Fndeed WE i. commen ratsives Ueda ree nln | Epler Rib Career Guide rsrgoch seumestcorr inter ering Pay sary Caer deloprent > Nene Search aries a Interviewing > 21 Pate Equity PE} Technical interview Questions 21 Private Equity (PE) Technical Interview Questions Sit. » 2 os © ‘he nded Ebr Team comprises overs ond taeted eam of ries, searches ant subject ter exerts ppd th ded tats to dar fel i to epi sour coreer journey Interviewing is an important step when looking for jobs in private equity, and hiring managers may ask questions about the technical aspects ofthe industry Understanding the technical knowledge that employers seek can help you ensure that you're qualified forthe position and ready for the interview. If you're interested in a career in private equity investment, you may benefit from reviewing frequently asked interview questions before ‘meeting with a hiring manager Inthis article, we list 21 technical private equity interview questions, Including nine questions with sample answers, then offer tips to help you prepare for your next interview. Explore jobs on Indeed Paretime be > Futtemejobe > emotejobs > Urgent hiring Jobs > View more bs on Indeed > 12 technical private equity questions Here are 12 questions that you may encounter ina private equity, lncerviews 1. How would you structure investments fo protect my downside? 2. Whats the most important financil statement @ required for your job and why? 3. Whats the best woy to verify information in a deo! book? 4. Describe the limitations ofthe discounted cosh fw (DCA) mode 5. Ina merger and acquisition (M&A) model, what are the mast important factors? 16. What does accretive meon? 7.Con you tell me what dlutve means? 8, How can you tell whether an MBA deal i acretve or dilutve?‘9. 1f companies have identical statements, what might couse a difference in valuation? 10. How con you calculate @ change in net warkng capital (NW)? 111. What's @ good limited buyout (L80) target? 12, What techniques do companies use to increase the value of companies in their porfolios? Related: Private Equity Resume Template and Example 9 technical PE interview questions with sample answers Although interview questions may depend on the employer and specific role, here are some technical private equity (PE) Interview questions with sample answers for you to consider: 1. What is a leveraged buyout (LB) and how do you use an LBO model? Understanding an L80 is an integral aspect ofa role In PE investment, so employers may ask this question to ensure that you're familiar withthe postion and its responsibilities. An LBO is an acquisition of a company, “whichis essential for PE investments and the process of improving an organization's business model ‘An LAO model is tool PE experts use to evaluate an LBO transaction and estimate the current value of @ business. When answering this question, highlight your knowledge of tis too! and its overall purpose in your role as {PE investment exper. ‘Example answer: "An L60 i the acquisition of a company thot involves the evaluation ofthe business's equity and debt. Debt typically contributes to over 50% ofthe purchase price of on organization, whereas equity, ‘usualy contributes to ess than 50% of this vue, You can use an LBO medel to understand the size ofthe equity check that @ {financial sponsor conributes to acquire the business. You con then make ‘exist assumptions about the investment bosed on the EBITDA multiple oid." Related: Top 41 Private Equity Interview Questions (Plus Answers) 2. What qualities do you use to evaluate whether a company is a good LBO candidate? ‘An employer may ask this question to review your valuation techniques {and gain a better understanding of how well you understand an LBO_ candidate when deciding to acquire a business. An ideal LBO target may hhave several components, including non-cylical recurring cash flows, low Capex and working capital needs and a strang market position. When, answering this question, list three or four of the primary qualities you seek Ina company to ilustrate your understanding ofthe LBO process. Example answer: "When evaluating « company ta determine whether its 12 good LBO candidate, I consider several variables and ok for an organizotion with a favorable position within the market, making it anInaustry eader and a company witha committed and effective ‘management teom. [oso review aspects including whether the company ‘has @ non-yclica recurring cash flow and f thas o aivesfied revenue stream.” Related: What Is Private Equity? (Plus FAQ About Private Equity) & 3. Can you define rollover equity, and why positive indicator? In some instances, an organization's management team may roll ver some or al of the company's equity into a company they recently acquired. “They may also decide to contribute extra capital funds in addition to the contribution made by the financial sponsor. An Interviewer may ask this {question to evaluate how familiar you are with the concept of rollover equity and whether you understand the positive impact this may have on @ client. Example answer: "Rollover equity isan exo source of funds provided by ‘2 company's management team. This is «positive indicator because it shows @ management team feels confident and invests in company’s ‘acquisition and LBO and thot they perceive the potential benefit to be worth the risk of investing. This f typically beneficial for all pares involved because it increases funds and shows the commitment of on organization's leaders’ Related: How To Become Private Equity Associate 4. What attributes do you try to avoid ina potential investment opportunity? Employers may ask you this question because i's not only important to understand what company features to look for in an LBO candidate but ‘also to understand attributes to avoid, These may include things such as ‘customer concentration and high rates of employee or customer churn. AS ‘you answer this question, highlight your knowledge of potential issues that ‘may arise in the LBO process and illustrate that you're able to identify favorable and unfavorable tats in an investment opportuni Example answer: "When reviewing a potential investment opportunity, ‘yplcaly consider factors such as high employee churn and high levels customer concentration, because these features may impact the success of, 2 company and its success following its acquisition. 1 try ta avoid these factors because a high eve of employee chura indicates that there are internal issues, such 0s a Jack of clear management, that ‘motivates employees to leave the company, and I would like to avoid Internal business issues proactively. Instead, high levels of customer concentration may highlight thot 0 business relies on one or two customers for a majority ofits business, which is usually a eisk try to circumvent” Related: Private Equity vs. Venture Capital: What's the Difference? @ 5. Can you describe dividend recapitalization? Dividend recapitalization is a potentially risky process, and companies ‘ppically only complete it when an 80 performs better than expected. Employers may ask you this question to learn about whether you're familiar with this process and able to consider the necessary factors todetermine whether it's the right course of action in various situations. When answering this question, define the term and discuss the risks and benefits ofits application. Example answer: "Dividend recapitalization occurs when a PE frm raises ‘an organization's debt forthe purpose of providing themselves with 0 dividend before a complete exit from an investment. When completing this process, i's important to evoluate the performance ofthe L 80 and consider whether the acquired company is financially table enough to endure the ‘addtional leverage raised.” Related: What Are Private Equity Firms and How Do They Work? 6. How does add-on acquisition create value? ‘Add-on acquisition occurs when a portfolio company ofa private equity firm acquires an additional, smaller company. Portfollo companies typically perform add-on acquisition with the intention of entering new end markets and complimenting the PE firm's current products and services. When you answer this question, highlight your knowledge or add-on ‘acquisition and discuss why this fsa common strategy used in private equity. Example answer: "4 PE irm may use tis strategy to create value because ‘an adé:on acquisition can increase the value of the cashflow of the ‘acquired company by aligning ic with the cash flow ofthe larger compony, which then increases the value ofboth partes involved. This strategy may ‘also provide larger acquiring companies with a competitive advantage when competing with strategic buyers in sales processes." Related: Equity Research Interview Questions (Plus Answers) 2 7. Can you define PIK interest and discuss its common features? InP, you may handle a variety of cash and non-cash forms of interest, so employers may ask interview questions that assess your technical knowledge of these topics. When you answer this question, provide a clear and concise definition of PIK interest to show that you're familiar with handling it. Example answer: "Payment in kind (IK) interest i a type of non-cash interest that may carry a higher intrest weight because of the risks non- ash interests pose to investors. Non-cash interests crete astvation where the borrower repays the lender by taking on additional debt, rather than through direct payment. Tis form of delayed payment poses risk for investors because there’ less certainty that borrowers provide compensation." Related: Guide to Understanding Venture Capital 2 8. Is it possible for a company to have a positive net income but still go bankrupt? If so, can you describe why? An interviewer may pose this question to evaluate your ability to handle 3 real worid situation. By posing two seemingly mutually exclusive situatlons, such as a positive net income and fling for bankruptcy, anerpnayer Lat cost your nnumeuye UF ese LuLepts Jia Hie BUSES situations that cause them to accu When answering this question, highlight that it's possible for a company to have a positive net income and stil go bankrupt and discuss a situation in which this might occur Example answer: "Yes, i's possible for a company to have a positive net Income and stil go bankrupt. This moy occur in situation where the business has an increasing accounts receivable demand where the company unable to collet payment from customers and decreasing ‘accounts payable where the company connot reprieve its payment with suppliers. These circumstances create a situation of deterioration of working capital” Related: What Is an Equity Research Associate? Definition, Responsibilities and Benefits @ 9. What are 3 ways that private equity firms can create value? Interviewers may wonkler how candidates can act as assets forthe frm, so Its important for you to understand the value creation process. When answering this question, there are various strategies you can discuss, including earnings before interest, taxes, depreciation, and amortization (EBITDA) growth via top-line growth, debt pay down using cash flows and ‘margin expansion, Make sure to list three methods and highlight their purpose and how a PE firm can use them to create value, Example answer: "There are severol ways that a PE firm can create volue, including leveraging or debt pay down, using cash flows. Since a PE firm ‘ypicaly provides less thon 50% equity and takes on more than 50% depth ‘can use the business’ cashflows aver time to pay down the debt and create equity value forall equity owners. They may also use dividend recapitalization to extrac value in te form of the dvidend without selling ‘an acquired company or using top-line growth to lsa increase EBITOA." Related: What Is EBITDA and Why Is It an Important Financial Tool? Get your personalized job feed on Indeed (4 Be the first to see new Jobs in your area Tips for answering technical PE interview questions Here's a list of tips that may help you answer technical private equity interview questions: + Use technical questions to highlight your problem-solving abilities. PE technical interview questions often address strategies and methods a firm may use to address or avoid potential risks and problems. This ‘means that you may benefit from highlighting your prablem-solving abilities and showing that this is one way you can ad value, + Ask questions. Although it's standard fora hiring manager to ask you questions, don't hesitate to ask them questions about the logistical and technical aspects of the PE frm. This can help you provide answers that align withthe firms clients and processes and show that you're a good fie for the organization.+ Answer questions clearly. Employers typically ask technical questions {0 review a speciic competency or skills, so make sure that you answer their questions clearly to highlight your understanding ofthe concept. If you'r unsure, consider asking for clarification rather than providing an Unclear response to illustrate your strong communication skis Practice before the interview. Since technical interview questions are typically specific and skllfocused, it's important to remain calm and focused so you can clearly communicate your responses. Consider practicing witha fiend or trusted colleague before you meet with a hiring manager to rehearse your responses and feel confident during the interview. List your technical skills on your resume. Consider isting your technical skills on your resume so the Interviewer can gain an understanding of your knowledge and competencies prior to speaking with you. This may allow them to ask questions related to the ablities you highlight, so make sure that you feel confident discussing the skills you inelude. Isthis articlehelpful? ver No Explore your next job opportunity on Indeed Indeed Career Services Indeed Resume Resume Services Interview Practice Gexnotesby employers ‘Seyour resume evened or rewrten Prac neaning wth an pet Upload a resume te parade your resume Book a sesion Resume Samples Salary Calculator ‘Company Reviews Nektar yourssoeh nth ompltes ‘ee yourpersonslaed pay range casero of company evens a iz oa Browse resume samples Getyour estimate Find companiesExplore more articles What Does a Medial ance ison Do? Pas sawn vent Management Detnion, Key Aspects and sie 22 Lessons You Lesm While Working in Aestaurant ‘he Fastest-Growing and ghestPying Sustainable jobe 15 carers Supported by an aan Stes Dearee {op 11 Most in-demand Crefistors in Wanagement {6s in rina justice With No Required fol Tring 12 Pros and Cons of ein an Evert Manager (vat job owes) on To Become «Public Mesh Mursein Step 1s Renareing and Overs Carers in Wraing and feseing 16Jobs ina kitchen: Gude to Culinary Career Options 25 finance Carers in Heath are wth Salar nformatcn,