5/25/08

Private Equity Interview Questions and Tips

Private equity jobs are some of the most coveted positions in finance. That's why less than 1% of applicants end up with the job. This guide's goal is - if you follow its instructions - to drastically improve your odds from 1%, so you can land that private equity dream job.

What Will They Ask You?

You can expect these types of questions during your private equity interviews:

  • Fit Questions
  • Case Study
  • Deal Experience
  • LBO Modeling
  • Technical Questions
  • Behavioral Questions

Besides behavioral questions, every one of these types of questions can be prepared for. If you want to land the coveted position in private equity, then you better be ready to grind and prepare for all of these questions.

Private Equity Interview - Fit Questions

What makes you a good teammate? What are your strengths and weaknesses? Tell me about yourself. Walk me through your resume. Why private equity? All of these questions will pop up invariably as you go through your PE interview, so how do you ace them?

There are two aspects to answering these questions flawlessly. First - and this is something you should already be prepared for because of previous interview experience - know your story and tell it like a master bard. When they ask you about yourself, they're judging whether they would want to work with you. These questions hold serious weight; use them to make yourself a desirable coworker.

Second, have a few backup stories in mind. Stories that effectively portray you as a good teammate, a problem-solver, a go-getter. Have these stories and apply them to whatever the interviewer is asking you. These stories are really something you should do for every interview. Tell them with confidence, clarity, and relevance, and you'll be putting yourself in good territory.

PE Case Studies

In the large majority of your interviews, you will get asked to walk through a case study. So what is a case study? Here's a brief description from @TheKing.

While it varies from firm to firm, here's what it generally will look like. You get a copy of a CIM (Confidential Information Memorandum), usually from an old sell-side process that the PE firm took part in and are asked to throw together a basic LBO and write up a basic buy-side investment memo.

The fun of this sort of process is that the end product is often very much in your hands. In my interview process, I ended up going with a two-page memo that more or less condensed the important parts of the CIM, analyzed the pros / cons of the business, and included a SWOT analysis. While I went for brevity, I've also seen people throw together brief PowerPoint decks. If you aren't given a particular format, you can run with it in whatever way you think will be most effective.

So how do you ace this aspect of the interview? These are the six things you absolutely need to focus on while piecing together your case study, courtesy of @TheKing.

Remember, you're trying to determine whether or not the target company is a good candidate for a leveraged buyout. This means more than simply plugging management's numbers into an lbo model with basic debt assumptions (though that's also part of it). It means taking a holistic approach to analyzing the company. So, what are some of the main things you might want to focus on?

1.) Historical and projected growth and profitability - To ensure that the company will be able to handle the additional debt brought on through an LBO while also providing for a strong return on investment through growth in revenue and profitability.

2.) Diversity of customers / products - A company might have strong financials at first glance, but you'll want to make sure they aren't overly concentrated in one product area or with one customer. Customer concentration issues can be problematic, particularly if the business itself doesn't have specific technology or process advantages over its competitors. If there is any notable concentration, it had better be able to prove that it's got sticky customer relationships, so to speak.

3.) Differentiating factors of the business - This ties in with points 1 and 2. Does the target company have specific technology or processes that will enable them to continue to grow and maintain margins going forward, or are they susceptible to margin erosion as competition increases?

4.) Industry focus - Is the company in a growing industry? How will it handle potential economic turmoil? How well is the target positioned in its industry? Is it a leader? Note that leader doesn't necessarily mean that it has the most dominant market share; it could be a leader in a niche segment of its broader overall industry. What you don't want is to spend a lot of time and money finding out that you've invested in a modern day buggy whip business.

5.) Management - What's the management team like? Is it a founder-owned business? Has the team been together a long time? How built out is the team?

The strength of the management team is very important, and it plays a particularly important role in the middle market. Oftentimes, you'll look at companies with very thin management teams. Or companies with owners who are looking to cash out and take a smaller role in the company going forward. These cases allow a PE firm to potentially add value by placing solid professionals into management roles.

In several deals I worked on, the target companies' management teams were heavily bolstered in the months following closing. Building out management allows for a professionalization of an organization, enables it to better handle the rigors of PE ownership and debt management, and gives it the leadership it needs to achieve growth and profitability objectives.

6.) The Exit - A company can be an absolute cash cow, but you'll need to be able to exit the investment at some point over a reasonable time frame (generally five years) in order to generate a suitable return on investment for your investors. You'll want to have some ideas as to where suitable buyers might come from.

Is it a business that will likely be sold to another financial investor? Or perhaps the play is to grow the company and then sell it to a larger player in its industry. Obviously you won't be expected to tell the future, but you'll certainly want to have an evidence-based rationale for what you believe might happen. And saying "an investment banker will figure it out" doesn't count as an answer.

Now, reading a CIM will get you pretty far. You'll learn a great deal about the target company, its growth prospects, its industries, and its alleged upside potential. That's great and all, but let's not forget something. The CIM is a sales document. Bankers are paid big bucks to put together top notch marketing materials to get their clients a lot of dough in a sell-side process. So, while you can glean a ton of useful information from a careful read-through of a CIM, you'll also want to have something of a skeptical eye. Invariably, you'll have questions and concerns that you'd like to raise with management in the next round of the sell-side process.

What sorts of questions might you ask? It's tough to boil it down to a few solid questions on a generic basis, but let's give it a shot anyway. Here are some examples:

- What is the biggest challenge your company faces?
- Who are the most important members of your team and why?
- What are your company's pain points, and how can we help to address them?

This is a great time to come up with specific questions based upon issues you uncovered in your read-through of the CIM. Do they have concentration issues? Do you want to ask about specific patents they hold? Now is the time to ask those questions and cover those issues.

You've dissected the company. What comes after that? There are two more major features of the case study left. The first is the model. More info from @TheKing:

The Model

In my view, and the view of others I've worked with during the hiring process at my old PE firm, the importance of the model is not necessarily to ensure that you are an LBO kingpin. What's most important is that you can put together a competent model with reasonable assumptions. It's not about showing off with tons of bells and whistles; it's about using the information you have to create a reasonable LBO model and intelligently interpreting the results within the context of everything else you know about the target company.

You'd be shocked at how overly complicated people can make this portion of the case study. Don't over-think it. At the end of the day, you're not necessarily going to be hired because you are an Excel grunt. That's certainly part of it, but senior folks are going to also want to make sure that you understand the investment process on a holistic basis. Not simply the process of an LBO, but the rationale behind why you would or would not buyout a company. A great case study combined with solid interviews and a decent understanding of the technical aspects of leveraged buyouts are the keys to successfully navigating a private equity interview process.

Last, state your opinion. Here's why this last part is so important, from @rufiolove.

Yeah, just to piggy back off of what Stringer said and the excellent post by TheKing, make sure that you actually make a decision based on the analysis. I have had friends who built great models but didn't come right out and provide their opinion. As a result, they didn't get offers for those processes.

Have conviction, and come right out and say, "I would invest in this company," or "You shouldn't invest." Then state your case, "The projected returns are attractive (IRR is X%). They have X% market share, profitability, and growth prospects, and based on the analysis, I see value creation opportunity during the defined investment horizon."

It makes sense to note that there are some potential risks because obviously no deal is a pure slam dunk with no considerations, but don't be wishy washy. You need to make a call and support that call with your findings.

That's the case study. If you skipped all of the above and came down here looking for a cute summary, it's not happening. All of this information is absolutely crucial in nailing the case study for your PE interview. If you're looking to practice case studies, here are your options:

  • Use the WSO search function to find some free case studies. Solutions aren't necessarily included in all of them. Here's an example.
  • Purchase the WallStreetOasis Private Equity Interview Guide. More on what that guide contains later, but here are some anecdotes from our users on its value: (1 and 2).
  • Use Google to find free case studies.
  • Use other resources. We recommend seriously weighing this option against the WSO guide as we feel we have the absolute best resource for PE interview prep out there.

Regardless of the option, the most important thing is that you practice them like mad.

Private Equity Interview - Deal Experience

You should be preparing for this ahead of the interview. Here's how from @Candor.

Read websites/articles about your deal and take notes. Read initiating coverage reports on the two companies involved in one of your deals. Read comprehensive research reports on the sub industry that the companies are from. Understand everything there is to know about the business models.

On the importance of deal experience, here's @Candor again.

The single most important part of your interviewing experience with PE firms will be your deal experience. I would say a solid 30% of every single interview I had was spent talking about my deal in depth. If you don't have an announced M&A deal on your resume, or you don't have an unannounced deal you feel comfortable talking about on a very granular level, I don't see what you would talk about in your interviews.

I was incredibly fortunate to have a $1-2bn sell-side on my resume that got announced two months before everything started (conveniently, right when I met with the headhunters). I think it was the single most important factor in me landing the interviews (and ultimately the jobs) that I received. If I hadn't had an announced M&A deal on my resume, I likely would have waited until next year to go through the process.

@Candor had one more piece of advice that we think is massively helpful in preparation for your interviews. Here are what he considers the three most important things to prepare for in anticipation of your PE interviews.

I will say that the three biggest areas to focus on are, first and foremost, the deals on your resume, secondly understanding everything there is to know about an LBO (on a theoretical and conceptual level), and third, being able to walk through paper lbos/case studies. In some of my interviews, we got REALLY granular into my deal experience, and it was good that I had prepped so thoroughly. So, you have to know everything about them.

Deal experience makes up roughly a third of the interview process, so preparation is crucial. Read about your deal and understand every facet of it, in order to best prepare yourself for when the questions inevitably come.

PE interview Questions - LBO Modeling and Technical Questions

We squeezed these two parts of PE interviews into one section because there's not much to talk about for LBOs. Practice makes perfect. By the time those interviews roll out, you should be able to build an LBO from scratch. Check out the WallStreetOasis video library to practice LBO cases. If you don't want to pay for access to case studies, here's how you can do them on your own from @CHItizen.

Get a blank sheet of Excel (worth noting you might not have access to macros), pick a relatively simple (in terms of financials) public company, grab the 10-k and a research report, and build an LBO from scratch. Once you can do it competently in under 90 minutes, you should be ready for the vast majority of modeling tests.

For technical questions, most websites will offer you their prep programs - and we will, too - but we can say with 100% confidence that ours is the best. Due to the nature of this website, we've fine tuned our private equity interview guide with hundreds of professionals to produce the absolute best package for you. Not only that, but you also get access to the WallStreetOasis video library (which has more than enough case studies for you to practice) and the WallStreetOasis Company Database (which contains comprehensive information such as salaries, reviews, benefits, etc. on virtually every financial institution in America). That's all in addition to the case studies, technical questions, and industry knowledge the guide has to offer.

Remember, less than 1% of applicants get the job in private equity. The value of this prep guide is insane. You'll be making $200k when you first land a job in private equity and setting yourself up for millions down the road. For $299, you can use the PE interview guide to make yourself the ideal candidate for the job. This isn't something you can learn on the fly. If you fudge up the technicals, then there are twenty other candidates licking their chops because that sets you way back. Use this guide and prepare for everything else mentioned in this article, and you'll be ahead of the large majority of applicants.

Private Equity Interview Do's and Don'ts

Here are some things to keep in mind as you go about your interviews from @TheKing.

So, let's go through three Do's for PE interviews:

1.) If you put something to paper, be prepared to speak to it intelligently:
This might sound obvious, but you'd be surprised how often I've interviewed someone who has seemingly exaggerated something on their resume or simply was not able to articulate something they listed. Hell, I had this happen to me at some point in my interviewing days.

Obviously, there is a great deal of pressure to have a primo resume. But you have to be able to speak to all of it. Now I'm not saying that you're going to get grilled on something from your "Relevant Courses" section, but you'd better be able to speak to each one of the deals you list.

If you worked on a $500 million sell-side process, be prepared to discuss it in detail. What did the company do? Were financial buyers interested in it? Why or why not? Is it similar to any of the businesses the firm you are interviewing with owns? Be ready to dive into the details of the companies involved, the outcome of the deal, and the role you played in it. The last thing you want is to be asked about a transaction you worked on and not have a handle on the details. It comes off as sloppy, unprepared, and makes you seem like you aren't as good as you presented yourself on paper.

Being prepared to discuss anything you put to paper also goes for your Case Study. If you were asked to prepare a case study in advance of your superday, you'd better understand it inside and out. You'll want to be able to walk someone through your analysis intelligently, and you'll want to frame your arguments from the perspective of a private equity investor. This means using your analysis and coming to a conclusion and being ready to defend your conclusion.

2.) Know your audience:

You should be reasonably well-studied on the firm you're interviewing with. Try to have an understanding of the types of companies they invest in and their investment style. Do they only invest in traditional buyouts? Perhaps they focus on founder-owned companies. Maybe they mix things up with a blend of equity and mezzanine investments.

This might sound obvious, but being able to speak intelligently about the company you're meeting with goes a long way. Ideally, you'll be able to tie some aspect of your work experience and interests to the fund's investment style and firm culture. When your competition is stiff, you've got to find a way to create a competitive advantage for yourself. Assuming you hit all the technical aspects correctly, showing the firm that you understand their investment style and can relate to it in some tangible way, either through work experience or personal interests, can go a long way towards helping you secure an offer.

3.) Be prepared to ask questions:

This isn't necessarily PE specific, as you should have some solid questions ready for any interview you go on. But intelligent questions can lead to meaningful discussion and can show that you have a grasp of both private equity in general and the firm you are interviewing with. Good interviews always function as more of a dialogue than an interrogation, so prepare a set of questions that can lead to solid discussion. While it's always easy to ask about a person's background and why they joined the firm, it's great to also be ready to ask them about specific companies in the portfolio. Read up ahead of time, and try to dive into the firm's rationale for a specific investment.

While you want to have a set of meaningful questions, be sure that they aren't too pointed. The last thing you want is to make your interviewer feel like you're interviewing them, and not the other way around. That's a sure-fire way to get someone to dislike you.

Now that we've covered a few major Do's of PE interviews, how about we take a look at a few Don'ts?

1.) Don't be arrogant:

Sounds obvious, right? Well, again, you'd be surprised. When PE interviews start rolling in and you know you've got a pretty strong resume, your head can get pretty big. That kind of attitude can really seep out in an interview. As impressive as your work experience is to date, you've still got, at most, three years of Analyst work under your belt. A big head can get you dinged in a hurry.

You want to be confident, not arrogant. Self-assured, not full of yourself.

2.) Be friendly, but not too friendly:

Having a friendly, but firm, demeanor is obvious. What you don't want to do is be too friendly. Allow me to illustrate what I mean with an example:

When my old firm was interviewing for a new batch of pre-MBA Associates, there were a plethora of great candidates. One sticks out in my mind for all the wrong reasons. He had to fly to our offices, so he ended up arriving pretty early. Not a big deal, until he decided it would be okay to try and hang out with me and the other Associate. I mean, quite literally, walking into my office, sitting down in a chair, and attempting to both shoot the breeze and dig for intel on the firm.

Now, if this were a bar and someone simply wanted to make conversation, that would be fine. But this was the morning of his interview and I had more than enough work to do. Last thing I needed was to delay working on a model to entertain a candidate. He eventually took the hint and went off to his waiting area.

After the interviews were finished, he decided to swing by my office again. Now, dropping by to say, "Thanks again. Have a great day!" is one thing. But he stopped by to start asking me about what I was working on and to spend more time shooting the breeze. I'm not trying to sound like some sort of tyrant, but it's pretty inappropriate to try to befriend a member of the firm you're interviewing with on the day of interviews and act buddy-buddy with them. Like I said earlier, Associates have plenty of work to do and trying to be their pal isn't going to help qualify you for the job.

3.) Do not piss off the admin staff:

Think of the admins as the gate keepers. They of course won't interview you directly, but if they don't like you, you're probably screwed. Frankly, this shouldn't be hard. Assuming you are a relatively normal person, you'll manage just fine. But, again, you'll be surprised by the types of things people will do. For example:

Another candidate that interviewed at my old fund made himself far too comfortable in the office. Seeing as it was a superday, the candidates were given lunch. They ate in the kitchen and got to spend some more casual time with members of the firm, including some of the admin staff. One of the admins offered to make coffee if any of the prospects wanted a cup. Rather than give a simple "yes, please" or "no, but thank you," one of the candidates decided to say "no" and proceeded to go off on a semi-rant about the quality of the kitchen equipment. Just a string of strange comments knocking the coffee maker and the toaster. I suppose he was trying to be funny, but it just seemed really odd. The admins thought it was weird, too, and that story circulated to the rest of the office. So, when we were talking about him later, he became the "coffee maker guy." You don't want to be the coffee maker guy.

It seems so simple. Just be nice and make friendly conversation, but I suppose nerves can lead to the insertion of feet in mouths.

Original Thread - PE Interview List of Technical Questions

Hi guys,

I have an interview next week in a PE shop in Europe (France), and I would like to know what kind of technical questions I should expect. I already searched in this forum, but it appears to me that there is no good topic for PE interviews questions. (If I am wrong, just tell me!)

Perhaps this thread could be a "unique" thread for PE interview questions, as it is done in other forums. This could save time to everybody.

Thanks in advance for all your answers ! I will post the summary of my interview next week. :)

Interested in Private Equity - Here's What You Need to Break In

Private equity recruiting is ten times more cut-throat than anything you've ever experienced before. If you want to break into private equity, you need to be well-practiced in the technical aspects of the interview. The package is worth well more than the $299 price; the job prospects you set yourself up for are worth far more than $299.

PE Interview Course Here

Comments (5)

5/25/08

I had a recent an interview for a relatively large PE fund (think First Reserve or Hellman Friedman) and I received - for the most part - pretty easy questions. The questions that I kept getting were ones that they used to judge your technical skill; they were "Walk me through a few deals you worked on...your role, how did you model the deal, what were the expected synergies etc..." They also wanted some of the figures(7x EBITDA or 2.5 Price/Book ratio)and the kind of terms you had in the deal (did you use PIK toggles?).

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5/25/08

No one asked me any technicals during PE interviews -- but I am a consultant so YMMV. Typical questions were more around the cases I had worked on. i.e. 'How do companies in X industry make money?'

5/25/08

I'm not in the industry, but for guys in groups that have limited to no LBO modeling exposure, can they still interview at PE firms? Do most firms test you on your modeling skills?

8/6/08

I was asked to expand upon the questions I saw as a consultant interviewing at top middle market shops. I would say 90% of the questions were one of the following:

-Why PE?
-Investment-focused cases (a lot like consulting case interviews, but more along the lines of 'How would you think about investing in company X?)
-Walk me through your resume
-Tell me about case X you worked on
-Tell me how companies make money in X industry (where X is an industry I had a lot of experience in)
-Do you think there are any opportunities for investment in industry X? What are they?

-When can you start?
-Are you sure you want to move to city X?

11/30/08

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