Home > Resources »> Career » Private Equity Interview Questions Private Equity Interview Questions Prepare forthe 4 most common types of questions Private Equity Interview Questions & Private equity river view quesuiens o Answers ‘This guide will help you prepare for and ace the most common private equity Interview questions. The main types of PE interview questions you wil encounter Include technical knowledge, transaction experince, fem In ation, you may also be asked to complete a practical finan modeling-eated Equity Interview Questions : Types of Private S ‘Types of Private Equity Interview Questions ‘As mentioned above there are generally four types of questions youll usually lencounterin a PE interview. The four types ace 1. Technical knowledge fina wanting, modeling) 2. Transaction experience (deals youve worked on) 3. Frm knowledge what you know about the PE fs In the sections below, we wll go through the mast common pvate equity interviewquestions ana answers #1 Technical Private Equity Interview Questions What are the limitations of DCF model? White ciscounted cash flow analysis isthe best method avallable fr assessing the Invrinse value of business, nae several imtations. One eu le tat the terminal value represents a disproportionate large amount of the value ofthe total business, ‘and the assumptions used to calcul the terminal yslue(pernetual growth or ext ‘ulti are very sensitive, ‘Another issue that the discount rate use! to calculate net present values very sensitive to changes in assumptions about the beta risk premium, etc Final, the entre forecast forthe business is based on operating assumptions that are neatly Inspossble to accurately predic. What are the most important factors in a merger & acquisition model? From valuation perspective, the most important factors in an MEA mode! are synergies, the form of consideration (cash vs shares), and purchase price. Synergies enable the acquiing company to realize value by enhancing revenue or Feducing operating costs, and this typically the biggest driver of value in an MBA eal note: synergy values are very hard to estimate and can often be overly optimistic. ‘The mix of ash s. share consideration can have a major Impact on accretionvaiuion of per-share metres (such as EPS), Tomake a deal more accretive, the acquirer can ‘asd more cash tothe mix and isue fewer shares. inal, the purchase price and takeover premium are majr factors inthe value that’ created, What indicators wou ikl tll you fan MBA deal is accretive or ‘The quickes way to tel ifa deal between two pubic companies would be accretive Is te compare their P/E multiples. The company witha higher PIE multiple can acquire lesser valued companies on an accretive basis (assuming the takeover premium not too high). Another important factor isthe form of consideration and mix of cash vs share (se the previous question) ‘what assumptions is an L80 model most sensitive to? LO models are mast sensitive to the total leverage the business can service (typically besed on the debuEBITOA ratio the cst of debt, and the aquisition or ext multiple ‘assumptions. In addon, operating assumption forthe business play a major role as well Sven two companies (A and 8), how would you determine which one to invest int ‘This sone ofthe mest common private equity interview questions. Deciding between company A and 8 requires a comprehensive analysis ofboth quantitative and ‘qualita factors. Assuming they ae inthe some industry, you cule start co compare the businesses based on: * Business model how they generate money, how the company works + Market share/size of the market - how defensible is opportunities for growth + Margins & cost structure - ued us. arable costs, operating leverage, and future opportunity + capital requirements ~ sustaining vs. growth Cape ational funding required 1+ Operating efficiency - analyzing ratios suc as Inventory turnover, working capital management, et “+ isk assessing the riskiness ofthe busines across as many variables as possible “+ customer satisfaction ~ understanding how customers regerd the business ‘+ Management team - how good Is the team a leading people, managing the business et.“+ Cutture-how healthy is the culture and how conducive itis to success ‘lof the above criteria need tobe assessed in three ways: how they ate (1) the 2st (2) the near-term future, and (3) the long-term future. This willbe the basis of [OCF model (which will have multiple operating scenarios), and the isk-adusted NPY for each business can be compared against the price the business might be purchased ot #2 Transaction Experience Private Equity Interview Questions Describe a deal you worked on at Investment ex, Example answer: One of the mos intresting and challenging dea worked on a the bank was the sole of private company to PE Frm 2 for $275 millon {To elaborate on your answer, provide highlights ofthe deal as olows) “+ Describe the industry andthe companys business mode! 1+ Discuss the revenue, EBITOA, or earings ofthe business + Tatkabout the valuation thatthe company sod for (EVEBITDA, or other) + Doyou think iewas high, low, or other comments + Outine the strategie ational forthe transaction + Point out both the seller's perspective an! the buyers perspective onthe dea (are they both equally vai) + challenges orhurces youshad to overcome to get the des done + Anything else of interest that you learned in the process about the seller, the buyer. he proces, ete ‘Al other questions related tothe transaction wllbe some sort of dervatve ofthe ‘above question or aig deeper int the above transaction and expand in mote eta ‘on any of the points above. Image: CFs LB0 Modeling Course, #3 PE Firm-Specific Private Equity Interview Questions What do you know about us and why do you want to work at our firm? This sone of those private equity interview questions that you really have to prepare for. Giving generie ansmerslike “your frm has a great reputation’ isnt suliient you need to point out some real specifes. spend time going through the companys website an looking at their curent and past portfolio companies "Moke sure you find several that youre personally interested in and can speak about In detal(see the next question below). Have a slid understanding ofthe fms ‘approach tolnvesting, thelr track record, who the founders and management team are, nd, mos portant, what you ike about thet approach ‘See als ofthe largest PE firms to start doing some research.What do you think about some of our portfolio companies? Research in advance onthe fms website and write down notes on the portfolio companies you fd the most interesting. Obtain and retain facts about ther: + usiness made! + Management team 1+ Te transaction the E fm acquired them in + Tmeindustry they operate in + Tree competitors 1+ Whatever else you cn nd out about them ‘What is our firms investment strategy? To answer tis question well youl have todo alt of research. You can probably find an offical statement on ther website, but a more insightful answer would come from having read any interviews with founders and partners that tak about their approach, ‘aswell as understanding the themes acros their portfolio companies and how they alt cogether. #4 Culture Fit Private Equity Interview Questions ‘These private equly interview questions ore designed to see whet youre really ike as person i order to determine how wel you would fe withthe culture of he frm, Since PE fms are peal alo smaller than sell-side firms, personality and culture ft Variations of these fie questions can include: Wy do you want to work in private equity? Wall me through your resume. What are your personal strengths and weaknesses? What do you ike to do when youre not working? How do you de-stress? How do you manage rskin your personal ite? “The key to answering these questions wells to (A) understand what the questions are aiming at~assessing you personally in eelaton tothe fs culture and () being relaxed, organized wit your thoughts. and showing that yar akable person who's ‘99y to get alongwith ad who works well ona small tea very frm and team has its ov culture and types of personales they Ike Best 50 Iesimportant to ask around and see what you can learn about them. General personaly tals that nearly every frm values ae hard-working, reliable, spect, humble, honest, easy to work with, inquisitive, organized, and possessing an extremely trong business sense Learn more In CFs Why Private Equy Guide Private Equity Interview Questions - Financial Modeling Case Studies ‘As partof the interview proces, you may be asked to complete a case study, ether in the office erat home, after the Interview, Be prepared todo teght then as part of the interview: Ifthe interviewer says they want you todo it as “take-home” asslgnment, look te case over carefuly and ask any questions you need ton order tommake sure you understand al propery, Case studies area great way for PE trms to quickly get fl picture of your Financial ‘madeling skills and vahiaton skis. sane thing to be abl to talk about modeling and another thing to actualy have best practices when ft comes t buiing mers n ExeExamples of case studies include the folowing + finish a partly completed LB0 mode! + Bul tullmede! rom srateh + Assess a deal ina completes made! ‘The best way to prepare for case studs is by ensuring you have extremely trong financial modeling skils and brushing up with Financial Moceing Courses if Image: Cs nancial modeling course. Private Equity Interview Questions Recap In summary, there ae four man types of prvate equity interview questions: ‘echnical ransactions, fm, and fic Technical and transection questions require you to have sold financial modeling and valuation experience wth trong Lunderstancing of how to make good investments. Firm and ft questions are more soft skis type questions and require being prepares to speak in deta about the frm and about yours In adetion tothe above, you should expecta case study of some kind that requires snalying a market and or business using fancia modeling Addi ‘Thank you fr eeading this guide to Private Equity Interview Questions. To be prepares for interviews, check aut the following gulces + investment Banking Interview Questions & Answers + Finance interview Questo + eauity Researen interview Questions +See all capital markets resources sherethisaricte @ @ OO ¢Cae ars eae wc. 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