Top 5 Skills Needed to Succeed in PE

Folks,

What do you think are top 5 skills that you need once you join as a Post MBA associate in a PE firm.

Definitions -

By PE I mean - LBOs, MBOs, PIPEs, Mezz, FoFs.

Success - Elevation from Associate to partner in 5 - 8 years.

Vicks.

Mod Note (Andy): #TBT Throwback Thursday - this was originally posted on 11/3/08.

Comments (16)

 
Nov 2, 2008 - 11:19am
  1. understand an industry well and be able to articulate potential investment ideas to the partners with clarity

  2. as an associate, don't mess up the numbers.

  3. understand how to structure deals and why - how much preferred, how much debt, etc and the tradeoffs for each structure

  4. Be able to talk with management teams intelligently about their business so they actually like you and dont think you're just trying to schmooze.

  5. Don't be afraid to source your own deals.

 
Aug 17, 2016 - 11:12am

WallStreetOasis.com:

1. understand an industry well and be able to articulate potential investment ideas to the partners with clarity

2. as an associate, don't mess up the numbers.

3. understand how to structure deals and why - how much preferred, how much debt, etc and the tradeoffs for each structure

4. Be able to talk with management teams intelligently about their business so they actually like you and dont think you're just trying to schmooze.

5. Don't be afraid to source your own deals.

Hey Patrick, any good books on structuring to recommend? Thanks!

 
Nov 2, 2008 - 8:41pm

studentx -- what a silly comment

Patrick, at the pre-MBA level, how much did you actually spend thinking about deal structures? Anyone else who's pre-MBA and doing PE, can you please comment? I find that although I do a fair amount of modeling and investment analysis, I'm not really asked to think about deal structures -- I'm sort of just told by the senior folks on the deal team what they're thinking about and why, and I have to implement that. I guess that's part of the learning process, but it's not like anyone comes to me and asks me to think about how I would structure a transaction. I'd be curious how this compares to the experiences of others on this board.

​* http://www.linkedin.com/in/numicareerconsulting
 
Nov 2, 2008 - 9:00pm

Hey aloki, different considerations for deal structure as follows:

1) How much debt can we get to help reduce our equity check and juice our returns... obvious downsides to overleverage must be taken into account

2) How much of NewCo do we have to issue to management? Are they a new team? 10% to 15% of the business in options? How many should strike at 1x the deal price (in the money day 1 theoretically) vs 2x the deal price?

3) What about the security we invest in NewCo? Are management options convertible to common and we own a convert preferred security? What about the liquidation preference on our preferreds? Is an 8% return required before common sees a penny?

A lot of these deal terms are set based on the place you work (certain firms prefer certain structures). The point is you want to get into as good a position in the capital structure to limit your downside and maximize your upside -- all while trying to keep your incentives aligned with management.

Does that answer some of your question?

-Patrick

 
Nov 2, 2008 - 9:20pm

numi:
studentx -- what a silly comment

Patrick, at the pre-MBA level, how much did you actually spend thinking about deal structures? Anyone else who's pre-MBA and doing PE, can you please comment? I find that although I do a fair amount of modeling and investment analysis, I'm not really asked to think about deal structures -- I'm sort of just told by the senior folks on the deal team what they're thinking about and why, and I have to implement that. I guess that's part of the learning process, but it's not like anyone comes to me and asks me to think about how I would structure a transaction. I'd be curious how this compares to the experiences of others on this board.

Hey numi, as a pre-mba I definitely did very little of the deal structure decisions for new deals based on the simple fact that we had a pretty standard set of terms we would go for...but there were some messed up capital structures on some of the old portfolio companies we owned. In those cases I was given a bit more flexibility to get creative.

On the new deals I was also responsible for negotiating the covenants with the banks...making sure that even under a downside case we could scrape by and that the way we were modeling the ratios matched up with the credit agreement, etc etc...not anything too fancy.

I did workon one deal that was extremely complex and required creative thinking from the whole team...My point really is that in order to be a great associate you should understand how these structures work and why you would want a,b and c over x,y and z. That way when you approach the more complex deals you might actually know something that adds value, especially when you're closest to the #s...

 
Nov 3, 2008 - 1:26am

This conversation is going great.

Being a great associate (rather an effective associate) is very important and your "perspectives" are superb. I mean I had a very basic idea of what skills are needed but (again) you brought in your perspective.

Let this thread blossom.

V

 
Nov 3, 2008 - 6:36am

say that you don't like PE or are not good at PE, what do people normally do? This is say for a post MBA role so business school is not an option.

I would think that going back to banking is a no-no and the only progression would be to a hedge fund?

Sorry to sound so general - I was thinking of someday making a transition to PE but wanted to hear from people within the industry...

 
Nov 3, 2008 - 11:56am

It honestly depends on what size firm you are joining. At a firm with a strict heirarchy, a post-MBA associate will probably get their hands on a little deal structuring, but will most likely just get more first stabs at alot of things like the investment memo. My friend works at a smaller firm in the midwest, and his post-MBA handles all the deal execution for all smaller tuck-in acquisitions on a day to day basis.

Like Patrick, some of the stuff that I find a little fascinating is the structure of the legal entities. Especially if the company is an LLC or not - whether they're issued units or options. If they're issued units, who of the management team (if any) gets to buy into the A units and what the waterfall is like for the management team, structuring the time/performance/exit incentives, etc.

I recently worked on forming a new LLC for one of our PC's because new management was replacing old management and without getting into too much detail I was left to work with our counsel on how to structure the pro-rata B-unit distribution to the new management team. I thought that was one of the more interesting things I've done since joining.

 
Nov 3, 2008 - 1:39pm

GameTheory,

Very cool. I also find the legal entity structure fascinating and have been involved in the creation of various structures including: LLCs, LPs, c corps, and even LuxCos. We recently consolidated several of our portfolio companies into a Limited Partnership holding company.

My group is very small, which has provided me with the opportunity to work on all aspects of several billion+ transactions from preliminary valuation work, legal/tax/audit, structure, management interviews, roadshows, and confirmatory due dili. So I agree that the size of the firm and the way that it is managed differs across firms. With that said, I do not think that there is a standard skill set that is easily defined. The most successful people I know in the industry have superb critical thinking skills, organizational/compartmentalization of information, and can present their views in a confident and concise manner.

 
Nov 3, 2008 - 1:48pm

WallStreetOasis.com -- thanks for sharing your feedback on your pre-MBA experiences. In your view, can you comment on what skills are most important or valuable at the pre-MBA level? The reason for my inquiry is because assuming that I decide to stay in PE post-MBA, I'd like to really zero in on the key skills that firms are going to look for during business school recruiting. A lot of what I do is industry research, financial modeling, analysis of data room documents (customers, SKU's, regional operations data, and stuff like that), and evaluating potential investment opportunities -- in fact, I would say that the vast majority of my responsibilities are in these areas. I participate on some calls with lenders and accountants occasionally, but not too often. My role is focused on transactions and I don't do any deal sourcing.

GameTheory -- you mention an interesting point about a strict hierarchy. I work at a larger middle-market firm, and to be frank, I feel like a lot of the senior folks have an idea as to what the pre-MBA responsibilities should entail (namely the research, modeling, analysis, and that stuff) and it's hard to break out of that. On one hand, I understand that in order to move up in the field, one has to learn by experience, but on the other hand, that's hard to do when the firm seems to have such a regimented structure. That being said, I definitely notice that one's deal team experience can vary greatly depending on who the partners and principals are on their team. That being said, have you found any particularly effective ways to take on new roles in your PE experience? What did you think were the most important factors in making your experience with a particular deal team good (or bad)? Just trying to look for ways where I can expand my role in a firm that has a pretty structured hierarchy, and it is tough sometimes.

​* http://www.linkedin.com/in/numicareerconsulting
 
Nov 3, 2008 - 1:56pm

numi, I think the pre-MBA skills are similar to what you develop in i-banking. strong analytical foundation with an ability to communicate clearly.

For starters, you need to have the foundation in financial modeling in order to run various deal structures and scenarios that the seniors demand. Once you have that down, what makes you a good pre-MBA associate is if you can self-motivate.

A tough part of the transition for many bankers in to PE is that you are given much more freedom in PE (typically). with that freedom, however, comes responsibility and the need to self-motivate. I know for me it was tough to jump from working 80-100hr weeks basically being told when I could go shit - to a culture where people in general left you alone for most of the day and if you didn't get your stuff done it was just on you.

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