Building a model for my PE interview
I have an interview at a MM PE firm in a little over a week and i'm looking in to building an LBO or other valuation model that i can bring and describe in depth in my interview.
I wasn't asked to do this for the interview, but I came up with this idea as I think it would really show my strong interest PE, and my current CV doesn't reflect this at all (im a finance grad but I have been working at E&Y for the last 2 years in Assurance, not TAS unfortunately.)
I was wondering if any of you PE guys here had any suggestions to help me build a truly impressive basic model that I can bring to my interview. More specifically:
Any suggestions for a target private company I can use that's a bit interesting and not lame? ( where enough financial info is readily available)
Any other tips to building a truly impressive model for an interview?
What aspects of my model should I focus on in my interview?
I'm willing to put in a significant amount of time to building this, because if my interview doesn't work out, I can always bring it to future interviews.
(P.S I don't live in the US, but US targets are fine)
Thanks guys
For an LBO, pick a company that throws off a lot of cash, has low working capital requirements and low capex. I would pick one that has a lot of growth potential as well, and you can juice the returns on your model by making a compelling case on why they'll grow @ 10% a clip for the next 5 years. Also, pick one that is in an industry in which they invest.
My tip for building a truly impressive model is to build a correct model. If these guys take a serious look at it, and there's a bust, they'll find it. There are a million things you can add to the model to make it really complex and account for a million different scenarios, but just include the very basics and keep it simple.
The focus will be on your assumptions, which would be included no matter how you built the model. They will want to know about 1) why you priced it the way you did, 2) the capital structure you used, 3) your operating assumptions: growth, margins, w/c, capex.
If you have an interview at a PE firm coming out of assurance w/ no modeling experience, your employer is assuming you will eventually be able to pick up the modeling and that you don't necessarily know it know. So keep the model very simple, make sure it's correct, and have a very sound investment thesis that falls in line with the types of companies they buy. They will definitely ask you why you chose XYZ Corp.
This may help: http://mba.tuck.dartmouth.edu/pecenter/research/pdfs/LBO_Note.pdf
Good luck
This is an interesting concept but I'm not sure how useful it will be. As someone who sometimes interviews associates for my firm, I usually stick to the resume and deal experience. We usually give a modeling test after first round interviews to selected candidates. Firms already know your background before choosing to interview you (i.e. they know if you don't have direct banking experience or something, yet they've still chosen to speak with you). Whipping out a printout of an LBO model seems kind of desperate, IMO. I'd honestly be wondering if you had nothing else better to do with your time.
I would spend more time on studying certain deals that happened in the market recently and getting a good handle on the details. if you can't talk about your own (because you don't have that type of experience), at least be able to talk about someone else's to show interest.
Building a model at this junction has limited upside with a lot of downside. You are spending time on something that won't come up until after this round of interviews and if you bust it out and there is any error (which there most likely will be), it will ruin the interview. Worry about modeling when you have a test or start at the job.
wait till the test bro, prep for that.
LBO models are not hard... just have an idea of what a good LBO candidate is and why. understand the drivers/trends and investment thesis
Although it isn't the norm, I do have to build a LBO model for this guy before I even go to the first interview. Just picked a MM public company that fits their rev & ebitda criteria, and I will treat it as a private company since they'd never touch a public one (and it's just for illustration).
Any ass hole can build a model, that's why we engage Bankers. Instead, I would look at the sponsor's portfolio and identify a solid company that fits this criteria and operates in a market that they don't already have an exposure to.
I would concentrate on really understanding both the micro and macro drivers of the business and why it is a decent investment.
LBO models are not rocket science, especially if you've been at E&Y for two years.
I'll just throw my vote in for added effect: don't do it because it will make you look desperate. Demonstrate your understanding of what makes a good investment and which drivers of an LBO unlock the most value. Show your interviewer that you how understand industry-level dynamics affect the company in question.
I would err on the side of not doing this... As mentioned above, no real upside (they'll put you through their own test), lots of downside.
How the fuck did you get from Big 4 audit to interviewing at MM PE (I don't mean that at all in an insulting way, just very surprised)!? It would help a lot of people here if you could share your path. Well done though man!
agree with most of the above posts...limited upside to bringing in a model they didn't ask for. would advise against this. but it's definitely a good idea to understand how to build an lbo from scratch and what the return drivers are.
download/buy the ibanking book.
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