PE Interview Case Studies

Hi,

PE recruiting is slowly starting ... some of us are in the beginning of interview processes .. one thing that differentiates the interview process at PE/IB is the case study interview...

For those who work at PE shops, or have gone through the process, think it might be useful if you guys could post a few case studies you were asked and some details like timing/how many interviewers/do you present at the end of the case study your conclusions/etc.

is it a McKinsey type of case study where you are given a how many ping pong balls can fit in a 747 to test analysis or more like an investment opportunity idea and you need to calculate back of envelope valuation, and put together a few powerpoint slides with sensitivities etc?

if you guys could post specific examples from interviews you had or took - that would be awesome for us !

please PM me if you do not want to post publicly - interview with mega fund coming up next week - help requested please!!!

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When I was interviewing, case studies were not like the ones given in consulting interviews. Luckily, I never had to do any 'on the spot' tests; i will let someone else speak to that. All my case studies gave me 3 or 4 days to complete.

Generally, they give you an overview: ABC Company has approached [Potential Firm] with the opportunity to invest in Business. They'll give you any basic operating assumptions and other tidbits. I was asked to build a model and write an investment memo that outlines the opportunity, returns, pros/cons of the deal, and investment decision. I did not have to present. I was allowed to use any and all resources available to me (market research, any rate spreads, comps, etc.) Obviously there is an honor code in place which should govern morally whether or not you get help from coworkers, etc.

 

I never had any "How many golf balls fit into a 747" type questions - it was always more like: "Should we invest in this company or not? And why?"

Typically they will give you:

-CIM/OM, or maybe an abbreviated version such as a short Executive Summary that's around 5-10 pages, describing the company, high-level financials, employees, products, market, etc.

-Sometimes they will give you filings or a more detailed operating model, but this is less common than just receiving a short document as described above.

-Usually they will just ask you to make a short 5-10 slide presentation on whether or not they should invest in the company.

-At mega-funds, it's more common to get "do this on the spot" type tests where you get a few hours to work on your own model and then show them something at the end. Smaller places tend to be more like, "Take a few days to a week to do this, and then present it to us."

Typically you want your presentation to consist of:

-Summary slide - do you invest, or not, and key reasons for/against

-Spend maybe 3-4 slides on valuation of the company, showing output from comps, DCF, and simple LBO model.

-Spend 2-3 slides justifying qualitative factors impacting the company / investment (market, competitors, management team, etc.)

-Conclusion slide re-stating what you did, saying whether or not you'd invest and at what valuation, and giving approximate 3-5 year IRR.

Tips:

-Lots of people make this way too complicated, which is a waste of time. Focus on the fundamentals and keep all models/valuations simple and get to the point rather than going on for pages about nothing.

-Always make sure you actually MAKE a decision. Don't do a, "Well, we would invest in this company but only if they hit projections..." type thing, just say, "Yes, invest at this price range" and just say you'd need to perform confirmatory DD as is standard with any deal.

-Don't over-crowd slides - have a max of 3 major points and/or diagrams/tables on each one, and use 80/20 if you're in doubt about what's important.

-Above all, make sure you clearly articulate your arguments - simplicity is key. Case studies are just as much about your communication skills as they are about your technical skills.

I would share examples but I don't have any of the PDFs with me at the moment as I'm traveling overseas.

 

How many pages of investment memorandum do people generally aim for a 4 hour test? Is there any outline that we should stick to?

also, has anyone done any credit investment case study test?

 

I had a case study interviewing for the debt fund I work at. We do mezz and mid-market lending (so similar analysis to being the sponsor in an LBO with somewhat different focus points.

My work product was only about 2 pages of memo (bullet points as well eating up space), the model was a much bigger focus. I was also grilled on how I would have structured the deal, how I viewed the covenant package, which tranche I felt had the best relative value, how I built my downside cases, etc.

I was asked a few brain-teasers earlier in the interview process as well.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

Vault has one...but that's light. there's another by Vault which focuses on PE andhedge fund together. That has good techinical questions (better than the private equity guide) at least.

 

PE case studies are usually always the same: It's usually a Paper LBO, that you then have to compute on the spot and come up with a yes or no investment decision based on the IRR you calculated.

I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player. Or nothing. See my Blog & AMA
 
Matrick:

PE case studies are usually always the same: It's usually a Paper LBO, that you then have to compute on the spot and come up with a yes or no investment decision based on the IRR you calculated.

That sounds nothing like any PE case study I've seen.

 

There are generally two types of case studies (at least what I have come across and what we do):

  1. Short-form: This is where you have a few hours to read and prepare your analysis for a short case study where you will get a bit of information on the company, industry and financials (i.e. 1-2 pager) - you build a quick high-level LBO model and then present your analysis (most of the time, you will have access to Excel but have also seen where you can only use pen & paper) + Q&A in a presentation to interviewers - this takes 1/2 day max in my experience

  2. Long-form: This is where you're given a company name and have a weekend to pull together a short (e.g. 10-page) presentation + LBO model on the opportunity - it generally is a public company so you can pull all the info yourself - deadline end of Sunday with a 1-hour presentation the following week

You can practice for either one by just picking a few companies you have read about in the news as potential buyout candidates or you are interested in and practice building a quick LBO model and do some brainstorming what your investment thesis would consist of and which risk factors / mitigants you can identify. You can also practice high-level industry analysis yourself by picking out a company and think about what you would say about the industry (e.g. overall market size, growth expectations, drivers, competition, positioning, etc.).

 

I can comment on US MM PE both pre-MBA and post-MBA (but not directly out of undergrad). I've seen or administered the following modeling tests:

1) Paper LBO. Flip over the resume, make up the assumptions on your own, calculate an IRR and ROIC. Very high level. 2) 30 minute "fill in the blanks" LBO. Make high level assumptions and complete the template on site during the interview process. 3) Take home LBO. I was given a CIM and told to prepare an LBO model and email it back. Completely up to me on how to construct and prepare it. 4) Merger model. One hour to merge two companies' financials to create pro forma financial statements and answer questions about the combined entity.

However, this is usually just one component of the interview. General the case study portion of the interview involves reading an offering memorandum and answering questions on the spot. Opportunities / Risks, would I invest, what questions to ask management, etc. Usually PE firms choose either a recent deal or an existing portfolio company to administer these case studies.

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CompBanker:

4) Merger model. One hour to merge two companies' financials to create pro forma financial statements and answer questions about the combined entity.

I have to correct myself: I also encountered this for a PE position straight out of undergrad. It was very high level though, and they mostly cared about Goodwill creation.

Also agree on the part in regards to using a recent deal the firm did or a portfolio company. Was the same for me everytime.

I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player. Or nothing. See my Blog & AMA
 

Thanks for your help CompBanker. I'm just starting off and have a few PE interviews lined up. Do you have any examples of how to do #1? I'm going through an in-depth LBO tutorial to prep for #2 and #3.

 

"full scale LBOs" usually take 2-3 hours yours will most likely be a paper lbo or a more general discussion around a hypothetical case / previous investment the fund did

 

it depends. they might give you a case and ask for a quick write up with some quick calculations (not a full lbo model). or it can be part of a discussion during the interview, e.g. we are looking to invest in x - what do you think?

 

Fair point I suppose. I left it out at the outset because it was somewhat complicated/lengthy, and given the amount of info I have, I would have just ended up doing AR/AP Days, Inventory as % of COGS, etc., which leads you to pretty much the same place as what I did - NWC as a percent of revenue.

 

Agree with above - do a full three statement model if you have 3 days and aren't in IB. I'm sure you can find the time.

Quickly looking at it, your income statement needs to be driven off assumptions (preferably with multiple scenarios) instead of hardcoded. Some formatting issues. Some of your formulas are overly complicated. For example, your paydown formulas should be a simple -min function instead of the convoluted if statements you have running. Doesn't look like you're discounting your cash flows in your IRR analysis. Haven't really looked at it in-depth though. Look at Macabacus for an example.

 

stvr - while I appreciate your "I'm sure you can find the time" snark, I'd appreciate EVEN MORE some real insight here. Your offer of vague pointers about "formatting issues" and advice when you "haven't looked at it in-depth" isn't terribly helpful. If you've don't like the formatting or something, please specify so it's, you know, helpful.

As you'll note above, I mentioned that I was planning on putting in operating scenarios, so I'm well aware of that shortcoming. As far as the debt pay down formulas go, take a look at M&I, they have a pretty helpful explanation - just using a Min function is too simple and doesn't work in all cases (http://bit.ly/K4w81T).

As far as discounting cash flows in the IRR, I'm not entirely sure I follow. This isn't a DCF. It takes the cash on cash return, then calcs the geometric growth rate needed to achieve that cash on cash return (which is IRR in effect). I'm willing to be told that I'm wrong, but I think that works exactly the way it's supposed to (presuming you' don't have any dividends or anything like that).

 

Agree with above user. I think your projected I/S lines should be driven off growth assumptions, you seem to have it the other way around (i.e. conforming growth numbers to line items growth).

People demand freedom of speech as a compensation for freedom of thought which they seldom use.
 

Thanks. Yeah those were just placeholders.

This is probably a stupid question, but I'm just venting now - how big of a sin is it if your B/S doesn't quite tie. I can't seem to figure out why mine isn't. I think part of my problem is that the data in the CIM wasn't quite complete.

So at this point, I'm faced with two unappetizing options: submit a model without a B/S (all the other things correctly accounted for - WC, CapEx, debt schedules, etc.) or send in a model with a fully integrate B/S that doesn't quite tie (think like .1% of assets off)

 

Wow. I'm just realizing how much I learned over the summer. Before the internship I wouldn't have understood a word of what you said in this post but at this point I almost feel confident enough to give you tips on your model. But I'll leave it up to the Certified Users to help you out.

 

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