Studying technical questions for off-cycle interviews and came across the question: "How could you (the sponsor) decrease the risk of your equity in an LBO?" I know one option is you could structure your investment with an earnout, but imagine there are several potential answers to this question that I don't know off the top of my head.
| +128 | What’s “the path” now? | 51 | 1h |
| +76 | Is Everyone Too Bearish on PE? | 21 | 1h |
| +45 | Why would anyone do PE in long term in 2026? | 12 | 21h |
| +35 | 3rd Year IB Analyst, Top Bucket, Still No PE Offer. What Would You Do? | 18 | 1d |
| +25 | Is This Normal in LLM PE | 10 | 3d |
| +24 | Q&A: What It’s Actually Like Working at an Independent (Fundless) Sponsor | 4 | 20h |
| +21 | UMM PE or High Paying Strat Finance? | 7 | 16h |
| +21 | Striking out in last rounds | 2 | 2d |
| +20 | On Cycle Preparation | 8 | 1d |
| +16 | Would you use a centralized sponsor research page before meetings? | 6 | 5d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Structure in general is a way to de-risk on the front end. A common example besides the earn-out you mentioned is participating preferred equity (provides 8% annual yield, plus upside).
There are also some legal mechanisms (specific rights clauses - or lack thereof, dilution ability o non-sponsor equity, etc.).
Not sure exactly how the question was phrased, but something like a dividend recap or leveraged share redemption would reduce equity risk during the hold.
Helpful, thanks
Hic ut ullam sit optio cum sunt. Consequatur a molestiae ipsum reprehenderit. Doloremque vel quae explicabo amet autem. Animi ratione fugiat ut quasi incidunt.
Expedita tempora non quos quo necessitatibus non dolorem. Quasi quod non in sit laboriosam sed laboriosam. Id fuga et provident illo minima. Perferendis odio aut in ut non soluta perferendis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...