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

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

Private Equity Case Study Example + Model

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

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

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

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

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

How is a Private Equity Case Study Structured

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

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

1. LBO Modeling Test
2. Paper LBO

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

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

1. LBO Modeling Test

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

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

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

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

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

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

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

2. Paper LBO

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

 You need to be able to walk through how to:

1. Calculate the purchase price
2. Calculate sources and uses
3. Build a simple income statement and projections
4. Build to levered free cash flow
5. Calculate the exit value, IRR and multiple on invested capital

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

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

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

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

The majority of case studies will ask either two questions:

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

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

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

Quickly eliminate all companies in your screen that have:

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

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

Steps to Finish a Private Equity Case Study

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

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

1. Download and organize all documents in one folder

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

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

2. Research the industry to understand trends and key metrics

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

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

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

3. Read the filings and take notes

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

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

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

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

4. Input financials in Excel and build the LBO model

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

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

5. Work on a presentation or write a memo

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

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

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

Private Equity Case Study Presentation / Memo

Background and Company Overview

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

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

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

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

Investment Thesis/Highlights

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

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

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

Recommendation to Investment Committee

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

Financials/Return Summary

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

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

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

Key Risks

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

Outstanding Diligence Questions

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

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

Model Output/Exhibits

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

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

General Tips and Common Mistakes to Avoid

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

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

Check your model for errors

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

Spend time properly formatting the case study

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

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

Understand the firm’s investment style

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

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

Prepare for the most common private equity interview questions

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

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

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

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

Memorize key metrics

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