Timed Modeling test
Hello, I have a 1.5 hour timed Modeling test coming up for a PE Associate role at a mega fund. Does anyone have tips on what can be expected? How to perform well? And how to prepare?
Thanks in advance!
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So 1.5h is theoretically enough to build 3-statement model (typically you get 2-2.5h for that - but i'd be prepared - make sure you can do consolidated BS quickly and know main adjustements such as goodwill calc, equity, etc - also you'll need to build quick CF statement) and an LBO - depends whether you will get prepopulated excel with the financials or you will have to type them from IM. There are also mechanics driven tests - you just need to get the model right and running, or valuation driven - your assumptions about price, revenue and EBITDA margin, capex and NWC will be challenged.
Start with a simple LBO and make sure you can do it with your eyes shut - you will have no time to remember the formula for revolver drawdown or debt cash sweep. Practice both LBO of a public and a private company. Learn to do it completely from scratch. Learn to incorporate base and downside case in addition to management case - management case typically will give you crazy valuation. Learn to quickly build sensitivy tables - make sure you know what you need to sensitize as you will have no time to decide. It's also worth to know what to do if you have operating cash requirement, management equity, NCI and associates (associate will increase equity check, NCI will distort EBITDA), off-balance sheet debt items, etc.
If you have more details from HH what type of modeling test more or less you have - I would share more detailed attack plan.But overall - technicals have to be rock solid and you have to have commercial sense on top of that to make a good call re operating model forecast and price you'd be willing to pay for that business.
great answer.Only question; what do you mean with "NCI distorting EBITDA".
If in a case, they have lets say 10 of NCI; this would be a rollover in the S&U as its a debt-like item and lowers equity proceeds.
Do you mean that EBITDA has to be adjusted for this income?
What i meant is that you compute your FCF as EBITDA less tax less interst less capex plus change in nwc - with this cashflow you repay your debt and use it for sweep, etc. But if you hold only 75% of the company but consolidate 100% - your EBITDA will contain extra 25% which are not really your cash flows and you can't repay debt with them
What are your “go-to” sensitivities? Exit multiple vs IRR?
Go to would be IRR (outcome) if you change entry and exit multuple, and the second one could be same but MoM as outcome.
im sure you read all the guides that say keep things simple so adding on to that - just be super organized. this helps when 1) you show the output to whoever reviews it and 2) you explain it without having time to prepare
also dont add more complicated stuff like an option plan that isnt just 10% of proceeds or a complicated liquidation preference
key is not making mistakes, thats it
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