Strategy consulting to PE - Interview in 5 days, Advice requested!

WSO Gang – through a friend's recommendation and due to a background/profile fit, a semi-major PE firm contacted me for an interview for an Associate role. I had a "screening chat" and it went surprisingly well; I'm now into the interview process, and speaking to a VP next week.

Bit of background, I'm an Engagement Manager at a M/B/B consulting firm and wasn't actively on the lookout, but the role seems very interesting. I've gone through the WSO PE forum (as usual an absolute gold-mine of info), and will be buying the prep pack later today. I had some specific questions, though, and would be grateful if you guys could offer any advice:

(1) The firm in question is a mainly equity investor with less focus on LBOs and quick exits, and more on a longer-term association with companies they invest in, usually with a minority stake. In such a scenario, it makes sense that a strategy consultant with no 'deal experience' (that's just not what we do) is being considered as opposed to an IBD Associate. What are the qualities I should really play up? Among the ex-consultants you've worked with in PE, what skills/qualities really impressed/made them successful?

(2) I want to get up to speed on industry jargon, key terms, etc. What's a great resource? Also, which website do you guys get your deal/general market news?

(3) I have 5 days to prep. Would love to hear thoughts on how best to allocate my time – what should I be focusing on, and in what priority?

(4) Finally, just your opinion – is Engagement Manager to Associate a step-down? Pay isn't the issue, but should I be gunning for more responsibility, etc?

Many thanks!

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  1. I guess you mean growth equity. Qualities that you should play up including having a better understanding of an industry e.g. the drivers of growth, difference in business models within the industry and pros and cons of each business model, competitive landscape (more so if they are sector specific e.g. tech). Based on the all of these stuff, you should ideally have a company to pitch to the company that fit into their investment criteria as well (my understanding is most of these firms try to avoid participating in an auction). In addition, you should also prepare a plan/thesis on how you plan to grow the company which you had pitched e.g. organic/inorganic growth.

Some of the qualities that you should play up would be market sizing, market entry into a new market e.g. china as well as soft skills e.g. being able to ask the right questions in GLG calls or when doing market surveys etc.

First of all, there are way more investment bankers than consultants in pe. Things that make them successful would be the same as those required of investment bankers e.g. being indepedent, resourceful and being able to handle multiple responsibilities instead of just focusing on churning out pitchbooks/powerpoint slides. On the other hand, I felt that how consultants differentiate themselves from other consultants would be having experience with finance e.g. do not need to learn from scratch a LBO as well as the different convenant terms and most importantly having exposure of the sectors and countries which the fund is looking to invest in.

  1. You can read up on WSO and M&I and investopedia. The quickest way would be having a friend within the PE industry to explain to you and send you some samples. For deal news I felt that mergermarket is the best.

  2. I would focus on modelling as the main priority as it seems like most funds are very concerned that a lot of the consulting people are not able to handle it.

  3. I felt that its hard enough to consultants to convince firms why should take them in over the traditional investment bankers and generally it will be a step up for most consultants. I am sure that firms that considers consultants will provide them with a wide range of responsibilities as well. I guess you should figure out whether you thrive better in an environment where you have more autonomy and whether private equity if your kind of thing versus consulting.

All the best for your interview.

 

Woozy - thank you so much, this is beyond helpful! If you don't mind, 2 follow-up questions:

(1) Referencing your answer to 3 above - out of curiosity, just how much day-to-day modeling needs to be done in PE? Is it daily for hours or is it more like maybe in the weeks leading up to a deal/due diligence when it ramps up - so during a busy period basically a lot, but otherwise not that much?

(2) Just a clarification, what I meant by this shop being an equity investor is that these guys, from the little I know, don't do LBOs. They provide 100% equity-financed funding and are then vested in the long term to help the business expand and do better. Is this growth equity with a twist, essentially?

 

(1) Modelling is done before the initial bid is submitted and the due diligence stage is where you have the time to verify your assumptions plus other aspects of the deal e.g. the legal contracts. My understanding is that modelling is not the main aspect of the job where you do it on a daily basis even during busy periods.

On a side note, the PE firms which I had met use templates for their models so that the rest of their team will spend less time understanding their model when it is brought up for discussion before the initial bid.

Also, in my opinion, the bulk of the time will be spent doing research/verifying your assumptions on the model rather than the model itself e.g. -Talking to people in the industry / GLG calls / your own research -Looking for case studies of PE firms who have a similar investment thesis in the same industry -Comps -How much or whether you should adjust the financial statements -Speaking with lawyers on whether your investment thesis may run into any legal issues e.g. government protection of certain sensitive or maybe infant industries -Talk to the leveraged finance people on whether they are interested and an indication of how much they can provide

Im not sure if you realized that actually the soft skills are still important in PE. I felt that it is the same as banking where those who can only model/make powerpoint slides will get stucked in the associate level.

(2) My understanding is that unless you are taking a majority stake in the firm you are acquiring, banks and the other lenders will not be providing you with huge amount of debt. Thus, I believed that you are referring to growth equity. I do believe that the firm might require you to do origination of deals (which is great in my opinion as it allows you to build a network and have a variety of work) as my experience with growth equity firms is that they mainly help their portfolio companies to grow organically. This means that the organic growth is the main contributor to the IRR and the returns will be greatly impacted over the buy-and-build strategy PE firms if they were to participate in auctions.

On a side note, may I know whether the PE firm you are referring to is a family office? Family offices do not have a definite timeline in terms of exiting as they are not raising funds externally.

Hope it helps.

 

Not sure if others have had similar experiences, but I did far more quantity of models in banking than in PE. In PE, I'm only doing a model if we're intending to submit a bid. In banking, I did models for shits and giggles, and by that I really mean I was told to do it by some MD "just to see what it looks like" or any financing pitch because the use of proceeds can't be anything besides an acquisition (because how else will the bank make fees on both the advisory and the financing).

 

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