Preparing for a Private Equity Interview
Private Equity is a dynamic and challenging financial industry so candidates seeking a role in this field need to be well prepared for a highly competitive interview process. If preparing for an interview, expect a broad range of questions from testing technical knowledge to more subtle questioning to ascertain cultural fit within a firm. The more prepared you are, the better your chances of succeeding in getting a position. Here are a series of steps to help better your chances of securing a role.
Key Learning Points
- Prepare thoroughly for a PE interview: make sure are fully aware of the PE company’s investment philosophy, track record and experience within its field
- Technical knowledge will be a key topic: be prepared for in-depth questions on the mechanics of financial modelling and valuation
- Sector experience: Interviewers will be keen to hear of your experience in the sector, so prepare remarks to highlight skills in deals and any transaction experience that you may have
- Read around the industry: candidates should be aware of all recent news flow in the sector and be able to provide a well thought out opinion on events or potential growth areas
- Cultural fit: private equity is a demanding role and relies on a team operating together – interviewers will make to ensure that candidates are a good cultural fit for the business and will be good colleague going forward
Four Types of Questions in a Private Equity Interview
There are generally four types of questions in a private equity interview, including:
1. Firm and industry knowledge
Interviewers will ask general questions about private equity firms to gauge your understanding of the industry and your reasons for choosing this career path. These questions help them assess your familiarity with the company and its investment philosophy.
2. Technical knowledge (finance, accounting, modeling)
Technical questions in private equity interviews are designed to evaluate your understanding of the industry. These questions will likely test your knowledge and your ability to handle specific scenarios. Private equity requires strong due diligence skills and the ability to create detailed Excel models for accurate company valuation and to forecast performance.
3. Transaction experience
Questions about your transaction experience will focus on any private equity deals you have been involved in. Interviewers use these questions to better understand your qualifications and financial skills.
4. Fit, background and personality
Private equity firms look for candidates who are rational and thoughtful. Interviewers may ask questions to determine your passion for the industry and your willingness to learn new things.
Let’s look at each of these areas in more detail.
1. Cultivating Firm and Industry Knowledge
Research the Private Equity firm
Every company is different, and there is a wide diversity of private equity firms stretching from small boutique industry-specific companies to larger multi-national institutions. Candidates should research companies fully and understand the nature of their investment philosophy and process prior to assessment.
Interviewers will expect you to know what they do and why they do it – if the PE fund targets distressed assets, typically in the UK retail space, research this sector and understand the fund’s positioning. Make sure you have a good understanding of its current investment portfolio and dig into any details you can find of previous investment performance and companies involved.
Understand the PE Firm’s investment ethos
All PE companies will want to make money for their investors – get a good understanding of what makes this company unique versus its peers. This aspect may be driven by the expertise of the management and investment team so read industry articles and LinkedIn profiles to fully understand the team experience and what the fund strives to do.
Why choose Private Equity?
An early interview question may be to ask why a candidate is seeking a position in private equity. Make sure your answer fully explains your personal interest or relevant experience in private equity and what draws you into the industry. Interviewers may be checking that you fully understand what the industry is and how it differentiates itself from, say, Venture Capital or early-stage investing.
2. Technical Knowledge
Industry Specific questions
Candidates should expect to be asked some technical and transaction questions. These will require in-depth knowledge of financial modeling and valuation and a deep understanding of how to make good investments. It is important to practice these prior to the interview to ensure answers are precise and explanations remain on topic. It can be easy to waver and drift off the topic when trying to answer a technical question in an interview.
Technical experience – Understanding the LBO model
One likely area for questioning is the LBO model. Here are a few questions that may be asked by an interview to test technical understanding. Often technical questions will follow a particular theme or line of questioning to test the extent of the candidate’s ability.
3. Transaction Experience
Graduate roles are typically for entry-level analysts so make sure you understand what the potential role is likely to entail. If you have any relevant skills or experience it is important to highlight them here as they’re likely to be a key driver for why you want to establish a career in private equity. Sometimes experience may not be directly related to PE financial transactions – a candidate may have medical experience and wish to work in a PE fund that specializes in biotechnology.
Provide building blocks of experience
Interviewers will want to hear succinct information about projects that you have been involved in and what your specific role was. Being able to identify how you managed to ‘add value’ to a team project will likely impress interviewers. Be wary of veering off course when describing events.
During the interview process, expect to meet several members of the team. It will likely include someone from the investment team, and also operational management or human resources.
4. Fit, background and Personality fit
Often teams hiring will have an idea of the type of individual that they are seeking to hire to join the team. This may be a highly skilled excel modeler or someone who can provide robust sales pitches and take on a more client-facing role. Or they may be simply looking for new graduates to support the existing team. If you don’t immediately fit the desired role but are well-liked as a candidate this can sometimes create additional roles within a firm if headcount allows.
Interviewers will want to see your enthusiasm for joining the industry and be able to identify what you as an individual could bring to the team. Talking about previous industry experience will help this, but if you don’t have any experience, it is simpler to acknowledge this than make any attempt to exaggerate anything you may have done previously. Experience can be provided once the role has begun.
Being able to comprehend, interpret and respond to questions professionally will impress any interviewer.
Remember to highlight any aspects of your CV that will set you apart from other candidates: it may be language skills or a love of sport or something else. If you can display a passion for part of your life and demonstrate that you are capable of stepping up to fulfil a role then potential hirers will be keen to hear more from you.
Private Equity Technical Interview Questions and Answers
Question 1: What is a leveraged buyout (LBO)?
Answer: A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money, i.e. debt (bonds or loans), to meet the cost of acquisition. The assets of the company being acquired are often used as collateral, along with the assets of the acquiring company. Cash generated by the acquired company will then be used to service and repay the debt.
This model is used as it allows the PE fund to use leverage in its investing to enhance its returns to shareholders. It relies on the underlying company being able to generate enough cash to service the debt – funds will want to leverage as much as possible whilst ensuring that the underlying company can service the debt.
Question 2: What assumptions is an LBO model most sensitive to?
There can be a wide range of answers to this question so firstly it is important to tailor it to a company or any example that the interviewer has provided. There may be industry specific comments that you can add to show that you have a good understanding of the sector.
LBO models are sensitive to the total leverage that the acquired company can service through its operations. Another significant factor will be the cost of debt which will determine if an LBO is feasible. This will again depend on market-sensitive factors so any knowledge you can glean about the current borrowing market will be useful here.
In addition, candidates should discuss the acquisition and exit multiples for the deal – these may be considered conservative relative to other deals, or the business climate may be conducive to more lucrative multiples for the PE firm. Interviewers will expect a thorough understanding of the sensitivities of these assumptions as they will determine the potential profitability of future deals.
Finally, it’s important to understand the underlying operations of the business and the forecast operating assumptions that will be used. Cash generation will be critical to repaying the debt, so forecasting should be sensitive and realistic in capturing underlying performance, plus the improvements that the PE firm plan to instigate post-acquisition.
When prepping for questions like this make sure you have a very good understanding of how an excel LBO model is set up. Know how one works, and understand the mechanics involved to impress potential employers.
Question 3: Valuing a business
Valuation questions are highly likely to come up in an interview to make sure you are prepared. Be aware of the different valuation metrics and the pros and cons of each. Being able to explain the best way to value certain businesses and what are the pros and cons of metrics will set you apart from other candidates.
For example, you may be asked a question on entry multiples such as EV/EBITDA. Understanding what drives an EV/EBITDA multiple and how it can be improved will show strong knowledge of valuation. Often interviewers will want to know that you understand a metric, but also that you know how to manipulate it.
Being able to compare valuation metrics will also set you apart from peers. Knowing that a DCF valuation is useful for stable cash generative companies, whereas other early-stage businesses will rely on sales-driven or customer-driven metrics should impress potential hirers. Where appropriate, provide examples to support your case. Part of the interview process is to demonstrate your ability to provide lucid explanations, so provide interesting examples to support your case where possible.
Example Private Equity Interview Questions
More example interview questions, by question type.
Technical knowledge
- What are some ways in which private equity firms create value?
- What is a leveraged buyout (LBO) and how do you use an LBO model?
- What qualities do you use to evaluate whether a company is a good LBO candidate?
- How does add-on acquisition create value?
- Is it possible for a company to have a positive net income yet still go bankrupt?
Transaction experience
- Walk me through the most successful deal you have handled.
- If you noticed that a company representing a potential investment opportunity had a high employee churn rate, what would you do?
- If our private equity firm needed to exit an investment, what strategies would you explore?
- When was the last time you made a change to a strategy and saw positive results?
- Provide an example of a time when you had to make a recommendation.
Firm and industry knowledge
- Why are you interested in private equity?
- What do you know about us and why do you want to work at our firm?
- Have you checked out our website? If so, what investment did you like the most, and why?
- What is our firm’s investment strategy?
- How do you stay informed about changes in the private equity industry?
Fit and Personality
- Walk me through your resume.
- What are three strengths you can bring to our firm?
- What makes you stand out as compared to other candidates?
- How do you handle conflict in the workplace?
- What are your personal strengths and weaknesses?
Conclusion
It can be a daunting task preparing for an interview in a private equity firm. By doing thorough careful due diligence of the company that you hope to join, and understanding its fund’s values and performance will stand you in good stead. Private equity analysts are renowned for looking into a company’s operating performance and exploring transaction details so don’t walk into an interview without doing your own in-depth preparation first!
In addition, make sure you can display a thorough understanding of industry specifics, financial modeling and valuation techniques. Interviewers will be keen to make the best hire with the best set of skills that they can find.
Also, dressing appropriately and being personable and professional will also impress potential employers too. Best of luck!
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