PE Secondaries Modelling
Hi,
I’ve been invited to a modelling assessment with a PE Secondaries Firm. It’s ~2.5hrs long before a download afterwards. It’s for an analyst position and they’ve been open to candidates from a non-PE secondaries background
Any ideas of what to expect (type of modelling etc) and what I could do to prep.
thanks
VP in secondaries for 2+ yrs from a non-secondaries background— It could be a generic LBO modeling test (my secondaries model test is a generic test for my more junior hires). If it’s secondaries specific, be crisp on modeling mgmt fees, carry waterfalls, and solving for a purchase price discount.
Mgmt fees are straightforward as it’s a fixed percentage usually on invested capital but could be on committed. Carry is just a preferred equity waterfall, where LPs earn a guaranteed [8%] return, then potentially the GP gets to catch up, then they split proceeds [80%] to LPs and [20%] to the GP after the preferred return of [8%]
I found my biggest hurdle with secondaries was just understanding the lingo more than the modeling
Or it could be on NAV...
Sure, but that feels agro for a 2.5 hr model test for an analyst. Presumably they’d make the test taker model out a hypothetical NAV too in this scenario
Thanks - is there any other valuation method that's often tested other than LBO e.g. DCF? Trying to cover all basis if I can
On the LBO:
1. Likely to be from scratch? 3 statements needed?
2. Would the suggested approach be to getting through the information provided/simplifying assumptions quickly and spending time on going through drivers?
3. What would be a pass for you when reviewing a candidate's model?
Any other tips would be helpful. Thanks in advance
I can just comment on my firm, but for modeling tests we usually don't expect incoming associates to have any prior experience modeling a traditional secondary transaction (ie. rolling up funds into a transaction model and determining discount to NAV).
For us, it's a simple LBO paydown model like you see in traditional PE: building out company operating assumptions and working through a cash waterfall. For 2.5 hours I think that's all that's reasonable anyway. Since there's a debrief after as well, I'd make sure you also spend some time really thinking about the assumptions you're making and why you're making them, and think strategically about the company you're talking about too. You'll probably get asked what would be your investment thesis and if you would make the investment. Thinking about some potential risks to your investment case would also be helpful going into the debrief.
Edit since I just saw your questions: You probably won't need a 3 statement.
For the drivers question, it depends what they give you. If you have some sort of discretion on assumptions you will need to think about why you chose what you did. If they tell you "this is the rate" then less so.
For the model itself, as long as it all works and is linked up right. Formatting is less important on a quick model but make it easy to follow.
Agree with this— the model test we give starts with 5 years of historicals with some commentary on what the seller thinks forward projections look like then we expect a candidate to project out revenue, EBITDA, etc and provide rationale
If there’s time, we also ask for what’s the return profile of your CFs, what does the purchase price need to be for the deal to make sense, how does the answer change if there’s mgmt fees/carry modelled in, how does it change if there’s unfunded expected to be deployed, etc
We are really looking for someone who has a grasp of the basics, thought their assumptions out, and is a neat enough of a modeller.
Last time we failed a candidate on a model test, he included interest expense and growth capex in his EBITDA calc. We really use it a common sense test at the very junior levels— I can teach someone the nuance of secondaries, but I’m not wasting time teaching an analyst/associate how to calculate EBITDA . . .
Thank you both!
Aut temporibus et eaque molestiae. Iure neque nesciunt doloribus excepturi sed et aliquid. Nisi et aperiam adipisci alias culpa non voluptatem quisquam. Quia numquam animi nisi dolor assumenda quia sed. Officia rerum voluptates impedit.
Sit maxime fuga est dolore expedita. Eligendi non maxime beatae tempore et doloremque. Ex quam tempora cum doloribus saepe aut rerum facere. Similique nemo quia omnis optio.
Facere est odio vero id. Nisi perferendis qui magnam doloribus eum. Quae saepe optio qui maiores facilis velit.
Dolore ducimus soluta tenetur qui voluptates quaerat. Qui quis autem quo dolor in id ut. Vero blanditiis distinctio corrupti itaque est repellat recusandae libero.
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...