leave a lasting impression. You must stand out from the other
5-10 people they are interviewing that day and leaving a strong final
impression is a great way to do that.

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behavioral interview quesTions
Every Private Equity interview will involve a mix of “fit” or “behavioral” questions
as well as “technical” questions. Technical questions are meant to drill down into
specific knowledge about financial accounting, modeling skills, quantitative analysis,
and data-driven decision making. Behavioral interviews are meant to determine
your background, communication skills, whether or not you have genuine reasons
for wanting to pursue a career in PE, and also if you are someone they can envision
working with 60 hours per week.

There are literally hundreds of behavioral interview questions that can be asked.
Below are just a few examples. But first, I want to cover characteristics that PE funds
find desirable which you can then roll into your behavioral answers.

ready for more critical thinking? good, here we go:

20
 desirable characteristics
Characteristics that PE
Hardworking Driven
Funds Find Desirable Resilient Motivated

It will be impossible to prepare for every potential behavioral Analytical Action Oriented
question but you can provide yourself a safety net of sorts. Critical Thinker Ambitious
When thinking about behavioral questions, you can often
lean on the characteristics that PE funds find desirable and Persistent Passionate/Upbeat
then guide your answer towards those characteristics. With Curious Confident
the majority of behavioral questions you want to touch upon
at least one of these characteristics. If you can do this then Team Player Detail Oriented
you will most likely be on the right path.

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why did you choose
investment banking?
You should obviously give the interviewer your real reason. But you want
to craft the answer in a way that lets your best characteristics shine
through. Think about the characteristics that PE shops desire and then
I wanted to become a banker
roll that into your answer. For example, “I wanted to become a banker because I heard that’s where the best
because I heard that’s where the best and brightest work. If I’m going to
be great at what I do then I need to be challenged by the best every day.
and brightest work. If I’m going to be
Also, I heard that banking was the most intensive training experience out great at what I do then I need to be
there which fit well with my emphasis on work ethic.”
challenged by the best every day.
Also, I heard that banking was the
What characteristics do you feel most intensive training experience out
there which fit well with my emphasis
are necessary for someone to be
on work ethic.
successful in Private Equity?
Again, you always want to give the answers that you truly believe
in. The goal is to sell yourself while giving your answer. When asked
about the characteristics that would make someone successful in
PE you want the interviewer to associate those characteristics with
you. Examples of characteristics that would make a successful PE
professional were listed at the beginning of this section. [Page 21]

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What are your greatest If I asked your senior manager,
strengths/weaknesses? what would he or she say
We’ve all heard this one before. It is the most generic about you?
interview question but still one you get a lot.
Once again you want to use this as an opportunity to sell yourself and
Strengths: This is the easy part. You want to highlight those
push the message that you are everything the interviewer wants and
things you are best at but once again think about what kind
more. Think about all of the characteristics that PE firms look for in
of employee PE firms are looking for. They want intelligent,
candidates. I also recommend highlighting one characteristic above all
analytical, and hard-working team players. Thus, make
others, something along the lines of passionate, hardworking, driven,
sure your answers touch upon those characteristics that PE
relentless, etc. Something that lets them know you will run through walls
shops find most desirable.
for this job.
Weaknesses: This is always the most difficult. It is such a
fine balance between providing an actual answer while not
sabotaging yourself but also not giving them a BS answer.
For example start by saying:
I recommend picking out a few minor things you are not
so strong at but also highlight how you have improved and
I think first and foremost he would say
continue to improve. But make sure they are relatively minor.
You don’t want to tell the interviewer that you are terrible at I am driven. I want to succeed, I want
modeling when 75% of your job will involve modeling. Focus
to win. And I think that shows in my
on soft skills like patience with the clients or being too blunt.
You’re not going to win the job based on this question but work. Definitely driven. He would also
you might be able to lose it so try your best to skim through
say I am…
it with shallow answers.

you’re doing great, keep going

23
 storytelling
have a great story guidelines
Your “story” will cover a lot of the behavioral interview 1. How did you get here?
questions discussed in the previous section.
2. Why are you here?
Now, no one is going to ask you to tell your story using
3. Where do you want to go?
all three guidelines listed to the right. Each of these
three parts will be asked of you in some form or fashion
You need to have a strong and persuasive
throughout the interview. For example, the How Did You story for each of these three parts.
Get Here portion may be covered in the typical “Walk me
through your resume” while the Where Do You Want to
Go portion is covered in a completely separate question
20 minutes later such as, “What is your 5 year plan?”

The point is that you need to get your story across

throughout the entirety of the interview.

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How Did You Get Here?
This question will typically come in the order to be who you are today. Investment deal experience and taking on a lot of
form of “Walk me through your resume.” Banking jobs are difficult to obtain, you responsibility. We will get more into this
This is where you tell the story of how you didn’t just wake up one day and have the later in the document as we talk about deal
were able to obtain such a prominent role fortune of being an Analyst. What was the experience and other interview questions.
as an Investment Banking Analyst and struggle you overcame to get there? Did
then thrive in that role. Be prepared to you work 30 hours per week while going to
go all the way back to high school, as we school? Did you spend 5 hours a night in
have heard this question popping up more the library? Did you knock down doors to
often in recent years. Also be prepared to land interviews? Your story should include
speak about your personal life and family some conflict and tell how you overcame
upbringing. This information has also been that conflict to land this position. It will show
discussed more often in recent years from that you are a hard worker, are able to
our experience. Many PE shops are small persevere, are a go-getter, etc. These are
in personnel count and thus want a person all qualities that PE shops will be looking
that matches their culture. This information for in a candidate and thus you should use
allows them to relate to you on a level your story to exemplify those qualities.
outside of just finance.
When speaking about actually working
Your story should inspire and show how in your current role, you want to push
hard you worked to overcome obstacles in the message that you are getting great

25
why are you Here?
PE shops often want to know why you want to work
in PE. This question has become more prevalent in
great examples of answers that i’ve heard
“I want to work in Private Equity because I want to be part of building and
recent years as they have found some candidates
growing a company. I want to be part of the reason for its success. In banking
simply go to PE because it is the next chronological
our obligation is the sale of the company. Our care for that company, in all
step in the Investment Banking>Private
honesty, ends the day we get paid our fee. That’s our job and I understand it
Equity>MBA lifecycle and not necessarily
but I want to be part of building something.”
something the candidate truly wants to do.
“My goal is to one day own my own business and thus I want to learn as much
You should have a good reason as to why you want
as possible about the acquisition of and management of a company.”
to work in PE that goes beyond a desire to simply
fulfill part two of that Investment Banking>Private “I’ve been on the sell-side now for [x] months/years and feel as if I have learned
Equity>MBA lifecycle, otherwise you shouldn’t be a lot. The work is interesting and something I feel I have excelled at. But now
interviewing. I can’t tell you exactly what to say for I am interested in seeing the other side of the coin and learning as much as
this part of your interview because your story should possible about the buy-side so that I can further strengthen my skillset.”
be genuine and specific to you.
“Banking has taught me how to effectively position a company for sale but I feel
as if we skim the surface a bit too much for my liking. I’m an analytical person
and want to dive deeper into the analysis so that I can better understand the
business’s true value drivers which will then allow me to make an educated
investment decisions.”

“I’ve always been interested in investments. Private equity investments in

particular have stood out to me because I can have a direct influence on those
investments. Not only does PE strive to make sound investment decisions
but they also directly influence the success of those investments through a
stronger capital structure, putting the right management team in place, etc.
That is very appealing to me.”

26
where do you want to go?
You should be able to present a somewhat If you already know your desired career that it will lay the foundation for my future
clear career path when asked about your path make sure to message it clearly and success.” Once again, as you can see, you
future plans. I say “somewhat” because concisely to your interviewer. Also, make must draw the connection back to PE.
I realize that many of you have no idea sure to draw the connection to PE and
The reason that you have to be a bit
what you want to do beyond PE. Having explain how PE will help you accomplish
definitive in this answer is that too many
said that, “I don’t know” is not a very good that long-term goal.
candidates get into PE simply because it
answer when asked about your future
If you are not sure about your career is what every other banker is doing and it’s
plans. Even if you have no clue, you should
aspirations, narrow it down to a few the logical next step. Some of these people
at least come up with a few possible
choices and express your uncertainty while then get to PE and realize they didn’t really
scenarios. PE shops want people that are
still coming across as committed to PE. want to be there. PE shops want people
committed and passionate about their job.
For example, you can say, “I’m not 100% that are committed 100% for two years. An
The “I don’t know” answer could raise a
positive yet but working for a start-up or answer that clearly explains why PE is your
red flag that you are a bit wishy-washy on
starting my own business are the paths #1 choice today will help get that message
your career and could bolt to go save the
I’m leaning towards. Whichever it is, PE is of commitment across.
rainforest after 6 months.
where I want to be today because I know

27
technical questions
It depends a bit on the firm but, in general, the role asks you and another candidate for the qualities
of PE Associate is much more technical than the role of a good LBO candidate and you both simply
of Investment Banking Analyst. As a result, PE shops list 5 qualities you will both be dead even in the
want candidates that are technically sound. During interviewer’s eyes. However, if you list those
the interview process they will grill you on technical qualities and then go into detail about why
questions that test your ability in financial accounting, those qualities make good LBO candidates or
financial modeling, quantitative analysis, and data- even provide a real-life example of a deal that
driven decision making. you worked on which featured a company that
would have been a good LBO, you will be able to
Whereas behavioral questions can be answered in
differentiate yourself and move ahead of the other
several different ways, most technical questions don’t
candidate. It’s all about differentiation.
leave much room for interpretation. The answers are
the answers and you must know them cold. You must Once again there are many technical questions
also expand upon your answers and go in depth, that can be asked and it is nearly impossible to
providing color and context around the answers as prepare for them all, but below are examples of
much as you can as well as real world examples. Also, some of the more common technical questions.
talk them through your thought process a bit so that I have also included a link to a great site that
they can see how you analytically derived the answer. provides many other technical questions for you
to study.
These tips will help you differentiate from the
competition. Think of it this way: If the interviewer

28
What qualities do you look for in an LBO candidate?
Steady and predictable cash flow Manageable capital requirements
I want to know how much debt I can service via the cash flow of Not Capex or working capital intensive. Minimal future Capex
the target business. requirements (see “steady and predictable cash flow”).

It is okay if Capex has been high historically if that Capex

Strong management team with aligned interests
has been growth related. Companies with consistently high
I want a solid management team with experience, a team that
maintenance Capex are those you want to stay away from.
has weathered storms and has possibly even been through an
acquisition before. Heavy asset base for loan collateral
The heavier your asset base the more you can borrow
Strong, defensible market position
Accounts Receivable
Preferably #1-#3 in their market place with a defensible position
Inventory
(i.e. differentiated service or product offering).
PP&E

Growth potential Potential for expense reduction

Established, proven business model grounded in specific organic Can I cut costs without materially affecting my operations, helping to
or acquisition-led growth initiatives. generate more cash flow?

Diversified customer base An ability to cut costs means higher margins at exit and potentially

A diversified customer base allows a company to more efficiently a higher exit multiple.

allocate its risk (i.e., the loss of any one customer won’t put the A clear exit strategy
enterprise in peril). I need to know that I will be able to sell this business to another buyer
or the public markets.

29
Walk me through an LBO model?
There are several methods you can use to answer this question. Below I will provide two examples. That being
said, be prepared for an interviewer to ask for more details or to ask you to walk through it in a different way.

EXAMPLE 1 (sourced from askivy.net)

At its core, an LBO comes down to 1. Cash in, 2. Cash out, and 3. The amount of debt I can pay down
throughout the hold period.

Sources and Uses Cash Flow Assumptions

How much am I paying for the company? I will express this as Thinking through my financial forecast I want to know what cash
a multiple of EBITDA and assume 8x EBITDA. I will assume flow looks like so that I can determine how much debt I can pay
current sales are $500 and EBITDA margin is 20%, or $100. down. I will use Free Cash Flow, defined as EBT + D&A – capex –
Thus, my purchase price is $800 (8 x $100). change in net working capital – cash interest paid on debt – cash
taxes - any other mandatory debt paydown (i.e., amortization
For these purposes I am assuming the purchase price is made
payments).
up of 50% equity and 50% debt, meaning $400 of equity and
$400 of debt. I will assume I was able to grow EBITDA from $100 to $150 over 5
years. Based on these forecasts I will assume I can pay down $20
We will also assume that we sell the company for the same 8X
of debt per year, or $100 over 5 years.
EBITDA multiple in 5 years.
Calculate IRR
My original purchase price was $400 debt and $400 equity.

After 5 years my EBITDA is $150 and assuming I get the same

8x multiple I can sell it for $1,200. From that $1,200 I repay my
remaining $300 of debt which leaves me with $900 of equity.

My cash on cash return is 2.25x ($900/$400) and my IRR is 18%.

30
EXAMPLE 2 (sourced from ibankingfaq.com)

Step 1 Step 3
First, we need to make some transaction assumptions. What is The third, and typically most substantial step is to create an
the purchase price and how will the deal be financed? With this integrated cash flow model for the company. In other words, to
information, we can create a table of Sources and Uses (where project the company’s income statement, balance sheet, and cash
Sources equals Uses). Uses reflects the amount of money required flow statement for a period of time (typically five years). The balance
to effectuate the transaction, including the equity purchase price, sheet must be projected based on the newly created proforma
any existing debt being refinanced and any transaction fees or balance sheet. Debt and interest must be projected based on the
financing expenses. The Sources tells us from where the money post-transaction debt.
is coming, including the new debt, any existing cash that will be
Step 4
used, as well as the equity contributed by the private equity firm
Once the functioning model is created, we can make assumptions
or any rollover shareholders. Typically, the amount of debt is
about the private equity firm’s exit from its investment. For example, a
assumed based on the state of the capital markets and company
typical assumption is that the company is sold after five years at the
specific factors, and the amount of equity is the difference between
same implied EBITDA multiple at which the company was purchased.
the debt and all of the other sources of funding.
Projecting a sale value for the company allows us to also calculate
Step 2 the value of the private equity firm’s equity stake which we can then
The next step is to change the existing balance sheet of the use to analyze its cash on cash return and internal rate of return
company to reflect the transaction and the new capital structure. (IRR). Absent dividends or additional equity infusions, the IRR equals
This is known as constructing the “proforma” balance sheet. In the average annual compounded rate at which the PE firm’s original
addition to the changes to debt and equity, intangible assets such equity investment grows (to its value at the exit).
as goodwill and capitalized financing fees will likely be created.

31
 additional
lbo questions
1. How would increasing the cost of debt impact
equity returns, all else equal?
2. Would an investor prefer a 3% cash interest
increase in a note or a 3% PIK interest increase in
a note, all else equal?
3. If I capitalized the initial transaction with
more equity, what would that do for investor
returns?
In addition to the
4. Would you rather hold cash or pay down debt?
“Walk Me Through
This gives the interviewer a chance to discuss the
an LBO” question, possibility of prepayment penalties and the possibility

be prepared to be that the present value of forgone interest may exceed

the current prepayment penalty. Or an interviewer may
asked about the various take the simple answer and say pay down debt.

levers in an LBO.

32
Why lever up a company?
Using a high ratio of debt to equity is called leverage. It is called
leverage because the debt acts like a lever in that it allows a
given amount of equity to carry more than its weight in assets.

Levering up a company can allow you to magnify returns,

especially ROE. What happens to each of your
When private equity firms think about leverage they usually think financial statements if you
in terms of Total Debt / EBITDA or Net Debt/EBITDA.
change depreciation?
Interest paid on the loan is tax deductible, therefore debt
If depreciation goes up by $1mm your expenses go up by
creates a tax shield.
$1mm, most likely your COGS, which would lower your Income
You do not have to give up any ownership or future profits of before Taxes by $1mm. This will effectively lower your taxes. Let
your business. Your lender has no control in how you run your us say your tax rate is 40%, your taxes will go down by $400k.
business. All they can require is for you to pay your loan back Thus your net income is lowered by $600k. This flows into the
and adhere to agreed upon financial covenants. cash flow statement, lowering the net income you begin with
by $600k. You pick your depreciation back up ($1mm), thus
your operating cash flow is higher by $400k. This drops to your
What are the three ways to ending cash balance which then flows to your balance sheet,
raising the cash on your balance sheet by $400k. Your PP&E is
create value in an LBO? lowered by the $1mm increase in depreciation creating a net
Pay down debt – Assuming the same enterprise value at entry reduction in assets of $600k. On the liabilities and equity side
and exit, your equity is worth more (i.e. a bigger piece of the pie) your shareholders’ equity is reduced by $600k because your net
if the Company maintains less debt. income was reduced by $600k (retained earnings reduced).

Higher Multiple - Sell the Company at a higher multiple than

what you bought it for.

Increase EBITDA – This can be done by growing the company

at the top line and maintaining margins or by increasing margins.

33
If the cost of debt is 15% and the
cost of equity is 25% and then
the cost of debt all of a sudden
rises to 25%, what would you Please explain the concept of IRR
expect would happen to the cost The internal rate of return (“IRR”) is the discount rate that delivers
of equity? a net present value of zero for a series of future cash flows.

Internal Rate of Return is the flip side of Net Present Value and
The cost of equity would increase because equity is always
is based on the same principles and the same calculations. NPV
more expensive than debt. Equity is always subordinate to
shows the value of a stream of future cash flows discounted back
debt (debt holders get paid before the holders of equity)
to the present by some percentage that represents the minimum
and therefore equity holders must be compensated for
desired rate of return, often your company’s cost of capital. IRR,
being subordinate.
on the other hand, computes a break-even rate of return. It shows
Equity holders demand a higher return for increased risk (i.e. the discount rate below which an investment causes a positive
higher cost of debt). The cost of debt is always a stated number NPV (and should be made). And above which an investment
that is able to be calculated. The cost of equity is less concrete causes a negative NPV (and should be avoided).
and is more of a market demand for risk compensation than a
true “rate.”

Cost of equity - A firm’s cost of equity represents the

compensation that the market demands in exchange
for owning the asset and bearing the risk of ownership.

Cost of debt - The effective rate that a company pays

on its current debt.

psst, there’s more.

34
Please explain “Cash-on-Cash” return

Equals the equity dollars realized Cash-on-Cash return A 2.5x cash-on-cash return over
(at exit) divided by the equity is very important to a 5 year period equates to a
dollars invested at initial closing, many investors as it 20% IRR.
usually expressed as a multiple. represents a “cash I would suggest that a candidate

A 2.5x C-o-C multiple is usually the in hand” return on memorize what level of C-o-C return
corresponds with what level of IRR over
minimum threshold target for most PE your investment.
firms when evaluating a new investment. a 5-year period. From our experience,
interviewers were always impressed
when a candidate was able to come up
with the appropriate IRR over a 5-year
span by just looking at a C-o-C. It’s
nothing more than memorizing, but it
goes a long way.

Some private equity

firms refer to C-o-C
as “MOI” or money
on investment.

35
How would you monitor debt and
cash at your companies? What If you are making an investment,
metrics are really important? what are the first three financial
Fixed Charge Ratio

Total Debt/EBITDA
items you want to know?
Sales growth
Senior Debt/EBITDA
Cash flow (profitability and/or EBITDA)
Debt/Total Interest
Asset to lend off of
Debt/Cash Interest
– You can either leverage future cash flows or your asset base.
EBITDA/(Total Amortization + Interest) If using the asset base, typically it is A/R, inventory and PP&E

Total Debt/(EBITDA-Capex)

Be aware of working capital

What is your free cash flow?

– Look at monthly cash flows Other Technical
Are my receivables getting longer? If so, can we extend our Questions
payables? Do we have a big enough line of credit to make
The following site provides
up the difference? Do I need a working capital loan? Is this
temporary or ongoing? a long list of other possible
technical questions you may
Know the seasonality of your business – Do I need more cash in
slower winter months? May have to draw down on your revolver. find in a PE interview: http://
quizlet.com/12406165/lbo-
You may have $1mm in revenue per month but how much
cash are you seeing? Know your monthly expenses. Don’t blow questions-flash-cards/
through covenants.

36
know your deals
If you come from the typical Investment Banking
6 main points
background, you should absolutely expect to be asked for deal discussion
about the deals you have worked on. You will most likely
be expected to talk about one deal in detail.
1. What does the company do?
2. What are the high-level financials?
You will want to speak about a deal you know very well and which has a
good story that a PE fund would find interesting. Often, the interviewer 3. What were the investment merits and
will simply ask you to talk about any deal on your resume. However, they
will sometimes ask you to speak about a specific deal. Now, I know that
considerations of the deal?
you will most likely include every deal you can on your resume, including
those you may have played just a small part on, so make sure to know 4. What were some obstacles the seller and
EVERY deal in detail. But another way to steer the interview towards your buyer had to overcome?
preferred deal is to say something like, “That was a great deal and I’m
happy to discuss it. But this deal here is my baby, this was the first deal 5. What was the outcome of the transaction?
I worked on from beginning to end and the deal I cut my teeth on. It has
a great story to it as well. Do you mind if I walk you through this deal? In 6. From a PE perspective, would you invest in
fact, I can speak about both of them if you want.” I used to use this line
frequently and was never told “No.” Every banker has a deal that they
the deal?
are very close to and can speak about for hours. That’s the deal you
You will want to weave all of this information together into a
want to use in your interview. Sometimes you need to guide the interview
clear, concise story. For example purposes below I am going
in that direction.
to speak about each of the 6 points in an isolated manner.

37
q: what does the company do?
You can view this as a quick elevator pitch about the company. You don’t have to go into too
much detail, keep it high level at this point.

a:
ACME Company is a steel mill located in southern Indiana. It is a 2nd
generation family owned business. The father and son are the two primary
shareholders. The father started the business in the 70’s and passed
operational control to the son in the early 2000’s. The son is quite business-
savvy and has grown the company significantly since taking over.

38
q: what are the high level financials?
You will need to memorize all the key metrics of your deal, including:

LFY Revenue LTM EBITDA and Margin at Time of Sale Purchase Price

Projected NFY Revenue Gross Margin Purchase Multiple

LTM Revenue at Time of Sale Long Term Projections Leverage Multiple

LFY EBITDA and Margin Pitch Price

Projected NFY EBITDA and Margin Pitch Multiple

These metrics are the key metrics that you should know for any Please note, it would also be advantageous to speak about all
deal. You will want to present them in story form as opposed to valuation multiples in the context of similar deals (i.e. transaction
just listing them off, saying something such as, “This company and trading comparables)
was at LTM revenue of $100 million when we sold it and on
When discussing your deal you will need to take a critical,
good pace to achieve 20% Y-O-Y top line growth for the next
objective view. You want to present it in a way that provides the
fiscal year. Gross margins were 45%, which was pretty strong
perspective of the banker as well as the buyer. Basically, make
for this particular industry. LTM EBITDA was $20 million, or 20%,
sure you don’t present it in a way that seems like you believe your
and expected to grow to $25 million for NFY. So, not only was
own BS. If you tell the PE interviewer that the deal was everything
it growing but it was expected to see a slight improvement in
the banker said and more and that it sold for the best possible
EBITDA margin as well. We ended up selling the company to a
price for the buyer and not a penny more than the interviewer is
PE buyer for $160 million, which represented a multiple of 8.0X
going to question your ability to critically view a deal.
LTM EBITDA or 6.4X NFY EBITDA.”

39
q: What Were the Investment Merits and Considerations of the Deal?
This ties in with the question “What makes a good LBO candidate?” PE funds need compelling reasons to invest
LP money. Those reasons come in the form of investment merits. You should know 3-5 primary investment merits
that made your deal a compelling investment opportunity. Look back to the Offering Memorandum you used on
the deal and from there you will be able to zero in on the investment merits. You should also know the biggest risks
that exist with the potential deal or company.

Once again you will want to present this in story form. An example of how to present this is to say:

a:
ACME Company was a very compelling investment for several reasons. For one, they had a track record
of strong and consistent cash flow that we projected to increase with efficiency upgrades. Even if cash
flow dropped 70%, our analysis showed that interest payments at 4x leverage could still be met rather
comfortably. Also, they had diversified customer concentration. Their top 10 customers accounted for
only 25% of revenue, which we felt helped to hedge risk against any potential customer departure. ACME
was also the #2 player in the steel mill market in the Midwest, well ahead of the #3 player and not far
behind #1. They have longstanding customer and supplier relationships that gave investors a comfort
level when looking forward. And lastly, their management team was very strong. The CFO had been
through two successful PE transactions before and the CEO/Owner was an A+ executive.

40
q: What Were Some Obstacles the Seller and Buyer had to Overcome?
Every M&A deal comes with risk because no deal is perfect. PE professionals spend every Monday morning
dissecting these risks at their weekly meeting. So, your interviewer will want to hear about the risks associated with
your deal, how you were able to sell through them, and how buyers were able to see past those risks and still make
the investment. That last part is the key. Any good banker should be able to sell through these risks. But you aren’t
interviewing to be a banker, you are interviewing to be the buyer. So the interviewer wants to know how the banker
tried to spin it but more importantly they want to know the buyer’s perspective.

As an example:

a:
The biggest obstacle we had to overcome with our PE buyers was steel price fluctuation. I’ll be honest, this was a
major hurdle for most of them because they knew it was out of their control. Everything else about this company said
“Great PE investment” – strong management, low customer concentration, great cash flow, etc. But the fluctuation
of steel prices put fear in buyers. As the banker, we tried to push through this by 1.) Creating analysis that mapped
steel prices vs. ACME’s cash flow, which was surprisingly not as correlated as we expected, and 2.) Providing deep
industry analysis and research that spoke to the projected strong price of steel over the next 5 years due primarily
to booming construction in BRIC countries, and 3.) the poor performing steel industry in China which we felt would
push more business to the U.S. Now, of course we made everything look as rosy as we possibly could. The PE
shops bought into our steel price vs. cash flow analysis to some degree but they were still weary. In fact, 2 PE shops
dropped out from IOI to LOI. I believe those that stayed in the process and submitted an LOI did so because they
bought into the strength of the industry over the next 5 years combined with the strength of the company.

41
q: What Was The Outcome of the Transaction?
Here you simply want to tell the interviewer what the outcome was using key metrics.

a:
We ended up selling ACME company to PE Company X based in Texas for
$160 million which represented a multiple of 8.0x LTM EBITDA of $20 million,
or 6.4x NFY EBITDA of $25 million. We originally pitched this deal at 7.2x LTM
EBITDA so as the banker we felt really good about this. PE Company X was
able to get 3.75x leverage, with 2.75x senior and 1.0x mezzanine.

42
q: From a PE Perspective, Would You Invest in the Deal
This is where you need to hammer home the message that you can view a deal with a critical eye and make
intelligent investment decisions. Remember, a banker’s job is to sell a company for the highest price possible
and a PE fund’s job is to buy the company for the lowest price possible. So, if you tell the interviewer that the
company sold for 8.0x EBITDA and that you believe the PE fund got it for the exact right price it either means,
1.) You believe your own BS, or 2.) Your bank did a lousy job selling it.

I recommend taking a more critical view of the deal from the buyer’s perspective. An example is:

a:
We sold this deal for 8.0x LTM EBITDA. Would I have paid 8.0x? No I would not have. I would
be comfortable at 6.5x or 7.0x at the absolute most. I think this is a very good company but I
just can’t get past the risk of steel price fluctuation. Analysts can tell me all they want about the
projected strength of prices but at the end of the day steel prices are subject to things beyond
my control, like construction in Asia or even speculators. I know that every deal comes with
risks beyond my control but the historical fluctuations in steel prices shows too many swings
for my risk tolerance. So I need to get this company at a multiple that allows me to make money
even in my worst case model scenario. That multiple is 7.0x at the very most. I think some of
these PE buyers got caught up in the auction process and overbid.

43
As mentioned earlier, you should interweave all
of these 6 points (listed to the right for reference)
into one clear and concise story. You should
also be prepared for deep diving questions from
your interviewer.
6 main points
for deal discussion
And remember, you will be speaking about the
deal as a banker but you MUST also present 1. What does the company do?
your opinion as a buyer and provide a critical
view. To accomplish all of this you must know 2. What are the high-level financials?
your deals inside and out. 3. What were the investment merits and
considerations of the deal?
4. What were some obstacles the seller and
buyer had to overcome?
5. What was the outcome of the transaction?
6. From a PE perspective, would you invest in
the deal?

44
modeling test/case study
Often in PE interviews, the final round will consist of a
financial modeling test and case study that is meant
to illustrate your proficiency in technical finance and
pro interview
accounting knowledge, Excel modeling skills, and
consulting-style macro / market analysis skills. This test
tip for LBO MOdel
can take on various forms but usually you will be given a
Spend some time doing at least a couple of
case study and then asked to build an LBO model from
practice iterations of an entire modeling
scratch, fill in missing pieces of an LBO model, or even
construct an LBO model on paper. They may even give test end-to-end —meaning you read through
you verbal case studies with mental/written LBOs. an investment memorandum and actually go
We will provide an example of an LBO Case Study in the through the exercise of building a model.
appendix of this guide. [Page 55]

45
Modeling Test
It is essential that you practice for this portion of colleague asking them to “blow up” the model (i.e.
the interview. Those that do best on the modeling delete a line, hardcode a number, link a number to the
test are those that study and practice beforehand. I wrong number, etc.) in several different ways. They will
understand that you are already working long hours then send it back to you and your mission will be to
and barely have time to sleep let alone study but troubleshoot it as quickly as you can to find the errors.
this is part of the process. Every other candidate is This will help you determine the pressure points of
working long hours too, so you can’t rely on that as an LBO model. Another good practice is to ask your
an excuse. You will most likely have to stay at the friends from other banks for their LBO templates so
office until 3:00 or 4:00am a few nights to practice. that you can practice on different looking LBO models.
That is just the nature of the beast.

Spend some time doing at least a couple of

practice iterations of an entire modeling test end-
to-end —meaning you read through an investment
memorandum and actually go through the exercise
of building a model.

You should be able to build an LBO model from

scratch and know all of its levers inside and out so
that you can quickly troubleshoot if needed during
the actual test. A good way to practice is to build a
model from scratch and then send it to a banking

46
Case Study
Overall, do not be afraid to have a critical eye. we have to do our in-depth diligence and some
This case will probably be an actual company specific things that I would like to look at are…”
the PE fund invested in (which means they liked
For every PE investment, the deal team must present
it) or a company they looked at but did not end
their case to the Partners explaining why they should
up investing in (which means something turned
invest the fund’s money in this deal. The partners and
them off). You DO NOT have to say the investment
other investment professionals play devil’s advocate
sounds great. If you honestly feel that it would be
during this presentation and ask tough questions.
a bad investment then say so. If you like it, then
That is your job in this case study. Ask the tough
say you like it. You just need to be able to back
questions and use a critical eye. Do not just say it
up your statement with a credible argument and
looks like a great investment if you really don’t think
data. You can also hedge your bet a bit by saying
so. Look at it as if your bonus depended on it. Would
something like, “From a 50,000 ft view it looks like
you risk your money?
a potentially good (or poor) investment. Of course

47
Management Market position
What is their experience? Do they have a strong defensible market position?
– Preferably #1-#3 in their market place with a defensible
Have they been through an acquisition before? position (i.e. differentiated service or product offering)

Do they want to be a part of this going forward? What is their market share?
– They have to be invested for the next 3-5 years and be – How much market share do the top players hold?
incentivized to do so
– Having a PE owner is different from having a regular owner Are they simply benefitting from a strong industry upswing or do
– Some people love it some people hate it they have something that can help sustain a market downswing?

– What are competitive differentiators?

– Are they verifiable?

What growth can the company’s current capacity tolerate?

Will we have to bring in some – Will you need to add employees, machinery, make acquisitions?

new management members? growth potential

If so, is this business in a location that will make it easy
How do they intend to grow?
(i.e. NYC) or hard (Western Pennsylvania) to attract talent?
– Is what they say believable/achievable?
– Both organic and acquisition-led growth initiatives?
– Don’t want just acquisition-led
– Acquisitions need to be accretive and generally make
for a riskier investment (i.e. execution risk) than organic
investments

48
customer base Industry Outlook
How diversified is their customer base? Don’t just look at the broad industry as a whole but also look at the
– What % does the top 3 and top 5 customers account for? specific niche market this company operates in
– High concentration is not good
What is the industry outlook for the next 1-5 years?
– Risk is not allocated efficiently
– What if worst case scenario plays out?
– Can we still make money?

What is long term industry outlook?

– If the industry is supposed to be strong for the next 5 years and
capex then expected to take a dip that is an issue because you have
to sell out of this investment at some point.
How intensive are the capex requirements?
– The more you spend on capex the less cash you have Look at past cycles
to go around – What happened to companies during downturn?
– Were companies getting blown up and going out of business
Have they invested in capex or are you going to have to come
or did they weather the storm?
in and make huge capital outlays for investments they have
put off?

What has been the nature of historical capex?

– Has it been focused on growth investments or has it been
costs
to maintain the current asset base? What is the % of fixed vs. variable?

Are costs subject to commodity price swings?

49
Where can your PE firm add
incremental value and drive sales
value creation? How do they make their sales?
– Do they have the relationships?
Make things more efficient? – Will you need to bring someone in with those relationships?
– AR Days
– AP Days
– Inv Days

Cut costs without materially affecting operations? exit opportunities

Better financial reporting? This is HUGE
– Use a metric based system to track performance and – You don’t make money until you exit
actively manage the business
Who would want to buy this company in 3-5 years?
Put in place incentive based compensation for managers
– Strategic?
Professionalize the management team, sales force, etc.? – Which competitors would be interested?
– Do they have the financial means?
– Do they have a history of making acquisitions?
asset base – Companies in the industry in general that might be
looking to diversify
What is the asset base for loan collateral?
– Accounts Receivable – PP&E – PE Companies
– Inventory – Will financial buyers be interested in this industry in 3-5 years?
– Have financial companies done well with investments in this

Cost efficiency opportunities industry or have they got burned?

– Will you need to make acquisitions to make it large enough to

through outsourcing? be attractive?

Can anything be outsourced to China or another low-cost country?

– Does your PE firm have a history of doing this?

50
in summary
Present your practice case study and model
to a banking colleague, or better yet a friend
in PE. PE professionals often think about deals
much differently than bankers and thus can
provide you similar feedback as you would
receive in your actual interview. They will also
use jargon that is a bit more proprietary to PE
and thus allow you to pick up on similar jargon
to use during your interviews.

It is essential that you practice to ensure a

successful modeling test and case study. If
Finish strong and
this truly is the final piece of the interview, lock the job up!
you don’t want to walk into it half-prepared.

51
questions you should ask
of your interviewer
Any good interviewee will have a list of questions they
examples of
will ask the interviewer. At the end of the day this is a interviewer questions
two way interview. They are interviewing you and you
are interviewing them. You need to make sure this is 1. What do you like about working for
a place you want to work at and to do so you need this company?
to have as much information as possible to make an
informed decision should you be offered the job.
2. Where do you see the company heading
long term?
Also, make sure to flex your questions based on the
person interviewing you. You don’t want to ask the 3. How does the company source its deals?
partner what he finds most interesting about modeling
because he/she probably hasn’t been inside of a
spreadsheet in 5+ years.

52
questions for your interviewer
Junior Employees General Questions

What interested you about private equity? When was your current fund raised?

What do you like about working for this company? How far along are you in this fund?

What are your plans beyond your Associate role here? When do you plan to raise your next fund?

Can you tell me a bit about the typical day-to-day activities and How would you define the investment strategy here?
responsibilities for this position?
What are the characteristics that your company places the most
What is the typical % split between portfolio work vs. new deal work? emphasis on when looking for a good investment opportunity?

What would you say are regular portfolio maintenance responsibilities? How does the company source its deals?

Could you walk me through the investment process at your firm from
receiving a teaser all the way to closing?

What differentiates a good Associate from a great Associate?

Have you completed any transactions while working at the firm?

There are obviously many
Senior Employees more questions than this but I
What are the key characteristics that you feel make a good Associate? just wanted to provide a few
Are there career-track opportunities here or do Associates typically
move on after 2-3 years?
examples to get you started.
Where do you see the company heading long term?

Can you tell me a bit about your decision to choose PE as a career?

What part of this job do you find the most rewarding and challenging?

53
conclusion
Private Equity interviews are a real
test of your interview skills, technical
aptitude, deal knowledge, and
personality. It is a test that only the
best of the best pass. I view it like will shake the interviewer’s hand all play.” When you land a face-to-
making the Olympic team: There are the way to how you will field a difficult face interview the game is on
only so many spots available and you technical question. You must practice the line, you have the ball, and
are competing against the absolute every portion of the interview, there are two seconds left. If
best to win one of those spots. As a including behavioral questions, you remember everything you
result, you must be on you’re A-game technical questions, modeling tests, practiced and execute, you’ll
throughout the entire process. case studies, questions about your sink the shot and win the game.
deals….everything. If you don’t, you lose. I know that
You must be an aggressive hunter
sounds harsh but that’s the reality
to land an interview. Once you Once you have practiced, you need
of the situation.
have landed an interview, you must to execute on the actual day of the
PRACTICE PRACTICE PRACTICE so interview. If you have put in the Not every investment banker will
that your game is as sharp as can be. practice time then the game should get a job in Private Equity. Outwork
You need to think about every detail, be the easy part. Remember the the competition and you will be
from something as small as how you motto “how you practice is how you one of the few that do.

54
appendix
The following case study was provided to us by an actual private equity shop and is representative of the
types of case studies PE firms give out.

LBO Case Study Example / Practice Cost of Goods Sold Working Capital
Please use the following information to generate The cost of goods sold for the past three years The Company collects from its customers in 60
an LBO/projection model for the hypothetical was $105.2 million, $100.2 million, and $81 days, pays its bills in 45 days and maintains 30
buy-out of a ready-mixed concrete company million. Cost of goods sold is comprised of days of materials inventory on hand.
(“RMC”), which is the subsidiary of a larger both fixed and variable costs. The fixed cost
building products company. Assume that portion of the cost of goods sold for the past Capital Expenditures
the senior management team of RMC has three years was $10 million, $10.5 million and RMC’s capital expenditures for FY 2005, FY 2006,
approached your PE firm to determine if there is $11 million, of which $3 million represented and FY 2007P were $3.0 million, $3.1 million, and
an interest in backing a management-led buyout. depreciation each year. The variable portion of $3.2 million, respectively.
You have been assigned to the transaction team the cost of goods sold is material costs, which
Asset Information
and will be preparing the financial model for the is driven strictly by volume.
As of December 31, 2007P, the net fixed assets
potential opportunity.
SG&A of the RMC Operations are $20 million.
Volume and Pricing Information The SG&A expenses of the business are also
Financial Projection
The total ready mixed concrete shipments for the comprised of both fixed and variable costs.
Scenario Management Case - Management
past three calendar years were 2.3 million cubic The variable portion of the SG&A expenses
believes that the financial performance of the
yards in 2005, 2.2 million cubic yards in 2006, are related to sales commissions, which
Company has bottomed out in 2007, and that by
and 1.75 million cubic yards for projected 2007 have been 1% of the sales of the Company
2012 volume and EBITDA will have returned to
(assume that RMC is currently tracking to hit the for the past three years. The fixed portion of
the levels achieved in 2005. The relative working
projected 2007 results included in this exercise). the SG&A expenses have been $10 million
capital requirements of the business are not
Revenues over the same time period were for each of the last three years, of which $0.5
expected to change. Management expects that
$138 million, $130 million, and $101.5 million, million per year has been depreciation.
fixed costs and capital expenditures will grow in
respectively, resulting in ready mixed concrete
line with inflation.
average selling prices per cubic yard of $60,
$59.09, and $58, respectively.

55
Financial Modeling and Purchase Assumptions Close – Transaction should be modeled to and credit stats as well as (ii) key transaction
close on January 1, 2008. information normally included in an LBO model
Transaction is a purchase of the stock of RMC.
such as purchase price and implied multiple,
Assume that RMC has been and will be a Fees and Expenses – Closing fees on senior
sources and uses / opening balance sheet, and
C-Corporation for tax purposes. debt of 1.5% of total committed senior debt.
investor returns (at various exit years and exit
Capital Structure Other buyer fees and expenses of $0.5
multiples). Please show the case in the model
million.
– Senior Debt – funded senior debt at with a purchase price that will generate 5-year
close of 3.50x LTM EBITDA equity returns of 30%.
Purchase Price Scenario
– Equity – remainder of sources Annual financial projections based on
Also, please comment on whether you feel
Management Case
Senior Debt Terms that the senior debt terms are appropriate for
– Revolver - Revolver availability based on Key question – Given management’s this transaction. If not, what changes would
a borrowing base equaling 75% of forecast for the market over the next five you propose?
accounts receivable and 50% of years, what is the maximum price your
inventory. The revolver facility size will
PE firm would be willing to pay for the
equal the availability at close. Funded
portion of the revolver at close should be Company, assuming your firms’ targeted
40% of the calculated availability. Interest five-year equity IRR is 30%?
rate on the revolver is L + 3.50%.
– Term Loan - The balance of the senior General Comments
debt is in a 5 year term note, amortized The purpose of this exercise is to demonstrate
in equal quarterly principal payments. an understanding of underlying concepts,
Interest rate on the term note is L +3.50%.
by building a model rather than “plugging
Equity and chugging” with a template. The financial
– Structured as straight common equity. model should be built from scratch and should
Management will receive a 10% common include (i) 5-year annual forecast including
option pool, with a strike price equal to the income statement, balance sheet, cash flow
initial purchase price of common equity.
statement, and other operating information

56
ABOUT SMARTROOM
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58
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60
common
use cases
Capital Raising

M&A

Post-Merger Integration

Regulatory Reporting

Investor Reporting

Fundraisings

Loan Syndications

NPL/RPL Sales

61
history
of success
15 Years of Content Management

20,000+ Companies

5 Million+ Users

50+ Countries

62
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Tim Lindell - Analyst, Lincoln International

63
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success

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64
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