What does Private Equity look at when buying a company?

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I faced this question in an interview with Private Equity. The interviewer told me that the answer is simple, what PE looks at when buying a company, just answer a term from 3 financial statements. Gosh!! I made a few guesses but all wrong.

Could anyone help and know the answer? I will have the second rd interview soon and he prefers me to know the answer next time.

Comments (11)

 
Aug 6, 2020 - 9:53pm

Steady cash flow is very important because private equity firms use a lot of leverage when buying companies (hence the term leveraged buyout). The cash flow is needed to pay down that debt. Another big aspect is good growth avenues. It can be difficult for PE firms to sell a company at a higher multiple than they paid for it, so they want to grow EBITDA as much as possible during the holding period to get a good return. There are a ton of things firms look for but I think these would be good answers for an interview

 
Aug 7, 2020 - 4:20pm

Would recommend buying a PE interview guide... this question is a softball compared to other questions you might get (though, not sure what level you're interviewing at).

"My name's Ralph Cox, and I'm from where ever's not gonna get me hit"
 
Aug 7, 2020 - 4:41pm

I thought you had already replied all the suggestions above and they were not what he was looking for..

If you wanna try to give a different one, I would say that a PE is looking for a company with a customer acquisition cost lower than the lifetime value of the said customer and that it is scalable. Or that a situation like that can be achieved with synergies from other companies in the portfolio.

What do you guys think ?

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