private equity interview case study

Private Equity Case Study: Example, Prompts, & Presentation

Private equity case studies are an important part of the private equity recruiting process because they allow firms to evaluate a candidate’s analytical, investing, and presentation abilities. 

In this article, we’ll look at the various types of private equity case studies and offer advice on how to prepare for them. 

This guide will help you ace your next private equity case study, whether you’re a seasoned analyst or new to the field.

Types Of Private Equity Case Studies

Case studies are very common in private equity interviews, and they are a key part of the overall recruiting process.

While you’re extremely likely to encounter a case study of some kind during your recruiting process, there is considerable variety in the types of case studies you might face.

Below I cover the major types:

Take-home assignment

In-person lbo modeling assignment.

For this case study, you’ll get some company information (e.g. a 10-K or a CIM) and be asked to assess whether or not you’re likely to invest. 

Generally, you’ll get between 2-7 days to prepare a full presentation or investment memo with your recommendations that you’ll present to the interviewer.  To support your investment recommendation, you’ll be expected to complete a full LBO model .  The prompt may give certain details or assumptions to include in the model.

This type of test is most common during “off-cycle” hiring throughout the year, since firms have more time to allow you to complete the assignment. 

This is pretty similar to the take-home assignment. You’re given company materials, will build a financial model, and decide whether you would invest. 

The difference here is the time you’re given to complete the case. You’ll generally get between two to three hours, and you’ll typically complete the case study in the firm’s office, though some firms are becoming newly open to completing the assignment remotely. 

In this case, you’ll typically only complete an LBO model. There is usually no presentation or investment memo. Rather, you’ll do the model and then have a short discussion afterward. 

This is a shorter, more condensed version of an LBO model. You can complete a paper LBO with a piece of paper and a pen. Alternatively, you may be asked to discuss it verbally with the interviewer. 

Rather than using an Excel spreadsheet, you use an actual sheet of paper to show your calculations. You don’t go into all the detail but focus on the essence of the model instead. 

In this article, we’ll be focusing on the first two types of case studies because they are the most widely used. But if you’re interested, here is a deep dive on Paper LBOs . 

Private Equity Case Study Prompt

Regardless of the type of case study you’re asked to do, the prompt from the interviewer will ultimately ask you to answer: “would you invest in this company?”

To answer this question you’ll need to take on the provided materials about the company and complete a leveraged buyout model to determine whether there is a high enough return. Generally, this is 20% or higher. 

Usually, prompts also provide you with certain assumptions that you can use to build your LBO model. For example:

• Pro forma capital structure
• Financial assumptions
• Acquisition and exit multiples

Some private equity firms provide you with the Excel template needed for an LBO model, while others prefer you to make one from scratch. So be ready to do that. 

Private Equity Case Study Presentation

As you’ve seen above, if you get a take-home assignment as a case study, there’s a good chance you’re going to have to present your investment memo in the interview. 

There will usually be one or two people from the firm present for your presentation. 

Each PE firm has a different interview process, some may expect you to present first and then ask questions, or the other way around. Either way, be prepared for questions. The questions are where you can stand out!

While private equity recruitment is there to assess your skills, it’s not all about your findings or what your model says. The interviewers are also looking at your communication skills and whether you have strong attention to detail. 

Remember, in the private equity interview process, no detail is too small. So, the more you provide, the better. 

How To Do A Private Equity Case Study

Let’s look at the step-by-step process of completing a case study for the private equity recruitment process:

• Step 1: Read and digest the material you’ve been given. Read through the materials extensively and get an understanding of the company. 
• Step 2: Build a basic LBO model. I recommend using the ASBICIR method (Assumptions, Sources & Uses, Balance Sheet, Income Statement, Cash Flow Statement, Interest Expense, and Returns). You can follow these steps to build any model. 
• Step 3: Build advanced LBO model features, if the prompts call for it, you can jump to any advanced features. Of course, you want to get through the entire model, but your number 1 priority is to finish the core financial model. If you’re running out of time, I would skip or reduce time on advanced features.
• Step 4: Take a step back and form your “investment view”. I would try to answer these questions:
• What assumptions need to be present for this to be a good deal?
• Under what circumstances would you do the deal? 
• What is the biggest risk in the deal? (e.g. valuation, growth, and margins). 
• What is the biggest driver of returns in the deal? (e.g. valuation, growth, and debt paydown).

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How To Succeed In A Private Equity Case Study

Here are a few of my tips for getting through the private equity fund case study successfully. 

Get the basics down first

It’s very easy to want to jump into the more complex things first. If you go in and they start asking you to complete complex LBO modeling features like PIK preferred equity, getting to that might be on the top of your list. 

But I recommend taking a step back and starting with the fundamentals. Get that out the way before moving on to the complicated stuff. 

The fundamentals ground you, getting you through the things you know you can do easily. It also gives you time to really think about those complex ideas. 

Show nuanced investment judgment; don’t be too black-and-white

When giving your investment recommendation for a private equity fund you shouldn’t be giving a simple yes or no. 

It’s boring and gives you no space to elaborate. Instead, go in with what price would make you interested in investing and why. Don’t be shy to dig in here. 

Know where there is a value-creation opportunity in the deal, and mention the key assumptions you need to believe to create that value.

Additionally, if you are recommending that the investment move forward then bring up things you would want to know before closing a deal. You can highlight the key risks of the investment, or key things you’d want to ask management if you could meet with them. 

At the end of the day, financial modeling is a commodity skill.  Every investor can do it.  What will really set you apart is how you think about the deals, and the nuance you bring to analyzing them. 

You win by talking about the model

Along those lines, you don’t win by building the best model. Modeling is just a check-the-box thing in the interview process to show you can do it. The interviewers need to know you can do the basics with no glaring errors. 

What matters is showing that you can discuss the investment intelligently. It’s about bringing a sensible recommendation to the table with the information to back it up. 

Common Pitfalls in Private Equity Case Studies

• Overlooking Capital Structure Impacts: Simply applying a standard debt-to-equity ratio without testing variations can misrepresent potential outcomes. Dive deep into how different financing structures affect IRR, cash flows, and covenants. Highlighting the effects of high leverage or under-leveraging can differentiate your analysis.
• Misjudging Operational Improvements: Assumptions about efficiency gains must be grounded in the company’s historical performance and industry benchmarks. Avoid blanket assumptions of margin improvements without a credible path—like specific cost-cutting measures or operational synergies.
• Underestimating Exit Strategy Complexity: Instead of using generic exit multiples, tailor your exit assumptions to the company’s industry, growth trajectory, and market conditions. Discuss alternative exit scenarios such as strategic sales vs. IPOs, and their respective implications on the investment outcome.
• Missing Contextual Factors: Don’t ignore macroeconomic trends, such as interest rate changes, supply chain issues, or geopolitical risks that could impact the investment. Layer these elements into your financial model to show how external factors can affect your thesis.
• Insufficient Sensitivity Analysis: A frequent pitfall is the lack of robust sensitivity analysis on key variables like revenue growth, EBITDA margins, or exit multiples. Use sensitivity tables and tornado charts to illustrate how changes in these inputs affect returns, demonstrating a thorough risk assessment.
• Inadequate Focus on Management Quality: While financials are crucial, the quality and track record of management can make or break an investment. Evaluate management’s past performance, alignment of incentives, and ability to execute the proposed business plan.
• Ignoring Post-Acquisition Integration Risks: Highlight potential integration challenges if the target will be merged with another entity. Consider cultural fit, systems integration, and execution risks that could impact the realization of expected synergies.

How Do I Prepare For A Private Equity Case Study?

There is no one-size-fits-all when it comes to preparing for a private equity case study. Everyone is different. 

However, the best thing you can do is PRACTICE, PRACTICE, and more PRACTICE!

I know of a recent client that successfully obtained an offer from multiple mega funds . She practiced until she was able to build 10 LBO models from scratch without any errors or help … yes, that’s 10 models! 

Now, whether it takes 5 or 20 practice case studies doesn’t matter. The whole point is to get to a stage where you feel confident enough to do an LBO model quickly while under pressure. 

There is no way around the pressure in a private equity interview. The heat will be on. So, you need to prepare yourself for that. You need to feel confident in yourself and your capabilities. 

You’d be surprised how pressure can leave you stumped for an answer to a question that you definitely know.

It’s also a good idea to think about the types of questions the private equity interviewer might ask you about your investment proposal. Prepare your answers as far as possible. It’s important that you stick to your guns too when the situation calls for it, because interviewers may push back on your answers to see how you react.. 

You need to have your answer to “would you invest in this company?” ready, and also how you got to that answer (and what new information might change your mind).   

Another thing that gets a lot of people is limited time.  If you’re running out of time, double down on the fundamentals or the core part of the model.  Make sure you nail those.  Also, you can make “reasonable” assumptions if there’s information you wish you had, but don’t have access to. Just make sure to flag it to your interviewer.

 Private Equity Case Study Success Checklist

Objectives & Data:

• Have you clarified the main objective and key data from the prompt?
• Have you identified any missing information and assumptions you need to make?

Financial Modeling:

• Is your financial model accurate, and have you verified key inputs and calculations?
• Have you stress-tested the model with various scenarios?

Value Drivers & Risks:

• Have you pinpointed key value drivers and their impact on returns?
• Have you identified all relevant risks and outlined realistic mitigation strategies?

Investment Thesis:

• Can you clearly state your investment recommendation with strong evidence?
• Have you considered alternative scenarios or deal structures?

Presentation & Q&A:

• Have you rehearsed your presentation for clarity and logical flow?
• Are you prepared with answers to potential follow-up questions and challenges?

Final Review:

• Have you double-checked your model, assumptions, and presentation for consistency?
• Have you incorporated feedback from mock presentations or peers?

Common Private Equity Case Study Interview Questions

Private equity case study interviews often include a mix of technical, behavioral, and strategic questions to assess your analytical skills and investment judgment. Here are some common questions and tips on how to respond:

1. “Would you invest in this company?” Strategy: Go beyond a simple yes or no. Outline your investment rationale, key drivers of value, and potential risks. Support your answer with data from your LBO model or qualitative analysis.

2. “What are the key risks in this investment?” Strategy: Identify specific risks, such as market competition or execution challenges, and discuss how they might impact returns. Suggest mitigation strategies to show proactive risk management.

3. “How did you arrive at your valuation?” Strategy: Walk the interviewer through your valuation approach, whether it’s based on comparable company analysis, precedent transactions, or DCF. Highlight key assumptions and justify why they are reasonable.

4. “What would you ask management if you could?” Strategy: Focus on questions that address gaps in your analysis, such as details on future strategy, potential operational improvements, or unexplored risks. This shows critical thinking and thorough due diligence.

5. “What could go wrong with your investment thesis?” Strategy: Discuss potential downside scenarios and stress-test your assumptions. This shows your ability to anticipate challenges and adapt your investment approach accordingly.

Comparison of Private Equity Case Studies by Firm

Private equity case study expectations can vary significantly among major firms, influencing how you should prepare:

• Mega Funds (e.g., Blackstone, KKR): Expect highly detailed financial modeling with a focus on complex LBOs. They often test your ability to handle large datasets and require deep insights into market dynamics.
• Mid-Market Firms (e.g., TPG, Advent International): These firms prioritize a balanced approach between modeling and strategic thinking. Be prepared to discuss operational improvements and industry-specific insights.
• Growth Equity Firms (e.g., Insight Partners, General Atlantic): Expect a stronger focus on growth potential and market expansion strategies. Your case study may involve less leverage and more emphasis on scalability and product-market fit.
• Distressed/Turnaround Firms (e.g., Apollo Global Management, Oaktree Capital): Be ready to assess high-risk situations, including complex capital structures and turnaround strategies. You’ll need to demonstrate a strong understanding of restructuring scenarios.
• Sector-Specific Firms (e.g., Thoma Bravo in tech, Warburg Pincus in healthcare): Tailor your preparation to the firm’s specialization. Show expertise in industry-specific metrics and dynamics, and be prepared to discuss how macro trends affect the investment thesis.

How important is modeling in a private equity case study? 

Modeling is part and parcel of private equity case studies. Your basics need to be correct and there should be no obvious mistakes. That’s why practicing is so important. You want to focus on the presentation, but your calculations need to be correct first. They do, after all, make up your final decision. 

How can I stand out from other candidates? 

Knowing your stuff covers the basics. To stand out, you need to be an expert in showing how you came to a decision, a stickler for details, and inquisitive. Anyone can do the calculations with practice, but someone who thinks clearly and brings nuance to their discussion of the investment will thrive in interviews. 

Private equity case studies are a difficult but necessary part of the private equity recruiting process . Candidates can demonstrate their analytical abilities and impress potential employers by understanding the various types of case studies and how to approach them. 

Success in private equity case studies necessitates both technical and soft skills, from analyzing financial statements to discussing the investment case with your interviewer. 

Anyone can ace their next private equity case study and land their dream job in the private equity industry with the right preparation and mindset. If you’re looking to learn more about private equity, you can read my recommended Private Equity Books.

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Hacking the Case Interview

If you have an upcoming private equity case interview and are feeling stressed, overwhelmed, or unsure of what to do, we have you covered.

Private equity case interviews are a common type of case given in consulting interviews in addition to market entry case interviews , growth strategy case interviews , M&A case interviews , pricing case interviews , operations case interviews , and marketing case interviews .

Fortunately, private equity case interviews are fairly straight forward. They are very predictable and all cases generally follow the same steps to solve.

In this comprehensive article we’ll cover:

• What is a private equity case interview?
• Why do consulting firms give private equity case interviews?
• How to solve a private equity case interview
• Private equity case interview framework
• Private equity case interview examples
• Private equity case interview vs. M&A case interview
• Recommended private equity case interview resources

If you’re looking for a step-by-step shortcut to learn case interviews quickly, enroll in our case interview course . These insider strategies from a former Bain interviewer helped 30,000+ land consulting offers while saving hundreds of hours of prep time.

What is a Private Equity Case Interview?

A private equity case interview situates you in a business situation where you are helping a private equity firm decide whether or not to acquire a company to add to their portfolio.

For those that are unfamiliar with what private equity is, private equity firms are investment management companies that specialize in making investments in privately held companies or in public companies that they plan to take private.

This type of investment is called private equity because it involves investments made in privately held companies in contrast to publicly traded companies, which have shares that can be traded on public stock exchanges. However, private equity firms can also buy out a public company and take that company private.

Private equity firms raise capital from investors, including pension funds, endowments, and high-net worth individuals.

These private equity firms then identify potential companies to acquire or invest in, performing a thorough due diligence to ensure that the investments they make are attractive and will generate a high return on investment for their investors.

In a private equity case interview, you will be conducting a due diligence on a company that has been identified as a potential acquisition target.

The value that private equity firms provide include:

• Providing capital to companies that need funding for growth and expansion
• Bringing expertise and resources to help improve operational efficiency
• Providing strategic guidance and advice for business strategy and market positioning
• Providing access to an extensive network of industry contacts, potential customers, suppliers, distributers, retailers, and other stakeholders
• Using financial engineering techniques to optimize capital structure, including restructuring debt, recapitalizing the company, or implementing tax-efficient strategies

Why do Consulting Firms Give Private Equity Case Interviews?

Consulting firms give private equity case interviews because they closely simulate what private equity work at the firm looks like. If candidates can do well on a private equity case interview, they’ll likely succeed doing private equity due diligences for actual clients.

Case interviews in general are a way for consulting firms to assess whether candidates have the skills and capabilities to succeed in consulting.

In just a 30 to 45-minute case interview, interviewers can assess a variety of different skills that are critical to management consulting. Skills assessed in a case interview include:

Logical and structured thinking : Consultants need to be organized and methodical in order to work efficiently.

• Can you structure complex problems in a clear, simple way?
• Can you take tremendous amounts of information and data and identify the most important points?
• Can you use logic and reason to make appropriate conclusions?

Analytical problem solving : Consultants work with a tremendous amount of data and information in order to develop recommendations to complex problems.

• Can you read and interpret data well?
• Can you perform math computations smoothly and accurately?
• Can you conduct the right analyses to draw the right conclusions?

Business acumen : A strong business instinct helps consultants make the right decisions and develop the right recommendations.

• Do you have a basic understanding of fundamental business concepts?
• Do your conclusions and recommendations make sense from a business perspective?

Communication skills : Consultants need strong communication skills to collaborate with teammates and clients effectively.

• Can you communicate in a clear, concise way?
• Are you articulate in what you are saying?

Personality and cultural fit : Consultants spend a lot of time working closely in small teams. Having a personality and attitude that fits with the team makes the whole team work better together.

• Are you coachable and easy to work with?
• Are you pleasant to be around?

Consulting firms typically charge anywhere from 20-50% higher rates for private equity work compared to other types of consulting work. Therefore, consulting firms are always trying to sell more private equity work and really value candidates that show the potential to do private equity diligences.

Showing competency during a private equity case interview will make you a highly attractive candidate.

How to Solve a Private Equity Case interview

Although the exact industry or company that you will do a due diligence on during a private equity case interview will vary, all private equity cases typically follow the same five steps.

Once you have done a few private equity cases, you’ll quickly notice this pattern and be able to take your learnings from your previous cases and apply them to future private equity case interviews.

1. Understand the goal of the acquisition

The first step of any private equity case interview is to understand what is the goal of the acquisition. Only once you understand the goal or objective can you start to evaluate whether the acquisition or investment makes sense.

There are a number of different reasons why a private equity firm may want to acquire or invest in a company:

• Potential for growth : Private equity firms may target companies that have strong growth potential, including the potential to expand into new markets, introduce new products or services, or for increasing market share in existing markets
• Operational improvement : Private equity firms often specialize in operational optimization and efficiency. They may target companies with underperforming operations or inefficient processes to implement changes to improve profitability and performance
• Strategic fit : Private equity firms may pursue investments that align with their overall investment thesis or strategic objectives. This includes investing in companies that complement their existing portfolio holdings or fill a gap in industry coverage
• Turnaround opportunities : Private equity firms may also specialize in turning around distressed companies that are facing significant financial challenges or difficulties. They may see an opportunity to acquire a distressed company at a heavily discounted price
• Market timing : Private equity firms may also opportunistically invest in companies based on market conditions, lower than average valuation multiples, or industry trends. They may see attractive opportunities during periods of economic downturns or industry consolidation

2. Create a framework

The next step to solving a private equity case interview is to create a framework to guide your due diligence.

A case interview framework is a tool that helps you structure and break down complex problems into smaller, simpler components. You can think of a framework as brainstorming different ideas and organizing them into different, neat categories.

Instead of answering the overall question of whether the acquisition should be made, a framework can break up this large question into a few smaller, more manageable ones:

• Is the market that the acquisition target in attractive?
• How does the company perform relative to its competitors?
• Does the private equity firm have the skills or expertise to improve or turn around this company?
• Are there synergies that can be realized from this acquisition with other companies in the private equity firm’s portfolio?
• What are the major risks of this investment?
• What is the expected return on investment?

As you can see, using a framework helps you break down an ambiguous and daunting due diligence task into several more manageable steps.

3. Develop a hypothesis

Once you have developed a great framework to help you solve the private equity case, the next step is to develop a case interview hypothesis .

Based on the limited information that you have, what is your preliminary hypothesis on whether the company should be acquired?

Hypotheses are used in case interviews, as well as in consulting, because they are a very efficient way to solve problems. A hypothesis helps you focus your attention on the issues that matter most in developing a recommendation.

Many candidates find it challenging and intimidating to develop an initial hypothesis with very limited information. However, don’t be discouraged from this.

Know that it is completely acceptable for your initial hypothesis to be wrong.

Remember, the goal of coming up with an initial hypothesis is to help guide your analysis and discussion towards the right direction. You can think of your hypothesis as a strawman that you will either build support for or reject.

Your hypothesis will help you decide on an area of your framework to tackle first.

4. Build support for a recommendation

Now that you have a hypothesis for your private equity case interview, it is time to start building support for it or rejecting it.

As with any other type of case interview, you’ll likely need to do both case math as well as have qualitative discussions with the interviewer to discover more information and uncover key insights.

It is important that throughout the case, you are keeping track of all of the new information presented to you. It will be especially important to keep track of the major insights or key takeaways from each question that the interviewer asks you.

Keeping track of the major insights or key takeaways will make it significantly easier to develop a final recommendation at the end of the private equity case interview.

5. Deliver a recommendation

The last step in a private equity case interview is to develop a recommendation and present it to the interviewer.

Developing an ultimate recommendation is difficult because it requires you to review all of the work that you have done so far in the case interview and synthesize and distill all of it into just the most important points or takeaways.

You’ll also likely need to exercise business judgment to determine whether you should recommend acquiring the company or passing on the investment opportunity.

It is completely acceptable to ask the interviewer for a few minutes of silence so that you can collect your thoughts and deliver your recommendation in a clear, concise, and confident way.

When delivering your recommendation, make sure that you start with your recommendation first. Then, present the reasons or evidence that supports your recommendation. Finally, end by discussing potential next steps that you would look into if you had more time.

You don’t want to start your recommendation by summarizing all of your work and then stating a recommendation at the very end of your presentation.

This makes your recommendation excessively long and potentially unclear and confusing because the interviewer won’t know which way you are leaning towards until the very end.

Private Equity Case Interview Framework

The framework that you develop for your private equity case interview is the most important step of solving a private equity case interview.

Having a comprehensive and robust framework will make solving any private equity case interview easier. On the other hand, having an incomplete and poorly thought out framework will make solving the case significantly more challenging.

While you should not resort to purely memorizing frameworks for case interviews, there is a single framework that we recommend all candidates become familiar with. Many of the components of this private equity case interview framework can be applied to nearly any private equity case interview.

The major components of a private equity framework could include: market attractiveness, company attractiveness, private equity firm capabilities, synergies, financial implications, and risks.

• Market attractiveness : What is the market size of the market that the acquisition target is in? What is the growth rate of that market? How competitive is the market?
• Company attractiveness : What is the financial performance of the acquisition target? What are their key strengths or competitive advantages? What are their weaknesses?
• Private equity firm capabilities : Does the private equity firm have expertise in the industry or market that the acquisition target is in? Does the private equity firm have the capabilities or resources to improve the company’s performance?
• Synergies : Are there potential revenue synergies that can be realized with other companies in the private equity firm’s portfolio? Are there potential cost synergies that can be realized?
• Financial implications : Is the acquisition price fair? What is the potential return on investment? How long will it take the private equity firm to recoup their initial investment?
• Risks : What are the major risks of this investment? Can these risks be mitigated? What is the likelihood of these risks materializing?

An outstanding private equity case interview framework should include at least a few of these components, if not all of them.

However, make sure that you are customizing your private equity case interview framework based on the specific pieces of information and nuances of the case that you receive.

Private Equity Case Interview Examples

Below, we’ve provided examples of several different types of private equity case interviews you could see on interview day.

You can find more case interview examples in our articles on case interview examples and practice and MBA casebooks .

Private Equity Case Interview Example #1 : A private equity firm is interested in acquiring a technology startup with innovative products and a strong customer base. The firm sees significant growth potential in expanding the company's offerings to new markets and leveraging its technology to capture market share. Should they make this acquisition?

Private Equity Case Interview Example #2 : A private equity firm is considering acquiring a manufacturing company with inefficient operations and high production costs. The firm believes it can implement operational improvements, streamline processes, and reduce costs to enhance profitability and competitiveness. Should they acquire this manufacturing company?

Private Equity Case Interview Example #3 : A private equity firm that specializes in the healthcare sector is evaluating the acquisition of a pharmaceutical company with a promising drug pipeline. The firm's industry expertise and network could help accelerate the development and commercialization of the company's products. Should they make this acquisition?

Private Equity Case Interview Example #4 : A private equity firm wants to expand its presence in the consumer goods industry and is looking to acquire a well-established retail brand with a loyal customer base. The acquisition would complement the firm's existing portfolio and provide synergies in distribution, marketing, and brand positioning. Should they acquire this retail brand?

Private Equity Case Interview Example #5 : A private equity firm has identified a target company with substantial real estate assets and a strong cash flow from its core business. Should they make this acquisition?

Private Equity Case Interview Example #6 : A private equity firm that specializes in distressed investing is interested in acquiring a struggling automotive supplier facing liquidity challenges. The firm sees an opportunity to stabilize the business, renegotiate contracts, and implement cost-saving measures to return the company to profitability. What price should they bid for this potential acquisition?

Private Equity Case Interview Example #7 : A private equity firm has recognized a favorable market opportunity in the renewable energy sector and is considering the acquisition of a solar power company with a competitive cost structure and strong growth prospects. The firm aims to capitalize on increasing demand for clean energy solutions and government incentives. What is the most the private equity firm should bid on this solar company?

Private Equity Case Interview Example #8 : A private equity firm is evaluating the acquisition of a software company with a differentiated product offering and a growing customer base. The firm plans to invest in scaling the business and increasing market penetration, with the ultimate goal of exiting through a strategic sale or IPO to realize significant returns for its investors. How much should the private equity firm acquire this software company for?

Private Equity Case Interview vs. M&A Case Interview

Although private equity case interviews and M&A case interviews share many similarities, specifically that both are case interviews that involve deciding on whether to make an acquisition, there are some notable differences.

1. Long-term vs. short-term perspective

Private equity case interviews typically have a longer-term investment horizon since private equity firms may hold onto an investment for 5 to 10 or more years before selling. They are not heavily concerned with exactly how well the investment will perform in the first few years because they have a longer time horizon.

In contrast, for M&A case interviews, there is generally an expectation that a merger or acquisition will provide immediate tangible benefits to the company and shareholders.

2. Reasons for the acquisition

For private equity case interviews, candidates are often asked to develop an investment thesis for a potential acquisition. They will need to articulate why the target company represents an attractive investment opportunity and how the private equity firm can create value from the investment.

This may include identifying growth drivers, operational improvement opportunities, and synergies that can be realized with the existing portfolio.

In contrast, for M&A case interviews, candidates mainly focus on understanding the rationale behind a potential acquisition, including strategic fit, synergies, and market dynamics.

3. Different risk factors

In both private equity and M&A case interviews, candidates will need to give thought behind the potential risks of the acquisition. However, the major risks for a private equity firm making an acquisition vs. a company making an acquisition differ slightly.

For private equity acquisitions, major risks include: market risks, competitive threats, and execution risks. In contrast, for a merger or acquisition, major risks include company integration risks, legal risks, and regulatory compliance.

4. Exit strategies

Private equity case interviews often emphasize the importance of exit strategies since private equity firms typically aim to realize returns for their investors within a specific timeframe.

Therefore, for private equity case interviews, candidates may be asked to evaluate potential exit options, such as strategic sales, IPOs, and secondary buyouts. They may be asked to assess the timing and feasibility of each option.

For M&A case interviews, candidates may need to consider potential exit scenarios, such as divestiture or spin-offs, but the focus may be less on maximizing financial returns and more on strategic objectives.

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• Hacking the Case Interview Book   (available on Amazon): Perfect for beginners that are short on time. Transform yourself from a stressed-out case interview newbie to a confident intermediate in under a week. Some readers finish this book in a day and can already tackle tough cases.
• The Ultimate Case Interview Workbook (available on Amazon): Perfect for intermediates struggling with frameworks, case math, or generating business insights. No need to find a case partner – these drills, practice problems, and full-length cases can all be done by yourself.

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MASTERING PRIVATE EQUITY CASE STUDIES: A COMPREHENSIVE GUIDE

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​ Having progressed through the initial stages outlined in our preparation guide , you are now about to enter the case study phase of the interview process. This stage closely mirrors the tasks you'll perform on the job, testing your analytical skills, strategic thinking, and investment rationale. 

Regardless of the level you enter the fund at, the case study is a generally accepted practice and forms one of the three key pillars of any successful interview process: structured interviews, work–based tests, and psychometric assessments based on empirical evidence.

To help you succeed, this guide delves into the nuances of PE case studies, offering insights from industry experts and best practices.

The Essence of the PE Case Study

A private equity case study typically requires evaluating a potential investment opportunity. You’ll receive an Information Memorandum (IM) for a company the PE firm could consider investing in, potentially some supporting information (industry news/benchmarking), and possibly a part-completed model (though often you are asked to prepare this from scratch). Your task is to value the company and formulate an investment proposal, including whether or not to invest. Keep in mind that this task may not be exclusive. The key lies not only in your final decision but also in the depth and logic of your analysis.

Types of PE Case Studies:

1. paper lbo/dcf.

A Paper LBO/DCF involves a simplified leveraged buyout or discounted cashflow model performed on paper or verbally, focusing on core concepts without the aid of a computer.

Preparation Strategy

Understand Core Concepts: Be well-versed in the fundamentals of LBO and DCF models.

Practice-Without Tools: Get comfortable performing calculations manually or explaining your thought process clearly without visual aids.

2. Timed LBO Modelling Test

A Timed LBO Modelling Test is a fast-paced, 1-3 hour on-site or remote test focused on speed and accuracy. These are often designed to understand the gaps in your skill-set, so it is not about achieving the perfect result, but creating a well thought-through working model. It is therefore important to pace yourself and breakdown what to focus on and when before you start.

Speed and Accuracy: Hone your Excel skills and practice building LBO models quickly.

Simulate Test Conditions: Replicate the pressure of a timed test to build your endurance and efficiency.

3. Take-home LBO Model and Presentation

The Take-home LBO Model and Presentation involves a comprehensive analysis where you might have a weekend or a week to build a full LBO model and prepare a detailed investment recommendation. Typically, you will then be asked to submit your findings and return to present 

Detailed Analysis: Conduct thorough research and develop a comprehensive model. Ensure the numbers balance and that you are not making assumptions based on incorrect data.

Effective Presentation: Focus on creating a clear, concise, and compelling presentation of your findings and recommendations.

4. Commercial Case Studies

Commercial case studies are less frequently used but typically deployed when you come from a non-financial background, such as commercial consulting or industry. In this scenario, you are either presented with a CIM or some high-level information about a business and then asked to think through aspects like business model, unit economics, market dynamics, growth opportunities, investment risks, KPIs, and areas of additional diligence.

Develop a Structured Approach: Create a framework for methodically analysing businesses. Practice with a few random CIMs you can find online. Example framework:

Revenue Generation: How does the business generate revenue? What does it sell, and how does it sell these products or services?

Revenue Evolution: How is the company’s ability to generate revenue likely to evolve? What are its growth prospects?

Direct Costs: What are the direct costs associated with its revenue streams? Is it a people-oriented cost structure, a SaaS business, or a materials-based cost structure?

Indirect Costs: What indirect costs are required to drive revenue? Consider factors like sales intensity and capital intensity.

Financial Understanding: Understand growth rates, margin profiles, operating leverage, unit economics, and cash flow profiles.

Market Positioning and Dynamics: Where is the business positioned in the value chain? What external factors, such as changing market dynamics and competition, will impact the business model

Dissecting the Case Study

To effectively analyse a potential investment in a private equity case study, it is crucial to break down the company and its environment into several key areas. Each aspect provides insight into different facets of the business and its viability as an investment. This section outlines the essential components you should examine, from industry dynamics to the specifics of the transaction, ensuring a comprehensive analysis.

Industry Analysis

Key Products and Markets: Understand the company’s primary products and markets and the main demand drivers.

Market Participants and Competition: Analyse the competitive landscape and the intensity of competition.

Industry Cyclicality: Determine the cyclical nature of the industry and external factors influencing it, such as regulatory changes or economic cycles.

Company Analysis

Position in Industry: Assess the company’s market position and growth trajectory.

Operational Leverage and Margins: Evaluate the cost structure and sustainability of margins.

Management and Cash Needs: Consider the effectiveness of the management team and the company’s working capital requirements.

Financial Analysis

Revenue Drivers and Stability: Identify revenue drivers, growth potential, and stability.

Cost Structure: Examine supplier diversity, fixed versus variable costs, and capex requirements.

Competitive Analysis: Assess industry concentration, buyer and supplier power, brand strength, and potential substitutes.

Growth Prospects

Scalability and Efficiency: Evaluate scalability and potential efficiency improvements.

Due Diligence: Consider environmental, legal, and operational risks.

Transaction Analysis

LBO Model: Build a leveraged buyout model to project financial performance and returns.

Valuation and Debt Capacity: Justify your valuation and the company’s ability to raise and service debt.

Exit Opportunities: Assess potential exit strategies and their impact on returns.

Building a Leveraged Buyout Model

Creating a full 3-statement model is crucial, and it's important to ensure it balances. You will typically build this from scratch, and we recommend a buyout overlay (especially for large-cap funds). While formatting isn't a primary concern, the model should lead you to a clear view of the deal's merits and risks, culminating in a definitive recommendation—whether to invest or not.

Key Components of the Model

Income Statement: Shows the company's revenue, expenses, and net income over a specific period.

Balance Sheet: Displays the company's assets, liabilities, and shareholder equity at a specific point in time, providing a financial snapshot.

Cash Flow Statement: This statement illustrates the company's cash inflows and outflows from operating, investing, and financing activities over a specific period.

Ensuring it balances is a core principle because it reflects the fundamental accounting equation: Assets = Liabilities + Shareholders' Equity. In simpler terms, everything a company owns (assets) must be financed by what it owes (liabilities) and the money invested by shareholders (equity). The 3-statement model is designed to be internally consistent, so changes in one statement should automatically flow through and impact the other statements, ensuring the balance sheet remains balanced.

Buyout Overlay

With a buyout overlay to the model, we can determine:

Financial Assumptions:

Buyout Price: Determine the price per share the private equity firm will pay for the company. Techniques for this can include:

Market Valuation Techniques

Market Multiples: Compares the target company's financial metrics to publicly traded companies in the same industry.

Transaction Multiples: Analyses recent M&A deals in the same industry.

Discounted Cash Flow (DCF) Valuation: Considers the target company's future cash flows, discounting them to their present value to arrive at a company valuation.

Financing Structure: Specify the debt and equity financing mix used to fund the buyout, impacting the company's capital structure and future cash flows.

Exit Strategy: Consider the private equity firm's expected exit timeline, influencing future growth assumptions.

Income Statement:

Impact on Revenue: Analyse if the buyout will affect the company's pricing strategy, market access, or growth initiatives.

Impact on Expenses: Consider potential changes in management structure, financing costs (interest on debt), or one-time transaction fees.

Balance Sheet:

Shareholder Equity Elimination: Upon buyout, existing shareholder equity gets replaced by new equity issued to the private equity firm.

Debt Assumption: Account for the new debt used to finance the buyout, increasing the company's liabilities.

Cash Flow Impact: Model the cash outflow for the buyout transaction and the ongoing cash flow implications of the new debt (interest payments).

Cash Flow Statement:

Financing Activities: Reflect the cash inflow from the debt portion of the buyout financing.

Debt Service: Include the cash outflow for ongoing interest payments on the new debt.

Iteration and Sensitivity Analysis:

Refine Assumptions: Based on industry benchmarks and company-specific factors.

Perform Sensitivity Analysis: See how variations in buyout price, financing structure, or growth assumptions impact the model's outputs.

Presenting Back to the Business

Effectively presenting your analysis to the business is a critical part of the private equity case study process. This step involves synthesising your findings into a clear and compelling narrative that highlights the company’s strengths, weaknesses, opportunities, and threats (SWOT analysis). By doing so, you can provide a comprehensive view of the potential investment, showcasing both its merits and risks. Here’s a detailed breakdown of what to consider when presenting your findings to ensure a thorough and persuasive presentation.

Strengths (Internal - Positive)

Financial Performance: Examine profitability (margins, net income), revenue growth, and cash flow generation.

Competitive Advantage: Identify unique selling propositions or strategic advantages.

Management Team: Evaluate the management team's experience, track record, and expertise.

Product/Service: Consider the quality, innovation, and market demand for the company's offerings.

Operational Efficiency: Analyse production processes, inventory management, and cost structure.

Weaknesses (Internal - Negative)

Financial Performance: Identify weaknesses in profitability, cash flow, or high debt levels.

Market Position: Assess the company’s competitive challenges.

Product/Service: Evaluate the relevance and competitiveness of products or services.

Operational Inefficiencies: Identify inefficiencies in production, supply chain, or overhead costs.

Management Team: Assess any gaps in management experience or track record.

Opportunities (External - Positive)

Market Growth: Identify growth potential in the target market.

Industry Trends: Leverage favourable industry trends.

Technology Advancements: Consider new technologiesto enhance the company's products or services.

Acquisitions: Explore potential acquisitions or partnerships.

Economic Conditions: Evaluate positive economic factors that could benefit the company.

Threats (External - Negative)

Market Competition: Assess the impact of increasing competition.

Economic Downturn: Consider the potential impact of economic slowdowns.

Regulatory Changes: Identify new regulations that could increase costs or restrict operations.

Technological Disruption: Evaluate the threat of emerging technologies.

Political Instability: Consider the impact of political or economic instability in the company’s operating regions.

Key Tips for Success

Prioritise depth over breadth.

Concentrate on the most crucial elements of your analysis. It's better to delve deeply into a few critical points than to cover too many topics superficially.

Simulate Realistic Conditions

Practice under time constraints to enhance your speed and accuracy. Replicating the pressure of a real case study will help you perform better during the actual interview.

Utilise Mock Case Studies

Engage with mock case studies and seek feedback from industry professionals. This will help you refine your approach and improve your analytical skills.

Be Honest and Transparent

If you don’t know the answer to a question, admit it. Honesty is valued over attempting to bluff, as interviewers can easily spot insincerity.

Align with the Firm’s Philosophy

Customise your analysis to match the investment strategy of the private equity firm you are interviewing. Understanding and reflecting on the firm’s investment style can distinguish you from other candidates.

Succeeding in a private equity case study requires a blend of analytical rigour, strategic insight, and effective communication. The process tests your technical skills and ability to think like an investor and articulate your ideas clearly. Here are the key takeaways to ensure success:

Analytical Rigour: Dive deep into financial data to uncover meaningful insights. Develop a robust understanding of the company's financial health through detailed analysis of income statements, balance sheets, and cash flow statements.

Strategic Insight: Go beyond numbers. Assess the company's market position, competitive landscape, growth prospects, and potential risks. Identify where value can be created and understand the broader industry dynamics.

Effective Communication: Your ability to present your findings clearly, concisely, and compellingly is crucial. Ensure your presentation is structured logically, highlights the key points, and supports your investment thesis with solid evidence.

Value Creation Focus: Always keep the potential for value creation at the forefront of your analysis. Consider how operational improvements, strategic repositioning, or market expansion can enhance the company's value.

Practice and Preparation: Simulate real case study conditions to build speed and accuracy. Engage with mock case studies and seek feedback from industry professionals to refine your approach.

Customisation: Tailor your analysis to align with the specific investment philosophy of the PE firm you’re interviewing with. Understanding the firm's strategy and past investments can provide valuable context and make your presentation more relevant.

Focusing on these areas can demonstrate your potential as a valuable investment professional. Remember, the case study is not just a test of your analytical abilities but a showcase of how you approach problem-solving and decision-making in a real-world context.

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Best Private Equity Case Study Guide + Excel Model + Example

The most important part of the private equity interview is the case study round. After meeting a few people and going through a number of interviews, you will most likely get hit with a case study where you have to analyze whether a company is a good leveraged buyout target or not.

Your performance during the private equity case study round will determine whether or not you will get an offer. It is the most important part of the interview process, so you need to make sure you are well prepared and create a work product that sets you apart from the other candidates you are competing against.

Private Equity Case Study Example + Full LBO Excel Model

Private Equity Case Study Example + Model

It’s hard to know how to complete a full private equity case study if you don’t actually have experience working in private equity. With just an investment banking background or someone who is straight out of undergrad, you just don’t have the experience to understand how to structure and write a good case study.

Make sure you get access to a full private equity case study that was used in a real interview. You can use this as a reference on how to write your response and build the LBO model with all the key outputs.

Get access here before reading on. It becomes much easier to build a proper LBO model and complete a case study when you can refer to one that is already fully completed.

The case study was written by a private equity professional and includes a:

• Real Private Equity Case Study Example and Response
• Full Detailed LBO Excel Model

How is a Private Equity Case Study Structured

The private equity interview process is a lot more structured relative to hedge fund interviews. Most interviews happen during “on-cycle” recruiting your first six months in investment banking right out of undergrad. This is the best time to land an offer as you have dozens upon dozens of firms that are fighting to get the top talent to work at their firms. People will land offers after a matter of days after answering the basic private equity interview questions because of all this competition.

Unlike hedge fund case studies , private equity case studies are a bit different as it depends on if you are interviewing during the rush of on-cycle recruiting where firms fight for talent. You can expect the case study to be structured in either three ways:

• LBO Modeling Test

If you are going through the crazy all-out blitz of private equity interviews during on-cycle recruiting, you will like get either of the first two types of case studies, the modeling test and/or the paper LBO.

For an interview that is done outside of this period and at most of the smaller middle-market funds, you may get a longer take-home case study that is more comprehensive. It really just depends on the firm and how they conduct interviews.

1. LBO Modeling Test

The LBO modeling test is used in person during on-cycle recruiting very frequently. Usually when on-cycle interviews start, you’ll get invited along with other candidates to do a modeling test over the course of a few hours, then proceed with the usual interviews either before or after.

There is no reason why anyone can’t pass the modeling test. All it takes is practice after practice, just like how you’d get good at anything else. Back when I was an investment banking analyst, the only way I would learn how to do anything was by looking at previous models done by prior analysts saved on the shared drive and recreating those models from scratch over and over again. It’s the best way to learn how to get good at any type of Excel model – looking at precedent then recreating from scratch.

Wall Street Prep was another tool I used back during my investment banking analyst days. There is a course that was specifically created for Private Equity interviews and LBO modeling that teaches you everything you need to know. It was the best resource I was able to find to get prepared for private equity interviews and teaches you how to complete a full LBO model step-by-step from start to finish.

Start preparing today and sign up for the course below if you really want to break into private equity. I promise you will have a very low chance of landing a private equity offer if you do not know the basics of how to build an LBO.

Get 15% off if you use the coupon code in the link below:

Private Equity Masterclass: Step-By-Step Online Course​

A Complete LBO and PE Training Program. Whether you’re preparing for an LBO Modeling test or you want to learn to build an LBO model and become a better PE professional, this course has you covered.

Special Offer: Get 15% Off On Wall Street Prep’s Private Equity Course

2. Paper LBO

The paper LBO is used during interviews to make sure you have spent the time to learn the basics of how an LBO works. Usually, you are given a set of assumptions, a pen/paper and asked to work through a paper LBO live during the interview without the help of a computer or calculator.

 You need to be able to walk through how to:

• Calculate the purchase price
• Calculate sources and uses
• Build a simple income statement and projections
• Build to levered free cash flow
• Calculate the exit value, IRR and multiple on invested capital

The Wall Street Prep course above walks through how to do all this in detail and provides a few paper LBOs that you can use for practice.

3. Private Equity Take-Home Case Study + Written Memo

Now the full-blown take-home case study is the hardest and most in-depth analysis a private equity firm can ask of you during interviews. Outside of on-cycle recruiting, this is the most common type of case study that is given. Most firms will give you a week to work on it independently at home.

This case study round is the most important part of the interview. If you do not have a well-written case study with a good backup model that you can present to the interviewer, you will not get an offer.

The majority of case studies will ask either two questions:

• Look into XYZ company and tell us whether it’s a good LBO target
• Find an attractive LBO target and give us your thoughts

To answer the first question, you need to screen a universe of public companies and find one that could be an attractive target. You need to find a business that has the following characteristics:

• Growing market dynamics – markets that have structural tailwinds is a good place to start
• Strong competitive advantages – study Porter’s Five Forces if you haven’t already
• Stable recurring cash flows – business is going to be levered up in a buyout so it needs to have positive EBITDA and stable cash flows to pay off interest payments
• Low working capital / capex needs

Quickly eliminate all companies in your screen that have:

• Negative EBITDA
• High capex needs (capex is >75% of EBITDA)
• High valuation (EV/EBITDA is > 15x)

You can quickly eliminate companies in your screen that have negative EBITDA or high capex needs. Once you’ve found your target company (or if already given one), then you can start working on the actual meat of the case study.

Steps to Finish a Private Equity Case Study

This guide will walk you through all the steps required to complete a case study, from start to finish. You will learn everything from what documents you need to download, to how to build the LBO/model with all the key outputs, to how to actual write a good memorandum/presentation, to all the common mistakes to avoid.

• Download and organize all documents in one folder
• Research the industry to understand trends and key metrics
• Read the filings and take notes
• Input financials in Excel and build the LBO model
• Work on the presentation / memo

1. Download and organize all documents in one folder

You want to have everything in one folder that you can quickly access. Key websites to use for company filings are:

• www.sec.gov/edgar/searchedgar/companysearch.html – for direct access to filings
• www.Bamsec.com – access to filings in an organized fashion
• You want to save down (at the very least) the latest 10K and the prior four 10Qs, last four transcripts, earnings releases, investor presentations and supplements
• Other sources if you have access to them: Bloomberg, CapIQ, FactSet
• Sell-side research – sell-side research is how you gauge market expectations and quickly understand the business. Most initiating coverage reports will give a good overview of the company, its strengths, weaknesses and competitive landscape. Ask around for others to send you research if you don’t have direct access
• Other write-ups online – read all of the articles on Seeking Alpha and look at ValueInvestorsClub.com. Research on Seeking Alpha is usually very bad, but there may be articles that do a good job summarizing any fundamental pressures / tailwinds

2. Research the industry to understand trends and key metrics

If you have access to sell-side research, then go through the latest industry analysis for your target company or initiating coverage reports. When a sellside research firm initiates coverage, they write up a very in-depth review of the company. These reports provide a very good summary of a company and the industry it’s in with all relevant metrics.

If you don’t have access to sell-side research, then go through prior investor presentations of the company or any of its peers. There should be an industry/market overview and benchmarking metrics vs. peers in these presentations.

If you do not understand what is happening in the industry that the company is in, you will not know if there are any big headwinds or tailwinds that are directly impacting the company. A lot of private equity LBOs focus on growth and consolidation within an industry, so you need a good understanding of the market and what the growth opportunities are.

3. Read the filings and take notes

Create a new word document to copy and paste anything notable that you read. You can create sections in your notes for company overview, revenue / cost drivers, fixed versus variable costs, industry tailwinds/headwinds, key questions for items you don’t understand or need to follow-up with management on, etc.

The most important part of every 10K/10Q is the management’s discussion and analysis section (MD&A). This is where the company talks in detail about how the business has performed over the quarter/year relative to prior year’s performance. You should focus on the sections of the MD&A that talk about the revenue and cost drivers. Make a table in Excel and copy and paste commentary every quarter on what impacted revenue growth and margins (COGS and SG&A). Once you lay it all out in Excel, the fundamental picture of the Company becomes clearer and you can see what has had a major impact on recent results.

The most important thing you should read are the transcripts and investor presentations. Management usually gets into more detail on the overall strategy and key tailwinds / headwinds of the business. Additionally, you can gauge what the sell-side is most focused on in the Q&A section at the end of every transcript.

Lastly, read the risk section of the latest 10K to note what the Company finds to be the biggest risks to its overall performance. Pay close attention to the top few items listed here as you want to see what the structural/secular challenges are to the business.

4. Input financials in Excel and build the LBO model

Since private equity interviews can start very quickly after you start your first job in investment banking, most do not know how to properly build an LBO model. Every single private equity firm builds an LBO when looking at any investment. If you want to work in private equity, you need to make sure you spend time understanding an LBO, how it works and how to build one in your sleep.

Like I mentioned before, sign up for Wall Street Prep if you don’t know how to build an LBO. It’s the best resource available to learn how to build a LBO model and provides step-by-step instructions using a real public company example.

5. Work on a presentation or write a memo

Once you have done all the research and finished the modeling, you need to create outputs in a presentation or word doc format. The interviewer may specify what kind of output they prefer, but if not than do what you most comfortable with.

This presentation/memo will be what your interviewer will focus on, so the outputs need to be nicely formatted just like how you create outputs in investment banking. Formatting may not seem that important to you, but showing that you can present analysis in a clean, formatted manner without errors is what will set you apart from your peers.

Continue reading below to learn everything you need to know on what to include in this presentation or memo.

Private Equity Case Study Presentation / Memo

Background and company overview.

If you had to screen to find a company, briefly summarize the criteria you used to choose your company. List the financial metrics and any other factors you used when making the decision.

Then you need to summarize what that company does in around five sentences. If you were provided the company to analyze, the interviewer already knows what the company does so no need to go that much in depth as you can describe more in person if asked. Make sure to describe how the company makes money (a revenue breakdown), where they make money (what markets drive the most revenue), who their customers are (customer concentration), etc.

This is the easiest section as you can open up the latest 10K and within the first few pages there is a business description section that outlines what the company does. You should also check the latest investor presentations (if available) and sell-side research initiating coverage reports as they usually give good overviews of the company.

You need to make sure you yourself understands what the company does and what the revenue and cost drivers are. Anybody can copy the business descriptions written by the Company and sell-side research. You should make sure you know the company well enough to be able to talk about it without looking at your notes.

Investment Thesis/Highlights

Here you list out the top reasons why a company is a good leverage buyout target or not. The most common investment highlights discussed in a potential target can be:

• Attractive market dynamics due to XYZ reasons – could be due to fragmented market / consolidation opportunities, growing market dynamics, geographic expansion lack of competition, etc.
• Multiple ways to win – private equity firms love businesses that don’t just rely on one avenue of growth, so point out all the different ways value can be created either through revenue growth, expense rationalization, multiple expansion, etc.
• Recurring revenues – leverage buyout targets need to have steady cash flows since the business is going to be levered up in an acquisition and so cash flows need to be steady to support high recurring interest payments on the debt. Revenues need to be stable, recurring and non-cyclical in nature.
• Asset-light business – Also, PE firms like businesses that are asset-light (low capital expenditures or working capital requirements) and have low variable costs (little need to increase the expense base to grow revenues, also known as operating leverage).
• Valuation – if a company is underappreciated in the public markets and trades at a low valuation relative to peers, then returns can be very high if you can somehow grow/fix the business and make it more attractive at exit in the future. High LBO returns come from both growing cash flows and multiple expansion. Usually, you want to assume the same exit multiple (the multiple you sell the business for) in your model compared to your entry multiple (the multiple you purchased the business for). Purchasing a business at a high multiple and selling it at a lower multiple in the future will lead to significantly lower returns and can be a big risky.

Like I mentioned earlier, make sure you understand Porter’s Five Forces to understand the main competitive advantages/disadvantages a business can have.

Recommendation to Investment Committee

Summarize whether or not you think the company you chose to analyze (or were provided) is a good LBO target or not. Everything depends on the purchase price, so if you mention that it is not a good LBO target then make sure to describe why and at what price do you think makes the deal attractive.

Financials/Return Summary

Your LBO model should have summary outputs that describe how attractive the deal looks from a financial perspective. At minimum, you need to show:

• Returns at various prices
• Sources and uses
• Pro forma capitalization
• Sensitivity table on returns, showing IRR/MOIC at various premiums and exit multiples
• 5-year levered free cash flow bridge
• Main model assumptions

The private equity case study example shows you all of these outputs and more, which you can replicate for your model.

Here you talk about the main risk factors and any potential unexpected events that would cause the firm to lose money on its investment. Look in the Risk Factors section of the 10K or sellide research to understand what the main risks are to the business. Analyze the most important risk factors to see if they have any merit and the potential implications to your analysis if the risk factor is realized. Examples of risks include technology disruption, realization of synergies / other cost savings initiatives, commodity price changes, wage or cost inflation in general, cyclicality/seasonality, changes to regulations, etc.

Outstanding Diligence Questions

Depending on the company, there may or may not be very detailed information on the company in public filings. Usually the bigger the market capitalization, the better the disclosures are.

You want to show the interviewer a list of diligence items you would still want to ask from the company to better understand the business. These questions should be around unit economics, profitability by segment/region, strategic plan over the next five years, cost structure plans/initiatives, etc.

Model Output/Exhibits

Either in a separate PDF or in the exhibits, you want to have a full output of the entire LBO model. At most private equity firms, associates print out the full model to discuss key assumptions with others on the deal team and to make sure everything is working properly. Make sure your Excel is nicely formatted and is already in print format.

The model should have all the outputs described above as well as full detailed 3-statement financials, revenue build and the levered free cash flow waterfall.I know this seems like a lot of work, but it’s the minimum that you need to do for a take home private equity case study.

General Tips and Common Mistakes to Avoid

Get Access to a Real Private Equity Case Study Example + Excel Model

If you need an example case study used in an real interview, then get instant access to one in the link below. You can use this as a reference as you complete a case study to make sure you are building the LBO model correctly, having all the key outputs, and learning how to put it all together in a written memo.

Check your model for errors

One of the worst things you can do is send a model that has a huge bust that changes all the outputs and return metrics. It’s the quickest way to get axed during the interview process, so make sure you spend time going through each cell of your model after completion to make sure there are no errors.

Spend time properly formatting the case study

Being able to cleanly present your analysis is a very important skill in private equity. Most firms create decks and go to investment committee to present a deal, so you need to show that you can format properly and present financials in a clean manner.

There are a ton of people applying for the same job as you are, so you need to figure out a way to differentiate yourself. If you were previously or currently an investment banker, then you should have no problem properly formatting the Excel model and the memorandum.

Understand the firm’s investment style

Every private equity firm has their own approach to making investments. Make sure that you understand the types of investments the firm likes to make and the key qualities to look for.

Then if given a case study, point out these key qualities. It’s good to show that you can analyze investments in a similar manner as the private equity firm you are interviewing at if possible.

Prepare for the most common private equity interview questions

Private equity is one of the most sought career paths and one of the Best Paying Jobs in Finance and Wall Street . There are so many young, smart, Ivy League educated investment bankers trying to break into private equity, so you must make sure you stand apart from the crowd in both your case study and when answering the most common private equity interview questions .

Don’t lie or try to bullshit if asked a question you do not know the answer to

The problem with a lot of smart people in this industry is that they are reluctant to say “I don’t know” and tend to talk as if they know what they are talking about. Interviewers will easily see through the bull shit as they likely know the company well and have heard others talk about the company.

Be a “straight shooter.” Be honest if you do not know the answer to a question and say you will follow-up with the interviewer. That said, you should know the company and industry inside out before presenting the case study and be confident when you speak about facts that you know are true.

Memorize key metrics

When discussing the case study in person with the interviewer, make sure you are an expert in the company and can answer questions on the spot without having to reference your written case study. Key metrics you should know off the top of your head include EBITDA, capex, interest, margins, market cap, total enterprise value, leverage, valuation metrics, valuation metrics versus peers, IRR/MOIC, etc.

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September 1, 2024 at 8:25 pm

Trying to transition from banking to private equity

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