You are on page 1of 46


If you work in investment banking long enough, you'll often hear about private e
quity and meet bankers wanting to move to private equity. But why do people want
to get into this field and why is it so competitive? A few answers below:
The job is considered more intellectually challenging than investment banking
In investment banking, you are merely advising companies on what to acquire and
divest, or on ways to optimize their finances, while private equity professional
s take the risks by directly investing money in companies. A private equity job
not only involves crunching numbers and pitching ideas, it also requires finding
attractive potential targets, understanding key dynamics in various industries,
understanding how companies are run, and actually helping to organize the manag
ement of those companies. PE professionals must have the necessary personal and
communication skills to get on with the management and create a solid network, a
nd obviously, you need to understand M&A and financial modelling extremely well.
Overall, private equity is thought of as a much more "well-rounded" job.
The lifestyle is better than investment banking
Private equity firms do not have clients, and in general don't have to prepare p
resentations at the last minute, so all-nighters are highly unlikely. They also
outsource many of the more labour-intensive tasks: banks help them find targets
while managing acquisition and sale processes, consulting firms help them with d
ue diligence, and accountants help them with the financial side. This is not to
say that private equity professionals do not work hard when they are on deals,an
d there will definitely be quite a lot of late nights during due diligence proce
ss, but on average the hours are significantly better. On the flip side though,
while the pressure is not as constant as in investment banking, PE firms give a
lot of responsibility to their juniors, so pressure to perform is actually much
greater: you won t have an associate or VP to double-check your work before it goe
s to the partner, so you're on your own. Also, private equity is often considere
d to be a "solitary" job compared to investment banking: you don't have as many
colleagues and the camaraderie is just not the same in private equity firms, com
pared with investment banks.
The long-term pay is better
If you work in private equity, one part of your long-term compensation will come
in the form of "carry", which is essentially a percentage share of the gain tha
t the fund makes when selling investments. This can be a substantial amount and
equal to several millions over a few years if the fund is successful, hence the
attractiveness of the private equity business model.
The "prestige" factor is greater
Private equity investors are on top of the financial food chain. They buy and se
ll large companies across sectors and countries, sit on management boards, coach
and advise CEOs, and have top investment banks and consulting firms working for
them. For example, firms such as the Carlyle Group manage over \000 billion and
, through their investments, employ over 400,000 people globally. Current and fo
rmer employees include George Bush Sr, George W Bush, John Major (former British
PM), two former prime ministers of Thailand, the former President of the Philip
pines and the brother of French President Sarkozy. In addition, private equity j
obs are highly competitive because those firms employ very few people, and those
people tend to stay for many years or decades with the same firm. Therefore, th
ey are able to be extremely picky about who they employ, and the lucky few to ma

ke it in the industry can pride themselves as being among the "cream of the crop
Below is some good advice from specialist recruiting firm KEA Consultants about
the Private Equity Recruiting Process.
The private equity interview process is challenging from start to finish. Most f
irms will interview a candidate over three to four rounds, but there are cases w
here it can be as many as ten rounds. It all depends on the firm, the number of
people they want you to meet and the testing involved. In some instances, you ma
y come across SHL type tests testing your verbal, numerical or logic skills.
However, all candidates should be prepared for general CV overview interviews, a
s well as the case study and LBO modeling round. The majority of mid-market and
large cap buyout funds will test candidates on their modeling skills. Smaller ca
p or growth equity funds are less likely to test these skills, but may have a bu
siness case study where you present on a private investment. All firms will want
to test your commerciality and business sense. Ultimately, as an entry-level ca
ndidate you need to prove that you can make the transition from the sell-side to
the buy-side and think like an investor.
The key to doing well in any interview is preparation. Do your homework on the f
irm, the professionals and the portfolio. At a minimum you should know the fund s
size, how long they have been around, the stage at which they invest, which sect
ors they invest in and their investor base. It would be worth thinking through a
couple of the investments the firm has made in the past and assessing why they
were good investments (or even why not) and how they developed the firm s investme
nt strategy. Without fail, prepare some questions that you can ask the investmen
t professionals at the firm where you re interviewing, as they are likely to give
you the opportunity during your interview. These can range from asking about the
amount of capital available to invest, to the number of deals the firm screens
at any one time, to asking more specifically about a recent investment the firm
There are some extremely practical things you can do throughout the interview pr
ocess to guarantee that you present yourself to best effect. The most basic and
important are:
Always be on time, if not 5-10 minutes early for each interview
Stick to a scheduled interview time to the best of your ability
Prepare questions for your interviewer
Give a firm handshake on introduction and departure
Always make eye contact with your interviewer
Think carefully about your answers; it s better to take an extra minute structurin
g your thoughts than rambling on for too long and without focus
Speak clearly and with confidence, at the same time try to be humble and not too
Remember you are selling yourself to them, not vice versa
During the CV interview rounds there are certain points and questions that you s
hould specifically prepare for. We have listed examples below for you to think a
bout. This is not an exhaustive list, but it should give you a sense of what to

Know your CV: you must be able to answer questions on anything on your CV. If yo
u ve listed several transactions then make sure you really know what happened and
know the relevant numbers: IRR, debt equity ratio, price, earnings multiple etc.
Practice walking through your CV from university onwards in a structured 2-3 mi
nute overview.
Tell me about a deal on your CV: If you are from investment banking you should d
efinitely expect this question. Pick a deal that would be most relevant for a pr
ivate equity investor (either in industry or type of transaction).
Why do you want a career in Private Equity? Tailor your answer to your experienc
e, skills and relevant interests, as demonstrated on your CV.
Why are you interested in our firm? If you ve done your homework on the firm, then
you should be able to easily answer this question.
From the companies you ve worked with, which would make a good private equity inve
stment and why? Tailor your answer to the firm you are interviewing with and be
prepared to go into financial detail on why you would invest in that company.
Explain the mechanics of an LBO model? You need to be able to either talk an inv
estment professional through this, or calculate a simple one on an A4 sheet of p
aper. (see our modellings tests page if you require practice )
Why are EBITDA and FCF important to private equity investors? You need to know t
he difference and explain how they are used in relation to the new debt borrowed
for an LBO.
What determines how much debt you can put on a company? Talk about the cash prof
ile of the business and the state of the debt market.
How would you source potential investments? Indicate how you would research and
identify attractive targets in a sector. Think about where recent private equity
deals have been done. Mention networking in an industry, through cold-calling,
conferences, reading trade publications. Keep it relevant to the firm you re inter
viewing with.
How important is management in a private equity deal? They are extremely importa
nt, good business need good managers.
Tell me about an interesting deal in the news recently? Make sure you have a cle
ar opinion on the deal that you chose in order to demonstrate your business judg
What are your thoughts on the private equity industry and/or a specific industry
the firm looks at? Again, have an opinion.
Where do you see yourself in five years? Demonstrate your ambition and commitmen
t to private equity.
A few other general questions...
What motivates you? Tell me about a time you ve failed? What are your three main s
trengths? What do you do in your spare time? Finally, personal fit is important.
As teams are smaller in private equity firms than in other corporates, personal
ity fit is a key part of a firm s overall evaluation process. Remember to "be your
self" during your interviews. A private equity firm will only want to hire candi
dates that they feel fit well with the firm s culture and ethos. If hired, you wil
l be working with the people who interviewed you on an intensive basis and havin

g strong professional relationships will determine how much you enjoy your new j
ob and ultimately how successful you are.
Invariably, this question will be asked during any private equity interview, and
is one of the most critical. Most bankers who prepare well and have a good deal
of experience are able to pass all the technical interview questions, but a lot
of them fail on providing a compelling answer to "why PE, why our firm".
What are the private equity firms looking for when they ask "why PE, why our fir
Obviously, the interviewer will want to know your motivations behind doing this
job, and also behind joining their firm.
However, the question is actually much more complex than you might think. Privat
e equity firms already know why people apply to their firms: prestige, better lo
ng-term money, fewer hours, and the entrepreneurial aspect. But they are really
looking for the answers to these questions:
1. What's driving you professionally and personally?
2. Have you done some research about the firm?
3. What special skills do you have, and how can they be of use to the firm?
4. Are you going to stay long-term?
Structures to best answer the question
Make sure that you address the four points described above, directly or indirect
ly. Notice that the question is actually twofold: 1) why PE and 2) Why our firm.
However, in most cases it is best to address the two questions at the same time
, even if they are asked separately. For example, if you are just asked "Why PE"
, I would still answer the "Why our firm" at the same time.
When answering, we suggest that you use the following structure:
1. Answer why you like PE first (addresses points no.1 and 4)? For this question
, there needs to be a solid personal motivation as well as a professional motiva
> Personal motivations: Those usually revolve around an "entrepreneurial spirit"
and desire to do investments and act as a principal. Great stories include comi
ng from an entrepreneurial family, some evidence of entrepreneurial activities,
risk-taking or outstanding initiatives, in or outside your job.
> Professional motivations: This usually revolves around the aspects of your wor
k that are similar or related to private equity. Bankers and consultants can men
tion work they did with Private Equity and how they enjoyed it. You just need to
show that you know the work that PE involves. Points not to mention: money, pre
stige, fewer hours, or plainly saying "I like to do investments". Another danger
zone is to mention personal stock trading - be aware that stock trading is shor
t-term and more suited to hedge funds, not PE, so if you mention it talk about a

long-term "hold" strategy.

2. Show off your knowledge about their firm (addresses point no. 2)
Mention positives and success factors of the firm that are attractive to you:
> Strategy: unique positioning of the firm, sector focus, geographic focus
> Recent fundraising or expansion: big new fund, new offices, new partners
> Great investments or exits they have done: mention any known details to show k
> Strength of some partners (i.e. the more prominent figures): mention names
3. Tie in the firm positives with your skills (addresses points 3 and 4)
This is the hardest part - you need to tie the firm's strategy to your skills. T
his part will vary with each individual, but these are the most common rationale
> Language skills that tie in with the fund regional expansion strategy. For exa
mple, "You have made several investments in France, and as a French speaker, I w
ould really love to work on some of those portfolio companies." Or "I speak thre
e European languages, so I like your pan-European focus," etc.
> Sector experience that ties in with sector focus. For example: "I worked on th
ree media transactions and really enjoyed the work, so I think I would really lo
ve working in a TMT-focused private equity firms such as yours."
> Showing relevant business experience. For example: "I have worked for three ye
ars in investment banking and with several private equity clients, so I am well
aware of the strong reputation of your firm."
> "Business acumen" or "belief". Basically, this would be
you believe that the PE firm is well positioned, and that
n them. Again, you can mention their strong track record,
t management, and all those success factors that make you

something saying that

is why you want to joi
nice positioning, grea
want to join them.

You will get bonus points if:

- You reached out to the PE firm directly without going through headhunters (sho
ws initiatives, credibility)
- You get "championed" by somebody working at the firm (alumni, friend). If you
got recommended, do mention this fact.
- You worked on a deal with the firm (as a banker or consultant, provided you di
d well!)
- You dealt with companies they thought about buying (bankers and consultants: c
heck the all bidders for the deals on your CV!)

Private Equity interviews are notoriously difficult and will contain a mix of fi
t questions, technical questions, mini cases and investment pitches and braintea
sers. Below are some of the questions that you would typically get in a Private
Equity Interview

Qualifications, Motivations and Background

- Why are you interested in Private Equity, why our firm?
- Why not work for a Hedge Fund / Startup / Portfolio company?
Business Acumen / Ability to think like an investor
- What industry trends are key when you are looking at a potential investment?
- How do you source potential investment?
- If I wanted to protect my downside, how would I structure an investment?
- Have you looked at our website? Which investment do you like most/least? Why?
- If you could only have one financial statement, which one would you choose? Wh
y? What if you could have 2? Why?
- An investment banker gives you a deal book - how do you verify the information
in it?
- What should we buy next? What kind of IRR would we make? (provide high level f
inancials/LBO model workings)
Technical Questions
- You buy a business at an 8.0x EBITDA multiple and you believe you can sell it
in 5 years time at the same 8.0x EBITDA multiple. Your required return rate is 2
0%/year. Assume that banks are willing to lend up to 4x debt/EBITDA, and that ha
lf of the debt would get repaid after 5 years. How much do you need to grow EBIT
DA by within this timeframe?
- You buy a company for 10x EBITDA. It has EBITDA of 100 in yr 1, and 150 in yr 5:
what kind of multiple should we exit at to get at least 25% IRR
- What different levers can be used to improve IRRs?
- What is the advantage of a vendor loan?
Mini cases
- Would you invest in an airline? Why and why not?
You will find detailed answers to the above questions in our Private Equity Inte
rview Guide, as well as more practice questions.

Most Private Equity firms will give you modelling tests to complete realtime at
their offices from scratch. Without practice, this can be challenging, even for
seasoned investment bankers. Here are a few tips and an example of a test you wi
ll likely get:
LBO Modelling Tips
Tip#1: Spend enough time to understand all the requirements properly
Read in detail the information provided, as well as what is asked. Often, candid
ates fail to answer the question asked by trying to do too much or waste time as
they add complexities that are not required.
Tip#2: Always keep models simple
Do not try to "show off" by building complex models and advanced functions. Buil
d a practical model that answers the question; only if you have enough time, the
n add a few more advanced functions or clean up the formatting, but this is not
Tip#3: Watch your time, and if you are running out of time, simplify
If you get stuck on a point, just simplify it; at minimum, provide an IRR output
. If you build only half of the model, then your ability to build a full LBO can
not be judged. But if you take a shortcut on some parts but still build the full
LBO and IRR calculations, you might be able to get away with it.
Tip#4: Have a well-practiced template in mind
Make sure you have a very well-rehearsed basic template in mind with the followi
ng items:
- Simple Source and Uses table (one or two branches of debt). Input your entry/e
xit multiple assumptions here
- Basic income statement (Revenue, EBITDA, D&A, EBIT, Taxes, Interest, Net profi
t - that's it). Leave Interest blank and link it later on from your debt schedul
- Cash Flow Statement (EBITDA, Capex, Working Capital, Tax, Debt Repayments and
Interest Paid). You could model Working Capital and Capex separately in a mini-b
alance sheet for added details. Leave Debt Repayments and Interest Paid blank fo
r now and link from Debt Schedule later.
- Debt Schedule: Here you need to detail the Debt Repayments and Interest Paid.
You can then link those to the Cash Flow and P&L.
- IRR Calculation. The cash flows should come from your cash flow statement and
you only need to insert the IRR Calculation here. You should also insert some se
nsitivity tables for different exit years and different entry/exit multiples.
LBO Model Test Example (2 hours)
For practice, try to solve this case:
LBO Model Assumptions
1. A Private Equity Firm wants to acquires a German business for 280m + any Advis
ory Fees equivalent to 2% of the transaction value. Assume a transaction date of

30 June 2012 and no cash.

- Senior debt of 3.0x EBITDA at transaction date has been obtained from a region
al bank.
- The seller has also agreed to provide an additional

35m in the form of a vendor

- The private equity firm will invest the balance in the form of a shareholder n
3. The Senior Bank Debt pays 7% per annum (cash pay), with this repayment plan i
n place: 5% repaid in year one, 15% in year two, 20% in year three, 30% in year
four, and 30% in year five.
4. The Vendor Loan pays 8% (non-cash) which accrues annually. This vendor loan i
s subordinated to the bank debt.
5. The Private Equity Firm shareholder loan pays a 15% non-cash pay coupon, whic
h accrues annually. This loan is subordinated to the senior bank debt and to the
vendor loan.
6. The Company needs to maintain a minimum of 1m operating cash at all times. Ass
ume a full cash sweep for any amounts above 1m.
7. The Private Equity firm wants to maintain control of the company and at the t
ime of the acquisition will have 85% shareholding in the company, while the mana
gement will retain 15%.
8. Sales at closing were 100m; assume this will grow by 5% in year one, and 7% p.
a. thereafter
9. EBITDA margins will increase from 35%, and increase by two percentage points
per year until 2017.
10. It is thought that Capex over this period will be

15m per annum (equal to dep

11. The Company has 10 days (of sales) funding gap in working capital.
12. Tax will be charged at 30%.
'A. What is the Private Equity firm IRR, and cash on cash returns at 7.0x, 8.0x
and 9.0x EBITDA exit multiples in years four and five?
'B. What are the returns if you assume senior debt of 2.5x and 3.5x EBITDA? What
are the issues that we need to consider in deciding the necessary level of bank
'C. What is your recommended level of bank debt?
'D. Which EV exit is realistic given the data provided, and what return would yo
u expect?
'E. What kind of return should you be looking for with this kind of business?
'F. What is the benefit of a vendor loan?

'G. What would be a sensible strategy you would adopt with regards to the vendor
loan in two or three years?
H. How much of the exit proceeds will go to shareholders and how much will go to
For a fully worked out answer, please refer to the LBO Model.
There is no standard way of entering the Private Equity industry, but this artic
le aims at illuminate the typical characteristics that private equity firms are
looking for in a candidate.
What age or level of experience do private equity firms want?
- The large majority of people joining private equity firms do so after two to f
ive years work experience in a relevant field such as investment banking, strateg
y consulting, corporate development, or restructuring.
- It is very unusual for people to join a private equity firm right after gradua
tion from university with an undergraduate degree. The main reason is that most
private equity firms are small and do not have the ability to train people withi
n the firm. Notable exceptions include the very big private equity firms such as
Blackstone, who sometime hire from straight from undergraduate degrees - but no
te that the students being considered have typically worked through several inte
rnships in banking, strategy consulting, restructuring, or at other private equi
ty firms.
- A common route to enter private equity is right after an MBA (more common in t
he US). Similarly, this implies two to five years prior experience in relevant fi
- Age is always a sensitive topic, but most private equity firms like to hire pe
ople below 30 for an entry position.
What are the typical educational backgrounds?
- Private equity is notoriously picky about educational backgrounds, are will us
ually target graduates from top universities. In Europe, there is a strong repre
sentation from schools such as Oxford/Cambridge in the UK, HEC/Essec in France,
etc. The reasons are that they have a large choice of applicants so the school i
s an easy first screening ground, and also because the networking aspect of priv
ate equity is quite important (who you know matters). Note that the name of a go
od school is not enough and is often just a pre-requisite. If you are not from o
ne of those top schools, however, it is still possible to break in if you have o
utstanding work experience, skills, or achievements.
- For MBA degree earners, Private Equity is also very picky, even more than for
undergraduate degrees. The very large majority of MBAs in private equity in Euro
pe come from three schools: Harvard, Wharton, and Insead (also Stanford in the U
- While you don't need to be a finance major, your degree should demonstrate str
ong analytical ability. Science and finance degrees tend to be popular.

What are the typical professional backgrounds?

On top of a great education (ideally with top grades and lots of extracurricular
activities), Private Equity firms like to see prestigious company names and imp
ressive transactions in your background. The most common backgrounds are these:
- Investment bankers: usually from second-year analyst to first-year associate l
evels. Why? Because of the excellent modelling training, transaction management
skills, ability to work extremely hard, and sometimes sector knowledge. The rule
of thumb is that the larger the Private Equity firm is, the more demanding they
will be in terms of investment bank "prestige". The large majority of ex-banker
s in private equity come from Goldman Sachs, Morgan Stanley, ex-Lehman Brothers,
ex-Merrill Lynch, Rothschild and Lazard. Some private equity firms will ask for
your analyst or Associate ranking; the more deals you have done, the better. Yo
u can still break in from smaller banks but you will need some really impressive
transactions or other specific skills.
- Junior Strategy consultants. Why? For the strategic thinking ability, ability
to work very hard, and sector knowledge. Consultants are a bit less prevalent th
an bankers in private equity because they usually lack a bit in modelling skills
, but people working at firms such as McKinsey, Bain & Co and BCG will have a go
od shot at private equity jobs, especially if they have worked on private equity
due diligence assignments. Some PE firms (like Bain Capital) focus on hiring st
rategy consultants as opposed to bankers.
- "Others": depending on the firm, private equity companies may hire qualified a
ccountants from the Big 4 (if they worked on private equity deals with a very UK
-specific background), talent from restructuring, and sometimes people with a bi
t more unconventional backgrounds (i.e. equity research, ECM, corporate strategy
What other characteristics are private equity firms looking for?
On top of a great education and a great work experience at a top firm, private e
quity firms would really like to see these characteristics:
- Languages: The more you speak fluently, the better. You can significantly incr
ease your chances if you speak two or three European languages fluently, and in
most cases English + another European language is required. Hot languages include
Nordic and Eastern European languages. German, French, Italian, Spanish and Dutc
h are also very useful.
- Extracurriculars: To make you stand out from the rest, extracurriculars (such
as athletics or art) are very useful, especially if they are impressive. Anythin
g that shows that you are a well-rounded person is often required!
- Entrepreneurial drive and leadership: Anything that shows that you are a drive
n person who likes to show initiative can apply, such as the position of a club
president, organising charities, etc.
After applying for a job at a Private equity firm, sometimes you will be sent se
veral online psychometric tests. These tests help companies to weed out candidat

es before starting the actual face-to-face interview process and are becoming mo
re and more common with large private equity companies. On average, more than ha
lf of potential candidates do not pass this stage, usually as a result of lack o
f preparation. In order to get a good score on these psychometric tests it is es
sential to remember that preparation is key.
The good news is that companies will always let you know that there will be a te
st, and it will almost always be an SHL test.
What is SHL?
SHL is one of the most popular and well-known assessment companies in the world.
Major Private Equity companies rely on companies like SHL to provide psychometr
ic tests for job candidates.
You can practice SHL aptitude tests just like the ones used for actual job asses
sments here.
The Tests Explained
1. A Verbal Reasoning Test:
Verbal Reasoning Tests are designed to measure your ability to understand writte
n information and to evaluate arguments pertaining to this information. You ll be
presented with a paragraph of text or excerpt and will need to use logical and c
omprehension skills to answer specific questions. You can get Verbal Reasoning P
ractice Tests here.
2. A Numerical Reasoning Test:
Numerical Tests are designed to assess your understanding of statistical and num
erical data as well as your ability to make logical deductions. You ll be presente
d with a table or graph depicting specific numerical information and will need t
o answer questions about the data. The questions are often based on mathematical
calculations involving percentages and ratios. You can get Numerical Reasoning
Practice Tests here.
3. An Inductive Reasoning Test:
Inductive Reasoning Tests are designed to test conceptual and analytical thought
based on pattern and consistency identification. You ll be presented with a group
of images and shapes that follow a particular chronological pattern and be aske
d which image is the next in the pattern.
4. A Personality Questionnaire (sometimes)
The purpose of Personality Questionnaires is to assess specific character traits
of applicants to build a personality profile . Companies then compare this profile
to the requirements of the company and the requirements of the particular posit
ion. Personality Questionnaires will often claim that there are no right and wro
ng answers but that is obviously not true, as there are specific answers that po
int to either positive or negative characteristics that have a big effect on whe
ther or not you ll get the job.
How to find out more and get some practice?
The only way to practice is to do mock tests online. You can find some free samp
les or purchase more practice, if needed, via the following link:
Take a Mock Test Online

An common question you get during private equity interviews is "can you please w
alk me through an LBO? feel free to make your own assumptions". While this may s
ound a bit daunting at first, the trick here is to keep things simple. The theor
y behind an LBO is actually fairly simple.
In what level of detail should you go? What the interviewer is trying to test is
only that you have a good understanding of the mechanics of an LBO, so there is
no need for you to go into a lot of details. Details will come during the LBO m
odelling test! Here is what you should be able to understand and the steps you s
hould take.
If possible, lay out some assumptions on a piece of paper.
Step one: Lay out the Sources and Uses assumptions assumptions and some example
"Lets assume we have an consumer retail company. My first step would be to lay o
ut some assumptions with regards to source an uses.
- I need to know how much I will pay for the company. This can be expressed as a
multiple of EBITDA. Let's assume 8 times of current EBITDA, which I think is a
reasonable multiple.If current sales are 500 and EBITDA margin is 20%, then EBIT
DA is 100, that means 8*100 = 800 is what I need to pay.
- I need to know how much of that purchase price will be paid in equity and how
much through debt. Lets assume that I will use 50% of debt and 50 % of equity. S
o that means I used 400 of equity and 400 of debt.
- Also, lets now assume that we will sell this company in 5 years, at a same 8 t
imes EBITDA multiple.
Step 2. Make some basic cash flow assumptions
"Now I need to know about the financial forecast to see what the cashflow looks
like and see how much of debt I can repay over the period. My cashflow before d
ebt repayment is calculated as: EBITDA - Capex - Changes in Working capital - In
terest paid on the debt - Taxes.
[Here you may be asked to go into detail of how you come up with each number, or
you may jump some steps - interviewer will guide you].
I assume EBITDA can grow
ed on those forecasts, I
to derive the amount you
hat is 100 over the next

from 100 to 150 over five years. Then lets say that bas
am able to repay 20 of debt per year [you may be asked
can repay based on the details you calculated above], t
five years."

Step 3. Calculate your IRR

-I have spent 400 of equity and taken 400 of debt
-After 5 years, EBITDA is 150, and assuming I can sell at a 8 times multiple, I
will get 150 * 8 = 1,200. From that 1,200, I need to repay the 400 of debt but I

already repaid 100 over the last 5 years, therefore I only have 300 left to rep
ay. That leaves me with 1200 - 300 = 900 of equity.
-My overall return is therefore 900 / 400 = 2.25x return over 5 years, which is
roughly an 18% IRR [to be able to estimate IRRs, you need to memorise IRR conver
sion tables]

For more advanced private equity LBO modelling practice, you can also refer to o
ur tips and LBO practice example
An MBA is typically regarded as a prerequisite to reach the higher echelons of p
rivate equity, especially at the larger firms. But is that really
true? What does the data tell us?
MBAs are in almost every PE firm
I checked the percentage of MBAs in each one of a few firms. Out of 315 executiv
es, 166 had MBAs (about 52%). Views are mixed; in some firms an MBA is a prerequ
isite. A partner at a global firm recently stated, "We view senior associate pos
itions as post-MBA positions, and would therefore require that qualification unl
ess there are exceptional circumstances". However, the communications director a
t 3i Group also said last year, " the MBA is not a pre-requisite but it can be o
f tremendous help for some people, people with non-financial backgrounds for exa
The larger the firm, the more MBAs you will find
The largest PE funds such as KKR, Blackstone, and Apax had the most MBAs. I've g
athered some data here:
1. PE FIRM, (% MBAs)
2. Apax (77%)
3. Blackstone (63%)
4. KKR (61%)
5. Candover (59%)
6. Permira (58%)
7. 3i (48%)
8. CVC (46%)
9. Bridgepoint (38%)
10. EQT (22%)

11. PAI (21%)

The number of executives with MBAs is increasing
By looking at the younger executives in the firm, there is also clear evidence t
hat the MBA is becoming increasingly popular amongst the new generation of buyou
t executives.
Among MBAs, five schools provide the vast majority of PE professional graduates
Five schools provide more than 80% of all the MBA graduates who work in private
equity; Wharton, Harvard, and Stanford are provided from the U.S., and in Europe
, Insead and LBS. PE firms tend to hire their own kind, so the PE MBA community
is a very closed circle. If you are interested in our MBA essay review service b
y alumni from top business schools, please get in touch at
While PE firms tend to recruit people through their network first (e.g. alumni,
bankers they worked with, friends and ex-colleagues) before going to headhunting
firms, here is a list of the well known headhunters in London that have a speci
alised private equity practice:
Argyll Scott International (
Specialist Recruitment Consultancy managing permanent mid to senior level appoin
tments within Corporate Finance. Clients range from top tier Investment Banks an
d Boutiques to Private equity houses in London.
Contact Name: Jade Sweeney
contact phone: +44 (0) 207 936 1125
Arkesden Partners (
Dedicated stand alone Private Equity team with a track record and experience of
the sector for over a decade. Principal, Senior Associate, Associate and Executi
ve level mandates taking a pure search methodology for every mandate. Mandates a
re UK, CEEMEA and MENA focused. Nearly half of placements in 2012 were outside o
f the UK. Source candidates from Investment Banking (M&A, Leveraged Finance and
Financial Sponsors), lateral Private Equity professionals and Management Consult
Contact name: Adam Cairns
contact phone: +44 (0) 203 762 2023
Blackwood (
Blackwoods is a London-based search firm that recruits for a large variety of fi
nance and non-finance roles, but they also have a good recognition in the London

private equity recruiting space.

EH Partners (
EH Partners is a London boutique executive search firm focussed on the alternati
ve assets space and investment banking.
Contact Name: Simon Hegarty
contact phone: +44 (0) 203 432 2552
KEA consultants (
Kea Consultants is an executive search firm that specialises in moving young pro
fessionals from top tier investment banks and consultancies into the buy-side. T
hey work on an exclusive basis with firms such as Blackstone, TPG, Advent & Och
Ziff and have strong relationships with a number of other funds ranging in size
contact phone: +44 (0) 203 397 0840
One Search (
Pure finance-focused firm with a good presence in private equity and hedge funds
Contact name: Chris White
contact phone: +44 (0) 207 887 7500
Private Equity Recruitment (PER) focuses exclusively on investment-related funct
ions such as Private Equity, Venture Capital, Mezzanine Capital, Fund of Funds a
nd Secondaries. They mainly cover Europe and Middle East.
Principal Search (
Specialist financial services search firm providing global hiring solutions to c
lients across a wide range of product areas within the investment banking and fi
nancial services sectors.
Contact Name: William McCaw
contact phone: +44 (0) 207 090 7575
The Rose Partnership (
Large recruitment firm based in UK. They cover mainly Europe out of London but a
lso have some presence in Asia-Pacific through their Hong Kong office. They recr
uit for Banking and Private Equity.
Walker Hamill (

Walker Hamill is widely recognised as one of Europe s leading recruiters in privat

e equity, venture capital, real estate, secondaries, fund of funds, mezzanine an
d hedge funds. It recruits for investment positions from Associate to Partner le
vel and infrastructure roles including finance & accounting, fund raising, inves
tor relations,compliance and portfolio management.
Contact : James Stephens
Would you like to add your firm, contact name or other details to this list? Con
tact us here.
It is not unusual for Private Equity firms to receive thousands of CVs per year,
and even more for the major funds. Similarly, investment professionals tend to
get bombarded by emails and calls requesting information and help to secure an i
nterview. So, how can you differentiate yourself amongst all those CVs?
1. A mere Oxbridge/Ivy League degree + work experience at top firms doesn't cut
In Europe, Private Equity firms may only hire 100 or so new associates every yea
r in total. The top firms may only hire for one dozen positions per year, maybe
less. To illustrate what you are up against, the Private Equity clubs from Harva
rd and Wharton have more than 800 members each. If you add to that number the an
alyst and junior associates classes of Goldman Sachs, Morgan Stanley, McKinsey,
Bain & Co, etc., you will be very quickly in the several thousands of well-educa
ted, well-trained candidates who will compete against you for a handful of jobs.
2. Find a "marketing angle" that makes you unique
Your marketing angle will come from different dimensions:
- Geography: Obviously, language is a big differentiator in Europe. But only tal
k about the languages you speak fluently or the regions you actually worked/live
d in. Then reach out to people from those regions when sending your CV, and ment
ion this clearly to the headhunters. Note that if you speak a language but never
worked in the country, that may be a handicap, so you need to mention that you
spent a number of years in said country.
- Sector expertise: Very useful for sector-focused funds or funds organised in v
- Specific deal exposure: Mentioning transactions where you either worked with t
he private equity fund or where it was an under-bidder is a good angle to start
a discussion with a PE fund, as they will be able to test your understanding and
abilities very quickly. This may backfire though - make sure you know the deal
inside and out.
- Transaction types: If you work for a boutiques or mid market of focused banks
or consulting firms, this will be well received by small cap and mid-market fund
- Educational background: Use your alumni base as much as you can, but don't lim

it yourself to your own school. For example, a top MBA is likely to be well rece
ived by somebody from another top school.
- Company alumni: Similarly, reach out to people who worked at the same firm tha
n you. Again, you don't need to limit yourself to the same firms. For instance i
f you worked at McKinsey and you are reaching out to somebody who worked at a ri
val firm, it is still more likely to work than reaching out to an ex-banker.
- Other connections: Ex-military, specific background (i.e. if you studied medec
ine, law, etc.), same associations, etc.
If you build your profile along those verticals, you will now see that you can d
ifferentiate yourself effectively and make yourself much more memorable to the f
3. Tailor your CV and angle to different firms
I would advise against sending generic CVs to every firm or headhunter, hoping t
hat something will fit your profile. You need to target funds, and then tailor y
our message accordingly. For example, if you are in a specific sector team, try
to diversify your CV if you apply to a generalist fund (i.e. less detail about t
he sector/deals, highlight some other experiences, etc). If you apply to an allBritish fund, there is no need to mention your international experience or langu
age abilities at length, etc.
4. Personality is the ultimate differentiator
All the above advice will help you get to the interview stage. However, in the e
nd, the "fit" is what really differentiates one candidate from another, all else
being equal (i.e. same performance in the technical tests, modelling tests, etc
, which is under your control if you practise). At all times during the process,
do not forget to maintain a well-mannered and humble attitude, which, surprisin
gly, is an area where many candidates fall short. If you have the right profile
and manage to differentiate yourself, build a story, maintain the right attitude
and prepare, getting a job in private equity will just be a matter of time!
The best strategy to find a job in Private Equity is often to reach to those fir
ms directly, especially if you feel that there would be a good fit between your
background and the firm. In addition, headhunters are very selective when sharin
g job opportunities in PE so you might miss out on a potential interview. Sendin
g "cold emails" is widely accepted in the PE industry, and if the email is prope
rly crafted, you should be getting an answer in most cases. So find below a few
strategy tips for cold emails to Private Equity professionals.
Make a list of your priority target firms that make most sense
> Create a big spreadsheet with the list of all PE firms that might be relevant
and that come to your mind, or that you've come across.
> Narrow down to a set of priority firms (7 to 10 firms maximum) that you think
would be the best fit and most relevant to your background. Sending proper cold
emails is actually quite time-consuming, which is why we recommend to focus as m
uch as possible initially.

Identify the best contact person(s)

> Seniority: We would recommend that you avoid reaching out to a very junior per
son, or one at your same level, for a number of reasons (they are the busiest, t
here might be a fear of competitors, a lack of incentive to help), or to those t
oo senior (most won't care or have time). The ideal people are at the "principal
", "director" or "vice-president" levels, because they are senior enough to have
a say in the recruiting process but still junior enough to take time to answer
candidate emails.
> Common background: check out the websites of the firms and review the biograph
ies of the people working there to get an idea of their backgrounds. From the ba
ckground descriptions, try to find the persons who are most similar to you: peop
le who worked at the same firms, same country of origin, same school, same kind
of work experience or educational background, etc.
> LinkedIn: LinkedIn is very powerful tool for identifying potential contacts, a
nd researching people's backgrounds and potentially common friends. Always do a
search on LinkedIn for your target firm as you might also find people who are no
t listed on the website.
> HR: Some PE firms have HR departments. However, I would actually advise agains
t sending your CV directly to HR if you find some other suitable contact in the
firm, as HR's candidate criteria are usually narrower compared to investment pro
fessionals, which means less of a chance to get an interview.
Structuring the email
Never write a cold email that is more than one or two paragraphs long. Most peop
le won't take the time to read longer emails, and it also shows that you are not
able to write concisely. Get straight to the point and attach a CV.
We recommend the following structure:
> First sentence: Your background (basic key relevant points) + optionally how y
ou got their details, if it was an introduction from a friend.
Example: "Hello Mark, I am a second-year analyst working at Morgan Stanley in th
e Consumer team here in London, and I'm from Germany (I also speak Spanish)."
> Second sentence: Purpose of the email + asking to discuss + CV
Example: "I'm very interested in Private Equity and your firm in particular, and
I was wondering if your firm had any expansion plans in the short or medium ter
m? I would be happy to have a quick chat at your convenience. I'm attaching my C
V for reference. Best/regards, ".
Other reasons: "I read that your firm just raised a fund / just opened an office
in Munich", etc.
What happens next?
Usually the person will open the CV and take a five-second look to see if your p
rofile would fit. If it doesn't fit, they might say that they are not hiring, or
simply say that you don t have the required profile. You might also get a standar
d "reject" email. If it fits, they might reply that they are not hiring if they
are indeed not hiring, and keep your CV on file. They might also accept a quick
phone chat to do some informal pre-screening process, or they might even ask you
to come in for an interview!

What if I get ignored?

There might be a good number of reasons why you get ignored, not always negative
- people travel, miss emails, forget to reply, etc. If you don t get a reply with
in a week, it s perfectly find to send a reminder email: "Hi Mark, I wanted to fol
low up on my previous email, happy to have a chat whenever convenient. Thanks".
One reminder email is enough and we would not advise to go beyond that. If you s
till don't hear back, try another person or two in the firm! You have nothing to
lose by trying, but we would advise against trying more than three people in th
e firm.
Track your progress, persevere, and be consistent!
Do maintain your spreadsheet and make a note of each rejection, each email sent,
and person contacted so that you always know the status of your attempts. Priva
te Equity recruiting is a long-term game:
> If they said no - don't waste your time and move on to other firms in your lis
> If they said that they are not hiring now, try again in six months time, or whe
never they do a fundraising (fundraising usually means expanding the team!)
> If you need to contact the firm again, contact the same person
> Once you have been through a few firms within your priority list, start invest
igating firms outside your top priority
> As you read the press, work on deals, talk to friends, etc. Don t forget to add
to your list any interesting PE firm name that you come across.
If you get invited to Private Equity interviews, you will almost always encounte
r Private Equity case studies. PE case studies can be notoriously difficult, and
require a great deal of preparation. While every firm will have different types
of case studies, this article aims to give you an overview of what you should b
e expecting.
What is a case study?
Case studies are investment problems that you will be asked to analyse. Based up
on your analysis you need to propose a final recommendation: should they invest
in this company or sector? At what price?
Why do private equity firms use case studies?
Case studies are great because they enable the interviewer to assess several asp
ects of a candidate:
The ability to absorb a large quantity of information and focus on what is relev
The ability to structure your thoughts and analysis

General business acumen

Pure "problem-solving" skills (i.e. intelligence)
Analytical skills (calculations are always involved)
Presentation and communication skills (you will be asked to present a solution)
Excel modelling / PowerPoint
Time management skills
At what stage of the interview process do I get case studies?
Usually after the first round of interviews, but sometimes in the very first rou
How are they given? How much time do I have to work on case studies?
Case studies can take on several forms, but these are the most common:
1. Take-home case studies: The firm will send you a case via email and give you
a few days to complete it, then send it back in a Word document with your Excel
2. Mini-cases: at the firm, in person, as a live discussion. In this case, there
is no Excel model (or you may be asked to do a "back of the envelope" model on
paper) and the discussion generally lasts between 45 minutes to an hour.
3. Full-blown cases: At the firm. You are seated in a room with a computer, give
n the case study, and allowed between one hour to four hours to complete your an
alysis and Excel model.
Can you give me an example of a Private Equity case study?
The ingredients of a case study are always the same, irrespective of the format:
1. Description of a company and sector. This can be a few summary lines or slide
s, or in full-blown case studies, they could either give you a company annual re
port or an Information Memorandum ("IM")
2. Financials. These can be a few key items (i.e. revenue, EBITDA, Capex) or you
can get a full annual report or IM.
Based on this information, you should be able to analyse the company, build an L
BO model, and answer the following questions:
Is the company an attractive investment or not?
How much should we pay for it?
For case study practice please refer to our private equity case study here.
Below is a list of Private Equity funds that have offices in London and have a s

ignificant European presence. We broke down the list in "generalist" funds that
cover all sectors across difference geographies, "sector specialists", "specific
region-focused" funds and finally Private Equity funds within investment banks.
Note that the list below covers only the major funds and doesn't include ventur
e capital funds and other Private Equity funds that have less than 500 million of
assets under management.
Generalist Funds with London-based operations
The Carlyle Group (
The Blackstone Group (
TPG Capital (
Permira (
Apax Partners (
Bain Capital (
CVC Capital Partners (
Cinven (
Apollo Management (
3i (
Warburg Pincus (
Terra Firma (
Hellman & Friedman (
General Atlantic (
Charterhouse Capital Partners (
Sun Capital Partners (
BC Partners (
Bridgepoint Capital (
Doughty Hanson & Co (
TA Associates (
Advent International (
Clayton, Dubillier & Rice (
Barclays Private Equity (
Duke Street Capital (
Eurazeo (

GI Partners (
HIG Capital Europe (
IK Investment Partners (
Phoenix Equity Partners (
Rhone Group (
Silverfleet Capital Partners (
Hg Capital (
PAI Partners (
Cerberus Capital (
Star Capital (
Montagu Private Equity (
Omers Private Equity (
Arle Capital (
Vista Equity Partners (
Capvest (
Pamplona Capital Partners (
Elecktra Partners (
Inflexion Private Equity (
Sector Specialists
TMT, Growth Equity
Providence Equity Partners (
Silver Lake Partners (
Summit Partners (
GMT Communications (
The Gores Group (
Quadrangle ( - Media
Veronis Suhler Stevenson ( - Media
Consumer Goods
Lion Capital (
Neo Capital (

Financial Services
J.C. Flowers (
Corsair Capital (
JRJ Group (
Anacap (
Borealis (
Global Infrastructure Partners (
Clean Technologies / Environment
Climate Change Capital (
Specific Geographic focus
EQT Partners ( - Nordic, Germanic region
Vitruvian Partners ( Northern Europe including UK
Nordic Capital ( - Nordic region
Mid Europa Partners ( - Central and Eastern Europe
Actis ( - Emerging markets: Africa, China, India, Latin America
Aureos Capital ( - Emerging Markets: Africa, Asia, Latin America
Investment Banks Funds
Goldman PIA (
Morgan Stanley Private Equity (
Lloyds Development Capital (
If your ambition is to work for a private equity fund, not only must your resume
go past the headhunters, which are notoriously picky about who they send for PE
interviews, but it needs to get you a foot in the door of PE funds. Tailoiring
your CV is a critical part of the application process, because it will be used i
n the numerous steps that will follow if you are invited for a first round inter
view. In the UK, Private Equity funds will typically look for the following qual
ities in your CV :
>> Business Judgement


Strategic perspective and understanding

Interest for investing
Raw intelligence
Analytical skills
Knowledge of finance, accounting and modelling
Strong communication and social skills
Existence of network or potential network, and "pedigree"
Leadership and maturity

Therefore, to be invited for a first round interview, you need to bring out each
of those qualities on your resume. Of course, funds differ in size, investment
strategy and culture, so some funds will look for some specific qualities in mor
e details compared to others.
Guidelines by fund type
- The large private equity funds (with $1bn or more in asset under management) s
uch as Goldman Sachs PIA, Morgan Stanley Private Equity, Blackstone, Carlyle, et
c. will tend to focus on your LBO modelling skills. This is particularly true fo
r private equity funds with teams composed of ex-bankers so check their websites
and you'll know what to expect.
- "Consulting-type" funds that staffed mainly from ex-strategy consultants from
McKinsey, Bain&Co or BCG such as Bain Capital will look at your strategic thinki
ng abilities and your business sense. Therefore, showing a good understanding of
the rationale of a transaction is extremely important to them. Expect consultin
g-style case studies at the interview.
- Small and mid-market funds will be more focused on your personality and cultur
al fit with the firm. This is because for smaller firms, relationships are key a
nd you will be working very close with management teams of potential target and
portfolio companies.
What to write in my Education section?
- List any outstanding scores and significant scholarships (mention the amount)
- Mention any meaningful Club affiliation that are relevant to investments such
as Investment Club memberships, Private Equity or Asset Management Club, etc. Be
careful however, trading and picking stock is not what private equity companies
do, they are looking at the long term, so do not mention that you are a member
of a Sales and Trading Club.
- Any leadership positions you've had is a strong positive as it shows leadershi
p, maturity, good social skills and ambition.
- Finally, do not mention anything that is irrelevant (i.e. member of the Cookin
g Club) or indicates a lack of focus (ie. Marketing Club, Consulting Club)
Its generally a negative not to be from Oxbridge/Ivy League, but the way to
ensate for this is to have very high grades, a very good work experience at
firm (i.e. bulge bracket, top consulting firm), or a unique "angle" such as
languages (Nordic, Turkish, Eastern European, etc.), deep sector knowledge
pecial achievements.

or s

What to write in my Professional Experience section?

Applicants with banking experience need to bring out deal experience on the CV.
The best deal experience from PE funds' perspective is having advised a fund on
a successful acquisition, and any experience in financing and leverage-finance w
ork. Beware! they will grill you on those transactions! Also highlight sell side
, buy side, IPOs, etc that you have done, but give less details than for your Pr
ivate Equity-related deals.

Applicants with management consulting experience need to bring out operational e

xpertise. You will score a lot of points if you worked on due dilligence assignm
ents with PE firms. Also highlight any financial modeling you may have done, as
the main drawback of consultants is their lack of experience at building LBO mod
For all applicants, depending on the fund you are targeting, highlightings secto
r knowledge may be a good or bad things. Some funds prefer generalists, while so
me funds will want to hire you for a specific sector team (i.e. FIG, TMT). Just
make your due diligence on the fund you want to apply to, and tailor your CV acc
PE funds clearly favour top-tier firms, and especially US banks and McKinsey, BC
G and Bain&Co, and they like to hire people who they worked with on transactions
. Applying from a second-tier bank will definitely be a challenge (and a from a
third-tier and
small firm an major struggle), but it can be overcome if you have solid deal exp
erience or can excel in other areas, especially in terms of education, languages
, and fit with the firm's culture.
What to write in the "other interests" section?
Many applications to PE funds have very similar CVs: prestigious firm, very good
schools, and couple of interesting transactions. In the end, you need to have a
"special flavour" that will make a difference. Here is a checklist of good thin
gs to bring out:
- Activities pursue at a high level: for example, sports are always a good thing
s to bring out if you've played at a professional and semi-pro level. It is not
uncommon to see PE professionals who climbed the Everest, won a medal at the Oly
mpics games, or regularly run marathons.
- If you have any burning passions, mention them, but only if you are a genuine
expert and received tangible and impressive recognition for it (i.e. prizes, men
tions in the press)
- Language skills and citizenship are always valuable for big pan-European or gl
obal funds. For pure UK funds, be careful as this may well be a handicap, unless
they have explicitly require somebody with a specific language.
- Community service is often a plus, but not required (more of a tradition in th
e US).
Other General Tips
- Get your CV reviews by pople that have PE experience, if you can. Only work wi
th a few people you trust as getting too many reviews can be confusing.
- Say the truth. PE interviews are typically very detailed and "in-depth", so th
ere is no room to make up anything. Also remember that the PE community is a ver
y small world, and "stretching the facts" will easily spread to the other funds
and other potential employers.
- Prioritise your experiences. Take out anything that is not relevant out of you
r CV, and focus on the most relevant experiences, and go into details. Omit anyt
hing that was too short or that you would not be comfortable talking about.
- Use action phrases and not passive ones. "I was part of a team" is not good tell them what YOU were doing.

- Always make your due diligence on funds by checking the press, recent deals, c
hecking bios and googling the people you are going to meet.
- You can always anticipate at least 50% of the questions that will be asked abo
ut yourself and your CV. PE equity interviews are hard to get, so spend meaningf
ul time preparing to make the best of it!
Private Equity recruiting tends to be much more informal than banking or consult
ing, however there are some very common steps that most Private Equity firms tak
e for interviews. A typical process in the UK (or Europe in general) is describe
d below. For more detail on each step, please check our detailed posts on techni
cal questions, case studies, and psychometric tests.
The early rounds (first one or two interviews): psychometric tests, fit question
s, mini-case studies and random technical questions.
- Psychometric tests
These are numerical and verbal tests (most often SHL tests, examples here) desig
ned to complete a first cut in the applicant pool. Anything between 30% and 50%
of the applicants can be rejected at this stage, sometimes more, depending on th
e "pass" threshold. Sometimes, you will also be given a personality test. Make s
ure to ask if you will need to take these tests, as you will need some preparati
- Fit and CV questions
These questions involve having to first introduce your background, walking the i
nterviewer through your CV, and acing questions like, "Why private Equity?" and
"Why our firm?" Needless to say, you must have rehearsed this extremely well, as
this is probably the most important question you will be asked in the interview
- Mini-case studies and investment cases
Usually, private equity firms like to give small case studies to judge your busi
ness sense, gauge your understanding of the way companies operate, and to test y
our understanding of what drives return in an investment. This may consist of a
SWOT analysis on a particular firm (very often one of their portfolio company),
an investment rationale analysis, or asking your opinion on specific industries
or firms. This could be a simple question, such as "Do you think an airline woul
d be a good investment?" or more detailed questions with supporting data and cha
rts that you will have to analyse. Very often, if you are a banker and have work
ed on a deal, they will ask you your views on the deal and whether you think it
made sense.
- Technical questions
These accounting or LBO questions are nothing too difficult for a seasoned inves
tment banking analyst, but be ready to discuss how you build an LBO, estimations
of IRRs, and various types of debt instruments without hesitation.

Later Rounds (if you passed the early rounds): full-blown LBO Modelling Test or
Case Study test
This often involves a full-blown LBO modelling exercise and investment case anal
ysis based on an Information Memorandum or a case study provided by the private
equity firm. You will be given a laptop or be in a room with a desktop for a cou
ple of hours (one to four hours depending on the firm) to prepare a model and so
me slides based on the information provided. You will then need to present your
results to senior members of the firm. Again, if you are an experienced analyst
and if you get some LBO modelling practice this should not be too difficult.
Before the interview, make sure you practice creating simple LBO models from scr
atch. You should be able to pull together a simple LBO model in less than one ho
ur, starting from a blank page, by making reasonable assumptions.
Final Round: the likeability test
Most firms will do a dinner or drinks with the most senior partners in the firm
in the final stages (with the CEO himself or the company head), so that you can
get a final stamp of approval. Anything can be asked; some firms may try to dril
l down on your perceived weaknesses and ask more fit questions, you may just hav
e a pleasant and simple chat (but don't be fooled, every answer will be scrutini
sed), or you may be asked a lot of very personal questions. At this point, every
thing will come down to your personality, your career goals, and how likeable yo
u are as a person.
As a rule of thumb, smaller firms tend to be less technical and the interviews l
argely based on fit and personality, while larger firms (Blackstone, Apax, etc.)
tend to spend much more time testing your technical skills. However, most firms
will require you to meet everybody or at least 90% of the people in the fund, s
o be prepared for a very lengthy process that may last several months -and expec
t at least three months from start to finish.
Getting a job in private equity is often seen as the holy grail of finance. Howe
ver, once you have made your way into a private equity fund, how will your caree
r evolve, and how do you make it to partner? The traditional career progression
in private equity is detailed below.
Analyst or Pre-MBA Associate
-These are typically pre-MBA candidates hired from the investment banks, strateg
y consulting firms or accounting firms. They usually have two to four years exper
ience maximum.
- The job involves mainly prospecting (cold calling, screening sectors for inter
esting companies, etc.) as well as investment analysis. This involves reading Co
nfidential Information Memoradum (CIM) and other company data, working on financ
ial models and writing investment memos for the investment committee.
- After two years, sometimes there is a promotion to the senior associate level,
but often the analyst/pre-MBA associate will leave to either pursue an MBA at a
top school or change career path (i.e. entrepreneurship, hedge funds, corporate
development, or another PE fund).

- Compensation mostly consists of base pay + bonus.

Post MBA Senior Associate
- These are often hired right out of business school or one to two years after g
raduation from business school. These professionals have three to six years work
experience in investment banking, consulting and private equity.
- Senior Associates can expect to reach Managing Director/Partner level within s
ix to eight years.
- The work includes taking full responsibility for deal screening and modelling
during the execution of a deal. Most of their time is spent managing advisors su
ch as investment banks, lawyers, and accountants.
- Compensation mostly consists of base pay + bonus, sometimes with a small share
of investment profits.
Vice President / Principal
- Position usually reached after two to three years in the private equity fund.
- They are expected to be able to lead the execution of transactions, source the
ir own investments, and create ideas within their area of expertise.
- They also spend a lot of time managing the portfolio companies.
- They get promoted to partner if they demonstrate a good ability to generate mo
ney for the firm.
- A share of profits of the investments is an increasingly large portion of the
compensation.Managing Director / Partner
- In charge of leading the firm's investment focus and strategy, as well as mana
ging relationships with investors and raising new funds.
- Participate in investment decisions, sit in the investment committee, and sit
on the portfolio companies board.
- Compensation is largely driven by profits of the firms. Partners are also expe
cted to invest a significant proportion of their personal wealth in the fund.
Private Equity as an Asset Class*
An introduction to private equity in five sections: (1) Definition and structure
of the industry (2) Buyout funds (3) Venture funds (4) Development/Growth funds
(5) Due Diligence and other topics. The good point about this book is that it d
oesn't get overly technical from the start, but takes some time explaining the b
usiness model of private equity firms in general. Nevertheless, bear in mind tha
t this book is written from an investor perspective (the people investing in the
fund) as opposed to the private equity fund manager s perspective.

The Predator's Ball: The Inside Story of Drexel Burnham and the Rise of the Junk
Bond Raiders*
This book is largely about the emergence of junk bonds, which are the type of de
bt used to finance Leveraged Buyouts (LBOs), without which the private equity ma
rket would not really exist. The books focuses on the rise and fall of legendary
investment bank Drexel Burnham Lambert, the bank that ruled the junk-bond world
in the 80s.
Barbarians at the Gates*
A very long book by Bryan Burrough and John Helyar, but also a mandatory read fo
r future leverage buyout moguls. This book relates the true story of a bidding w
ar for RJR Nabisco (one of the largest consumer goods company in the U.S. at the
time), who was ultimately acquired by KKR. We recommend this book because it is
well-written and relates to a true, very important event of financial history;
also, it will give you a good idea of the political fights that occur during lar
ge leverage buyouts. You will get a good overall understanding of how private eq
uity companies think and work.
The New Financial Capitalists: Kohlberg Kravis Roberts and the Creation of Corpo
rate Value*
This is a study of private equity pioneer and powerhouse KKR. This is a great re
ad for many reasons; it not only gives you an unbiased story of KKR s rise to prom
inence, but it also details other aspects of private equity such as deal structu
ring, definitions of technical terms, and an interesting insight into entreprene
Mr. China*
Mr. China is not only a book about doing business in China. It tells the real st
ory of a tough Wall Street banker coming to China to buy companies, eventually s
pending $400m buying Chinese companies in the 90s, with somewhat disastrous (and
sometimes hilarious) results. It is incredibly well-written, and provides a very
good insight into doing private equity in China, and also about how difficult i
t is for private equity firms to manage and turn around the companies they buy.
* Not technical **Some technical language *** For advanced/experienced professio
When a private equity firm conducts a "leveraged buyout", or LBO, it uses a sign
ificant amount of debt. The list below is a high-level explanation of the differ
ent types of debt instruments that are commonly used in LBO transactions. When p
urchasing a company, the private equity fund will usually provide anything betwe
en 30% to 50% of the purchase price in equity (i.e. the fund s own money), and bor
row the rest. The 30% to 50% range varies depending on market conditions and the
type of company that is bought, but most LBOs usually fall in that range. The t
ype of debt used, in order of risk (from the lending bank's perspective), includ
Senior Debt

This debt ranks above all other debt and equity capital in the business, meaning
it needs to be repaid before other lenders can receive any cash. The debt has v
ery strict requirements (i.e. must comply with specific financial ratios), and i
s usually secured against specific assets of the company. This means that the le
nder can automatically acquire these assets if the company breaches its obligati
ons. Therefore, it has the lowest interest rate of all these types of debt and,
from the lender s perspective, this is the most secure form of financing. Debt rep
ayments can be spread over a four to nine-year period or be paid in one final pa
yment in the last year.
Subordinated Debt
This debt ranks behind senior debt in order of priority on any liquidation. Repa
yment is usually required in one payment at the end of the term (as opposed to s
preading the repayments over a number of years), and the maturity can range betw
een seven to ten years. The requirements of the subordinated debt are usually le
ss stringent than senior debt, but since subordinated debt gives the lender less
security than senior debt, lending costs are typically higher.
Mezzanine Debt
This is usually high-risk subordinated debt, and ranks behind senior debt and un
secured debt. Interest on mezzanine debt is much higher, but while part of the i
nterest needs to be paid in cash, another part (called a PIK, or paid in kind ) is
rolled up into the principal. For example, if you borrow 100 shares of mezzanine
at 10%, with 5% cash and 5% PIK, you will have to pay 5 in cash in interest in
the first year, and the remaining 5 will accrue to the principal. Therefore, the
following year, you will need to pay 10% on the new principal of 100 + 5 accrue
d in previous year (which equals 105), and this continues until maturity when th
e full principal needs to be repaid (usually within 10 years). Sometimes the mez
zanine debt will also include warrants or options so that the lender can partici
pate in equity returns.
Private Equity is essentially about buying and selling companies. But what do pr
ivate equity professionals really do on a day-to-day basis? The time of private
equity professionals is divided between four main categories:
Raising money
This task is mostly performed by the senior partners in a private equity fund, b
ut sometimes a dedicated fundraising team will work within some of the larger fu
nds. Essentially, every four to five years or so, the senior management will go
knock at the door of international investors such as pension funds, banks, insur
ance companies and high net worth individuals to raise money for their next fund
. This goes in cycle: when the current fund is close to being fully spent (i.e.
~70-80% of the money has been invested in companies), the senior management will
go on the road and ask for fresh money. Fundraising involves presenting the pas
t performance of the fund, its strategy, and the individuals working in the firm
who will be in charge of making investments. All of this is needed to convince
those institutions to invest money with the firm.
Sourcing and making investments

The "sourcing" (i.e. finding investments) part is largely done by mid-to senior
management, and involves looking for potential targets and reaching out to the m
anagement of those companies, either directly or via a middleman such as an inve
stment bank. Many private equity funds will specialise in sectors and/or regions
; their dedicated teams will have very strong knowledge of all the attractive co
mpanies in a specific sector and will also know potential targets' management te
ams well. The "making" part, which represents the process of acquiring a company
, is the responsibility of the junior team, under the seniors supervision. This i
nvolves drilling into the financial performance of the company, analysing the tr
ends in the industry, negotiating with the target, and coordinating the work of
advisors: investment banks, accountants, strategy consultants, lawyers, technica
l experts, etc. Once they have analysed sufficient information, the team will pr
esent an "investment paper" to the senior partners to propose the investment. Th
e senior partners will then vote to accept or reject the investment.
Managing investments
Once a company has been acquired, it needs to be managed for a couple of years u
ntil it is sold off. While private equity professionals are not involved in the
day-to-day running of the companies they buy, they will monitor performance and
be involved in important strategic decisions. While some firms have specialist t
eams that manage investments ("operations teams"), most of the time the team tha
t worked on the transaction will be in charge of monitoring the company.
Selling off companies
Returns are only really generated when companies are sold (at a profit). Investm
ents are typically kept for three to five years, and will be sold after that tim
e period. This process is also usually managed by the more junior team under sen
ior management supervision. Companies can be sold though a sale to another compa
ny, a sale to another private equity firm, or via an IPO on the stock market.
Private Equity is often viewed as the holy grail for many professionals working in
finance, especially for those from investment banking and strategy consulting.
However, those who manage to make the switch to Private Equity usually do so at
a very young age, either in their mid-twenties or early thirties. So, do they ke
ep working in private equity for the next 30 years? Can they change jobs? Below
is an overview of the potential career exits open to private equity professional
1. Moving to a hedge fund
Many private equity professionals get frustrated by the slow pace and tedious ad
ministrative tasks of deal-making, and by the long time it takes to make large p
rofits. If you work in private equity, you will not be able to become millionair
e overnight - it will take at least five to ten years. Therefore, a lot of PE pr
ofessionals decide to move to hedge funds, where returns can be made quickly and
money can be earned (but also lost) more rapidly. There are some similarities b
etween hedge funds and private equity; both are about investing money wisely, so
junior private equity professionals can easily make the switch.
2. Becoming a venture capitalist

Some private equity professionals may also find that doing large deals is not as
exciting as investing in startups, and may switch to VC funds. This is more com
mon for people that have a sector focus such as Media, Technology or Healthcare,
given that those sectors are favoured by Venture Capitalists.
3. Launching your own fund
This is not really a career change per se, but many private equity professionals
dream about launching their own funds. This happens more frequently for senior
professionals who have a track record and large networks.
4. Joining a Corporate / Portfolio Company
One of the most interesting aspects of working in private equity is helping the
portfolio companies to grow. Private Equity professionals quite commonly decide
to go to work for one of their portfolio companies in a senior position (i.e. CF
O, CEO, Head of Business Development). This can become quite lucrative, as you w
ould usually be granted stock in the company and make a substantial profit if th
e exit is successful. It doesn't even have to be one of the portfolio companies
- the private equity skillset if very well suited to roles in corporate strategy
and finance.
5. Moving back to advisory roles (i.e. investment banking, private equity strate
gy consulting)
This is not the most common move, but some private equity professionals can deci
de to move back to investment banking or other advisory roles for a variety of r
easons, including redundancy, failed fundraising, poor economic environment, or
if they just find it to be more lucrative.
6. Secondary funds, Fund of Funds
Some PE professionals leave to join secondary funds or fund of funds companies.
Secondary funds are funds that purchase portfolio companies from private equity
funds directly (it can be one or many), usually at a steep discount. The private
equity funds often need some liquidity for a variety of reasons, i.e. they want
to exit from a specific sector or close down the fund rapidly. Funds of funds a
re funds that invest in private equity companies as opposed to investing in comp
7. Entrepreneurship
Most private equity professionals are highly entrepreneurial and always have som
e great business idea at one point or another, especially at the junior level. P
rivate equity is also very helpful if you want to become an entrepreneur, becaus
e the opportunities to learn and network are fantastic.
The whole private equity business model is based on "profit sharing" i.e.sharing
the profits made from the investments. Therefore, compensation is quite differe
nt from what you would encounter in a typical corporate environment, or within i
nvestment banking.
How do Private Equity firms get paid?

Private equity firms get paid in two main ways: management fees and carried inte
- Management fees are paid regularly by the Limited Partners (i.e. the people wh
o gave the money to the firm to invest) to the fund. This is calculated as a % o
f the assets under management. For example, if the Limited Partners invested $1
billion with a private equity fund, they will pay something around 2% of that am
ount (1bn x 2% = $20 million) per year to the fund as a management fee. Why do t
hey have to pay this given that they already gave the fund money to invest? This
is because the private equity funds have a lot of ongoing expenses that they ne
ed to cover: salaries, deal fees (that they pay to investment banks, consultants
), travel, etc.
- Carried interest: this is a percentage of the profits that the fund gains on t
he investments. For example, if a company is bought for $100 million and sold fo
r $300 million, the profit is $200 million. The private equity firm usually take
s about 20% of that amount ($40 million), and the rest goes to the investors. Ho
wever, it is not that straightforward in reality - there is often a "hurdle" rat
e of return that the fund has to make before they get paid anything. For example
, the Limited Partners may ask that the fund only gets paid if the return is ove
r 8% per annum. In addition, the profit is calculated for the performance as a w
hole for the whole amount invested (that may be 10 to 15 deals), not on a deal-b
y-deal basis.
- "Others": some private equity firms charge "deal fees". That means that each t
ime they buy a company, they may charge some extra money to the investors. This
is in theory to cover the extra expenses incurred during a deal. How do Private
Equity professionals get paid? Private equity professionals compensation reflects
the way the overall firm gets paid:
- Base salaries: usually on par with investment banking or consulting (sometimes
slightly lower)
- Year-end bonuses: usually lower than what you would get in investment banking
- A "carry" component: represents the individual's share of profits. The more se
nior your level in the fund, the larger percentage you will receive of the overa
ll carried interest. This profit share is always paid when all the profits in th
e fund have been realised (which can take five to seven years), and this can be
very substantial because private equity funds are small, but they can manage ver
y large amounts of money.
- Coinvestments: some private equity firms allow employees to invest their own m
oney in some deals, and if the deal is successful, you could realise a significa
nt profit as well.
This is a very common Private Equity interview question, and you might also enco
unter that type of question in interviews for investment banking, equity researc
h or even capital markets roles. Not all companies are suitable targets for LBOs
, and private equity firms will only invest in companies exhibiting the followin
g characteristics:

Strong and stable cash flows

Private equity deals get enhanced returns because they use a significant portion
of debt to finance their investments. For example, if the company costs 100, the
y can typically use 50 of their own cash to pay for it, and 50 of debt. The proces
s of using debt is called "leveraging" or "gearing" a company. This means that t
he company will have to make substantial monthly or quarterly interest and princ
ipal repayments on the debt, and it cannot afford to miss any of those payments.
For this reason, the bankers will only be happy to lend significant amounts of
money to companies that have strong, stable, and predictable cash flow.
Low capital expenditure requirements
Private equity tends to stay away from companies that require heavy investments
in plants, machinery, or equipment as these are a drain on cash. Examples of cap
ital expenditure intensive industries are energy, utilities, manufacturing, cons
truction, and transportation. Industries that require less capital expenditure a
re software companies, online businesses, and publishing ventures.
Leading market positions
Attractive companies have proven products and good management, which usually tra
nslates into a "top three" positioning. Strong positioning is also typically syn
onymous with strong and more stable cash flow.
High barriers to entry, niche markets
High barriers to entry and niche positioning will protect the company from compe
tition, which could hurt cash flow and the company's ability to repay debt.
Potential for margin improvement or cost reduction
This can be observed by comparing the company cost structure to its competitors
and will be a source of value creation for private equity, which will "restructu
re" the business to some degree. Private equity firms often hire consultants tha
t identify those strategic and cost improvements.
Strong existing management team or availability of new management team
Strong management is always a positive, even though new management is often brou
ght in during a LBO.
Acquisition opportunities
Acquisitions are a good way to grow companies quickly. Therefore, private equity
firms will analyse the industry to identify potential targets. An industry with
many players is called "fragmented".
Good exit potential
A private equity firm will need to be convinced that a suitable exit can be foun
d. This will normally occur by way of trade sale (selling to another company), s
econdary sale (selling to another private equity firm) or IPO. A buyer will typi
cally have a time horizon of between three and five years, although a number of
financial buyers target longer or shorter periods.

Private equity funds are private pools of money managed by "general partners" wh
o aim to generate a return to the investors ("limited partners") who are investi
ng their money in the fund. Private equity funds can manage anything from 50 to 1
00 million to several billions.
The general partners will charge a percentage fee of the total amount that they
manage (typically 1.5% to 2% per year) and they will also keep a share of the pr
ofits they generate (usually 20%). Private Equity is called "private" because it
is a source of funds that do not originate from "public" sources such as bonds
or listed equity. The funds are used to invest in companies, usually acquiring a
significant stake to gain control over the firm's management. When a private eq
uity firm makes an acquisition, they use significant amounts of debt, and theref
ore such acquisitions are called "Leveraged Buy Outs" or LBOs. The practice of L
BOs was pioneered by firms such as Kohlberg, Kravis & Roberts (KKR) in the 1970s
and over the last three decades, LBOs have assumed roles of ever-greater import
ance in the financial world.
How does an LBO work? How do they make money?
Private Equity funds buy companies using significant amounts of debt instead of
their own money, which holds a number of advantages:
1. Interest on debt is tax-deductible.
2. If the company has a lot of debt, a small change in its overall value will ha
ve a strong impact on the equity value (i.e. the money invested by the fund). Th
is effect is called "gearing". A simple example: imagine you buy something for 10
by borrowing 9 and using 1 of your own money. Three years later, it is worth 12 (2
0% increase). You pay back the 9 of debt and you keep the 3 extra, so you made 300
%! In real life, the process is complicated by taxes, interest, and debt repayme
nts but the theory is the same. Bear in mind that the interest you pay on the de
bt is fixed, so the private equity firm can pocket all the extra return.
3. Because cash flow is tight due to debt repayment, debt keeps management disci
4. Most LBOs are structured so that management is also given a substantial incen
tive to perform in the form of equity.
5. Private Equity funds will then help the company to achieve an optimal strateg
y (i.e. revenue growth, cost-cutting) with the aim to exit and sell the company
within four to five years (after some of the debt has been repaid), either to an
other company, another private equity fund, or through an IPO.
How are they different from venture capital or hedge funds?
Venture Capital firms invest in early-stage companies (or "start-ups"), and make
smaller investments (a few millions at maximum). Venture Capital firms also tar
get very high-growth companies with huge potential, i.e. Internet companies such
as Facebook, Google, and other innovative technology firms in healthcare, renew
able energy, biotech, etc. but that also have more potential to go bust! Hedge F
unds invest in publicly listed securities and usually do not seek to gain contro
l of companies they invest in. Also, hedge funds tend to appeal to very short-te
rm investors (from days to less than one month).
Where does the money come from?

Wealthy individuals, pension funds, and mutual funds are the typical investors i
n private equity funds.
What kind of companies do Private Equity funds buy?
Because LBO returns (on average 20-30% over four to five years) can only be achi
eved with a lot of debt and good growth potential, the target companies have to
be quite stable. So strong, niche, market-leading companies with cost-cutting an
d expansion potential in non-cyclical industries are favoured targets.
What kind of people work for private equity?
In the UK, there are four kinds of backgrounds:
Ex-investment bankers
Ex-strategy consultants
Ex-Big 4 accountants
Industry experts such as ex-CEOs or senior managers of corporations.
Many of these people come from Oxbridge/Ivy League universities, often with top
What about job prospects and salaries?
Because firms are very small (10 to 20 people on average), there are very few jo
bs available. Also, requirements are very high due to the high level of responsi
bility. This makes the industry extremely competitive, even much more than inves
tment banking. Salaries are on par with investment banking, bonuses are usually
lower, but you will get the opportunity to share in the profits generated by the
fund, which can be substantial.
You can check our list of London-based PE funds
Below is a list of the top hedge funds based in London. This list only includes
the large hedge funds, with assets under management of at least over $1 billion.
Note however that those hedge funds are a mix of macro funds, relative value, c
redit, equity long/short, multi-strategy, fixed-income, arbitrage, activist, bon
ds and so on.
Brevan Howard ( - one of the largest European hedge funds
Man Investments (
BlackRock (
BlueCrest Capital Management (
Lansdowne Partners (
Winton Capital Management (
Transtrend (
Sloane Robinson (
Gartmore Investment Management (
Citadel (
Och-Ziff (
Spinnaker Capital ( - Emerging markets
COMAC Capital (
Jabre Capital Partners (

Capula Global ( - government fixed income specialist

Cheyne Capital (
Marshall Wace (
CQS Management ( - Credit hedge fund
Aspect Capital (
Cevian Capital (
Arrowgrass ( - grown out of the market leading convertible bo
nd franchise at Deutsche Bank
Prosperity Capital Management ( - long-only, activist
strategy in Russia/CIS
Pharo Management ( Specialises in emerging markets
Henderson Global Investors (
James Caird Asset Management - credit hedge fund
BlueBay Asset Management ( credit hedge funds
Millennium Global Investments (
Thames River Capital (
TT International (
Odey Asset Management (
Toscafund (
Ecofin ( - specialises in utility, infrastructure, alternative
energy and environmental sectors
Armajaro ( - commodities
Tyrus Capital (
Boussard & Gavaudan (
Altis Partners (
This type of paper LBO test is an interview exercise you will be facing, often m
ultiple times, in the course of a Private Equity recruitment process. Make sure
you are able to go through this exercise reasonably quickly and without the help
of Excel or a calculator. Clearly state the simplifying assumptions you are mak
ing and their implications.
Investment assumptions
* The team is considering the purchase of a company on the 31st of December of Y
ear 0;
* Entry multiple: 6.0x LTM EBITDA;
* Entry Debt quantum: 3.0x LTM EBITDA;
* Assuming no financing and transaction fees;
* Interest rate for the debt negotiated at 5%;
* Debt repaid as a bullet at the end of the investment period;
* Sales: $100m in Y0, growing at 10% year-over-year (y-o-y) for the next 5 years
* EBITDA: historical margin at 40% of Sales;

* Depreciation & Amortization: $30 million per year, steady;

* Capital Expenditure: 15% of Sales;
* Net Working Capital (NWC) requirements expected to increase by $2 million each
* Marginal tax rate of 25%;
* Exit at the same entry EBITDA multiple, after 5 years.
NB: On most occurrences, you will not be given such a data set and will therefor
e be expected to either ask for some more information or come up with your own a
Step-by-step model
1. Transaction metrics
Start by calculating the firm value at entry, the debt quantum, and deduce the e
quity acquisition price. Sales for Year 0 were $100m with an EBITDA margin of 40
%, which gives an LTM EBITDA of $40m and therefore an entry Firm Value of $240m.
The quantum of debt is determined in a similar way, giving $120m. The equity ch
eque is therefore $120m.
Other interviewers will give a leverage ratio instead of a debt multiple; the de
bt is then computed directly from the Firm Value.
2. Sales and EBITDA
Use growth and margin assumptions to calculate the Sales, then EBITDA, for every
year. Do not hesitate to ask your interviewer if rounding is acceptable; it wil
l save you a lot of time, show that you are fully aware of the approximation you
are making, and gives excellent results.
3. Interests & taxes
Apply the interest rate provided to the Debt nominal amount to calculate the yea
rly interest expense. Taking out the interest expense from the EBITDA leads to t
he EBT, from which taxes are calculated. This then leaves us with the Net Income
4. Cash flows
The goal here is to come up with the cash flows available for debt repayment for
every year. From the Net Income, all the cash expenses (here Capex and increase
in NWC) should be taken out. Since D&A is a non-cash expense, it should be adde
d back in.
5. Firm Value at exit
Applying the exit multiple to the year 5 EBITDA, we come up with the exit Firm V
alue. The debt at exit is the debt at entry, minus the cumulative cash flow avai
lable for debt repayment. Subtracting this new debt number from the firm value g
ives the exit Equity amount.
6. Cash multiple and IRR
The cash multiple (also called money multiple) is defined as the ratio of exit t
o entry equity.

The IRR is the yearly return of the investment. This often requires a calculator
, nevertheless, a few approximated figures are worth remembering, e.g. a cash mu
ltiple of 3x over 5 years is equivalent to a 25% IRR. For more accurate figures,
have a look at the conversion table below.
All done, congratulations!!
Now, repeat this exercise with only a pen and paper and come up with new sets of
assumptions. Train and train again until you are able to do all this by heart a
nd fairly quickly.
For mode practice, check out our private equity case studies and modelling tests

All done, congrats !!

Now, repeat this exercise with only a pen and paper and come up with new sets of
assumptions. Train and train again until you are able to do all this by heart a
nd fairly quickly.
For mode practice, check out our private equity case studies and modelling tests


Operating assumptions
Smart Gaming Ltd develops games for smartphone users. The main product is sold f
or 19.90 per download (this is a one-off cost). The company sold 1.5 million copi
es in 2011 (the first year it started trading) and 2.5 million copies in 2012. T
he number of downloads is expected to grow by 30%, 20%, 15% and 10% going forwar
d over the next four years. Every game sold generates an extra 5 revenue per year
(i.e. in-game products and advertising) which is recurring and increases by 20%
every year. However, only 30% of the users keep the app on their smartphone eve
ry year (that is, only 30% of the previous year user base keeps using the produc
Cost / cash flow items:
Royalties to patent owners = 4.00 one-off per download
Customer acquisition cost = 2.00 one-off per download
Fees paid to smartphone companies = 15% of sale price one-off
Rent = 150,000 annually, growing 5% every year
License fee to telecom Internet providers = $1.5 million annually, growing 3% ev
ery year
Salaries and benefits = 1.75 million annually, growing 30% every year
Other administrative costs = 450,000 annually, growing 25% every year
Fixed assets depreciation: 5 years straight-line from 2012
No change in working capital
Intangible / other assets: no change

Capital expenditure: 300,000 per year

Tax: 25%
Candidate Instruction
Build an LBO model based on the information below, including the following:
Flexibility for base, upside, and conservative cases on sales growth
Exit Returns schedule (including both cash-on-cash and IRR) showing the returns
to the financial sponsor equity
Time allocated: 3 hours
Good Luck!
For a worked out answer, please check here
For higher level practice, we also have more case studies here
Private equity interviews are notoriously difficult and compeitive, with 1000s o
f CVs and often 100s of candidates being interviewed for a single position. Ther
efore, private equity firms can afford to be very demanding and small mistakes c
an prove to be fatal in private equity interviews.
1. You didn't research the private equity fund deals
Altough this may sound basic, a very common mistake of private equity interview
candidates is to forget to do proper research on the fund they are interviewing
with. At minimum, one should have read the website, read the recent news, and me
morised 2 or 3 investments that the fund has made. Fair questions may include "w
hich deal do you like most and why", "which deal do you like the least", "why do
you think we invested in XXX", and "have you read about our latest deals". Make
sure you understand the investment thesis for at least 3 of them, read press ar
ticles and any other source of information you can find. Even better, if you get
the chance to have informal conversations with other members of the team, do as
k them about their deals. Similarly, if you know a banker or consultant that wor
ked on the deal, try to gather some information. Well informed and prepared cand
idate always impress, and unprepared candidates will seem not motivated.
2. You didn't prepare investment ideas
Another fair question in private equity interviews is "do you have any investmen
t ideas for us?". This is a very standard questions and I would recommend to pre
pare at least 2 ideas (ideally 3) that are well developed and thought out. Those
should be real companies and investment opportunities. You will not be expected
to know all the details, however you will be expected to know the investment ra
tionale, some key financials, some industry trends and why you think it would be
a good fit for the fund. Typical mistake include having too broad ideas (i.e. I
think a bank would be a good investment), or something innapropriate for the fu
nd (because of size, geography or sector, for example).
3. You don't know your deals
Anything on your CV is fair game.If you are a banker or consultant, you will be
expected to know about any transaction you worked on in great detail (especially
for the recent ones). Rationale, financials, deal specifics, strucuture, proces
s, pricing of debt intruments, your exact role in the deal, etc. Anything that i

s not confidential could potentiall be asked. Typical mistakes and red flags are
vague answers or lack of understanding of the deals you worked on. After all, a
s an investor, you should demonstrate great attention to detail and curiosity, a
s well as an ability to think like an investor.
4. Not getting the culture fit
Culture fit is always a tough one. However, reading up on firms history, the tea
m member profiles, a bit of social networking stalking (i.e. linkedin) combined
with help from the headhunter if you are using one, should help you understand t
he "cutlure fit". To illustrate, a fund may be looking for highly technical, har
d driving people. This may be obvious from the team members backgrounds (i.e. bu
lge brackets, technical degrees, etc.). In this case you should emphasise this s
killset. Some other funds may look for more "humble" attitudes especially as you
decrease in investment size, and again this may be evidenced by the dress code,
more diverse backgrounds (i.e. accountants vs bankers, less elitist schools, et
c.) and you should therefore adjust your interview style accordingly.
5. Not being prepared for the obvious interview questions
The reality is that you are able to predict with a great degree of certainty at
least 80% of the interview questions. Therefore, failing to give a clear and str
aight answer to questions about your deals, your CV, why private equity, why thi
s particular fund, etc. is usually not well received. Most of the unknows are ar
ound the case studies, modelling tests and some fit questions - the rest is fair
ly standard.
6. Lacking number skills
Many funds like to put candidates under pressure, and testing numerical skills a
re a good way to do this. Arithmetic questions, brainteasers, doing simple LBO m
odelling in your head and converting Cash on Cash returns toIRRs should be somet
hing you are very comfortable with. If not - do practice! Also, when asked techn
ical questions or numerical questions, it is absolutely fine to take a bit of ti
me to answer. The key here is the control your stress and getting it right.
7. Being overly confident
While all of the above mistakes involve some lack of preparation, another red fl
ag in private equity interviews is overconfidence and arrogance, which can actua
lly be fairly common in interviews. Make sure that you are not leaning back on y
our chair, o not be overfriendly with the senior members of the team, and, at al
l times, make sure that you demonstrate that you are very keen to get the job.
A large majority of private equity professionals have an investment banking back
ground, and many investment bankers are thinking of making a switch to private e
quity one day. However, there are some major differences in skillset and culture
between those two professions. Often, private equity firms would like to hire b
ankers "early," i.e. after one or two years experience at an investment banks. Th
e reason is that those firms are sometimes afraid that a potential recruit who h
as spent too much time in investment banking will acquire a "banker mindset". Be
low are some of the key differences between those two jobs.

Private equity involves using your brain a lot more

A lot of investment bankers tend to be deal-driven. The "hunger" to close many l
arge deals is actually a weakness in private equity because it s not about generat
ing fees anymore. Private equity professionals need to do good deals and be read
y to step back even after months of hard work if the deal will not generate suff
icient returns. What does this mean in practice? This means that you will spend
a lot of time analysing the industry in much greater detail compared to banking,
assessing management team's ability to meet the targets, think about exit strat
egy, incentives, deal structure, all possible or potential downside risks, and c
ountless other issues that could make the deal good or bad. Private equity is no
t gambling or even venture capital investing in which you would typically expect
a few losses. Private equity is about generating consistent high returns with m
inimum risk.
Private equity is a long-term game (5+ years)
While the pay might be a little bit higher or lower in PE (depending on the fund
size), the money is made from the carry , i.e. the share of the profits when compa
nies are sold. This carry is earned over time, so it doesn't make sense to jump
from one place to another anymore. A bad year in banking might prompt you to cha
nge your employer, but a bad year in private equity will just be a fact of life
and you need to take a more long-term view. In addition, the few partners who ru
n the firm will make the decisions about carry allocation, so building long-term
relationships with them will be very important to your financial success.
You think you are good at modelling? Think again
While many bankers are very good at modelling, private equity modelling tends to
be much more detailed and focus on completely different issues. Modelling in pr
ivate equity often depends on designing the optimal capital structures (debt/equ
ity) and also the incentive structures (preference shares, bonuses, management e
quity, etc.). The modeling tends to be much more complex and detailed, so assump
tions in your operating model will be challenged by the team and due diligence a
dvisors. In addition, the pressure is much more intense because the deal team wi
ll rely on your model to make investment decisions, so millions will be at stake
Showing an entrepreneurial mindset is key
Being creative and entrepreneurial are very desirable characteristics for most P
E funds. Finding deals, networking, formulating new ideas, and considering all k
inds of risks and opportunities around deals and companies can make a substantia
l difference to the profitability of the firm. Also, private equity professional
s need to understand the in-depth aspects of overseeing companies; therefore pro
fessionals with some start-up or entrepreneurial experience are valued because t
hey understand all of those important details.
Working hours may not be shorter!
If you work for a very large firm - hours will be banking hours. Even if you go
to a smaller firm, you will still work a good 60+ hours per week and your schedu
le will remain somewhat unpredictable due to due diligence meetings, management
meetings, and other deal-related, last-minute requests. While the lifestyle is b
etter, you're still working in a deal-driven environment.
The pay
The base salary and bonus structure might not differ that much from that in bank
ing, but the money in private equity is made when a fund closes and when exits a

re made. Don't be expecting a steady bonus and promotions every few years. What
matters most now is the fund performance, not your own individual achievement. Y
ou may have built the best models and worked on the biggest deals, but if the re
turns are not there, you won't get paid.
The grunt work
The amount of grunt work definitely decreases in private equity. There are fewer
administrative tasks, printing of books, and many people-intensive tasks can be
outsourced to banks and advisors. But essentially, what you do is the same as i
n banking: analysing companies, building operating and LBO models, dealing with
all the legal documentations (i.e. reviewing NDAs, term sheets) and making prese
ntations to the investment committee.
Finding deals
Finding deals is something completely new for investment bankers. While you will
not be expected to bring deals immediately, eventually the team members will ex
pect you to be able to build relationships with bankers and screen through the d
eals to find some that are appealing, and also to cold call or approach companie
s directly. This is a key aspect of becoming a private equity professional; many
junior bankers find the transition difficult as they have been handed out deals
to work on in their banking days.
Social life
Social life in investment banking can actually be quite exciting. You're working
in firms with thousands of employees; there are many peers to discuss and to sh
are your war stories with, junior bankers are usually all below 30 and there is
a work hard/play hard mentality. Also, the turnover is quite high in banks; new
analyst and associate classes arrive every year, so it can be a very stimulating
environment. Private equity is completely different. Teams are small (maybe 10
to 30 people), many of the partners and senior investors are much older, and peo
ple don't really move upward or downward. Considering that the typical profiles
of private equity professionals tend to be quite "standard" (i.e. top school, in
vestment banking/strategy consulting background, etc.), therefore social life te
nds to be less fun. Choosing the right firm with the right culture fit is very i
mportant and you need to make sure that you will get along with your interviewer
Communication skills are extremely important
Communication skills and personal skills are extremely important in private equi
ty. You can be a top modeller and be extremely hardworking. However, to convinc
e the investment committee, get people in the firm to support you, get the manag
ement team to work with you, and find out the best deals from the intermediaries
, you will need for people to like you. Most of the senior private equity profes
sionals are charismatic individuals (at least when they need to be), and there i
s little space for professionals who are either too shy or arrogant.
Cv 1 Test Cv 1 Test Cv 1 Test Cv 1 Test Cv 1 Test Cv 1 Test Cv 1 Test Cv 1 Test
Cv 1 Test Cv 1 Test

Cv 2 Test Cv 2 Test Cv 2 Test Cv 2 Test Cv 2 Test Cv 2 Test Cv 2 Test Cv 2 Test
Cv 2 Test
Lifestyle 1 Lifestyle 1 Lifestyle 1 Lifestyle 1 Lifestyle 1 Lifestyle 1 Lifestyl
e 1 Lifestyle 1
Career Avcice 1 Career Avcice 1 Career Avcice 1 Career Avcice 1 Career Avcice 1
Books 1Books 1Books 1 Books 1Books 1Books 1 Books 1Books 1Books 1
Books 2 Books 2 Books 2 Books 2 Books 2 Books 2
Questios 1 Questios 1 Questios 1 Questios 1 Questios 1 Questios 1

2013-2016 ASKIVY.