How do you describe the risks associated with a PE deal?
I did a case study and I recommended the company. The interviewer then asked me: "what do you think are the biggest risks associated with this transaction?"
I didn't really know how to answer. I talked about how based on the sensitivity analysis, we don't have that much buffer in case of multiple contraction (which largely depends on the macro environment). Since this was a platform investment, I also said that another risk is if the target company fails to complete accretive acquisitions, IRR will likely be much worse.
Does anybody have any general tips for how to better answer these questions? What are common risks associated with PE transactions?
I generally think of risks in two buckets : 1) macro / industry and 2) micro / company. Assess the various risks at those levels that could lead to a degradation in cash flow.
It’s only a risk if there is a mitigant
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