4-hr Model Test with MF in their Services Team - What to Expect?

Based on the most helpful WSO content, here's what you need to know:

For a 4-hour model test with a services-focused team at an MF, the structure and expectations are likely as follows:

1. Time Allocation:

   • Spending 2-2.5 hours on the model and 1-1.5 hours on the investment memo is a reasonable assumption. This aligns with typical case study setups where the model is the foundation, and the memo synthesizes your findings and recommendations.

2. Business Model Focus:

   • Since the team focuses on IT services and healthcare services (e.g., clinics, hospitals), the case study will likely represent one of these business models. Expect to deal with recurring revenue streams, margin profiles, and possibly growth through acquisitions or organic expansion.

3. Modeling Expectations:

   • Build a simple but logical valuation model. This could include a 3-statement model with a focus on key drivers like revenue growth, operating margins, and working capital.
   • For IT services, you might need to model subscription-based revenue or project-based revenue.
   • For healthcare services, consider patient volumes, reimbursement rates, and cost structures.
   • Include a DCF or multiples-based valuation (e.g., EV/EBITDA or P/E). Sensitivity analyses on key metrics (e.g., revenue growth, margins) could add value.

4. Investment Memo:

   • The memo should be concise and structured. A typical outline includes:
     • Recommendation: Your conclusion and rationale.
     • Company Overview: High-level summary of the business.
     • Investment Thesis: Key reasons to invest, supported by your model.
     • Valuation: Summary of your model outputs and key assumptions.
     • Risks and Mitigants: Highlight potential risks and how they could be addressed.
     • Next Steps: Outline further diligence or analysis you would conduct.

5. Preparation Tips:

   • Practice building 3-statement models and valuation frameworks under time constraints.
   • Familiarize yourself with the key drivers and metrics for IT and healthcare services businesses.
   • Review past case studies or examples of investment memos to refine your approach.

The key is to stay organized, focus on logical assumptions, and ensure your outputs are clean and easy to interpret. Good luck!

Sources: How would you approach a 4 hour case study?, 2-hour Modeling Test for HF (Fundemental Equities) - What to expect?, Investment Banking to a Hedge fund... Can You Make the Jump?, Ask me anything - MM PE Associate, 1 year in, "Leaving IB Soon, Final Rants" - The Follow-Up