Private Equity Interview Preparation Guide

Private equity interview preparation is a right of passage for first-year investment banking analysts. The launch of private equity associate recruiting begins early in the first year of analyst programs. It’s what can best be described as orderly chaos, with firms aggressively competing to poach the best candidates.

No one knows the exact date that interviews will commence, which makes it all the more important to thoroughly prepare in advance. You’re not going to be able to cram; it’ll be too late. That’s why fresh banking analysts start practicing their LBOs before they’ve even seen their first live deal.

The good news is that while the recruiting process is a mess, interviews do generally adhere to a standard, predictable format. If you cover your bases and have a reasonable baseline of private equity knowledge, there won’t be too many curve balls.

The trick, though, is getting that baseline knowledge before you’ve even had a chance to start your investment banking analyst stint. To help you get ready, in this article we’ll cover the key things you need to know to kick-off your private equity interview preparation.

Back Pocket Items

There are a few things that will get asked in every single interview you have, from initial headhunter meetings to chats with the most senior partners. These questions are low-hanging fruit that you can perfect.

Variants of Walk Me Through Your Resume

Not unique to private equity, the request for a resume walkthrough is pretty standard across most jobs. However, there are a few specific points that private equity interviews do tend to focus on.

• Why did you pick your university?
• Why did you pick your major?
• When and how did you get interested in investment banking?
• Why did you pick your current firm and current group?

For most of these, there’s not necessarily a right or wrong answer. The important thing, though, is that you do have an answer.

Avoid saying that you went to your undergraduate school because it was the only place that accepted you, you majored in finance because it seemed easiest, and that your Dad landed you the role with your current firm because the MD sold his company.

If you can work in traits that the firm you’re interviewing with is known for, all the better. For example, you chose your current group because you really enjoy working with founder-owned midwestern manufacturing businesses because you grew up in Gary, Indiana.

You’re loving the banking experience so far, and are really excited for the current opportunity because everything you’ve heard from your MD and networking efforts says that the private equity firm focuses on building deep founder relationships to preempt processes.

The most important thing is that you spend some time preparing your answers before you start even your headhunter interviews. You should be polished and sharp without sounding overly rehearsed – something that, of course, only comes with a lot of rehearsal.

Current Performance

A fairly frequent ask that you’ll receive is about your performance at your current role. If you’ve had a review cycle, they’ll ask about that. If not, they’ll ask about commentary your senior team members have given you. If you’re too early in the role for that, they’ll ask about your end of summer review during your junior year internship.

In my experience, headhunters will always ask this question. It’s part of their standard screening and seems to be uniform across firms.

Most private equity firms themselves will ask as well, though slightly less often than the headhunters.

The key with the question is to play up to the position you’re recruiting for. It’s more difficult now given the timing of on-cycle recruiting, but the more you can play up associate-level responsibilities, the better.

You should be the only analyst on the deal, hold the model, outline the slides, and start to manage certain parts of processes. Be realistic though, if you’re recruiting on-cycle and are a month into the job, then you probably shouldn’t say you closed the entire deal by yourself.

Frequently you’ll also be asked for criticisms or areas of improvement. I’ve had these framed as an ask on things you’ve been told, as well as an ask on what you think these things would be if you were to ask your VP/MD right now.

Certainly there are a number of strategies here, but I tend to take the approach of reframing to discuss development goals. So, for example, if you’ve spoken with your senior banker about key workstreams or traits related to senior analysts or associates, discuss how you’re focused on working to accomplish these.

It provides a relatively genuine response, while also sidestepping the actual ask on areas of criticism. However, it doesn’t hurt to have a real criticism lined up for support in case you get pressed on it.

Deal Experience Questions

You will with 100% certainty get asked about your prior deal experience. Especially if you have deals listed on your resume (which you should).

Throughout the recruiting process, from initial headhunter meetings to the most senior partners, you’ll have deal discussion questions.

For the first part of your answer, provide a quick overview of the deal and your firm’s role in the transaction. You should prepare introductions/overviews for each of the deals listed on your resume.

Next, offer to go into more detail.

You should be prepared to discuss the investment thesis, general financial information, transaction multiples, deal structure, process timeline, industry and competitive dynamics, and your thoughts on the merit of the transaction.

I’ve seen these conversations get incredibly detailed, so you should make sure you have a good handle on all of the details. It is especially important to thoroughly prepare if you’re early in your banking career and haven’t actually done a whole lot on the deal.

When providing financials, be aware that your interviewer will probably be doing mental math to prepare follow up questions. Deal experiences can frequently turn into mini paper LBOs, or you could dissect the cash flow profile of the business.

If this happens, you need to be absolutely sure that your numbers actually make sense. It’s going to be embarrassing if you do a paper LBO that shows a 0.5x return because you relayed very incorrect numbers five minutes earlier on the target’s capital expenditures and net working capital.

At the same time, you’ll probably have some leeway here. Remember that, chances are, your interviewer will not know the full details of the transaction. As long as your numbers make sense at a high level, it’s not critical that they’re spot-on.

If you get asked about the net working capital trends and can’t remember, just toss out a number that makes sense.

The caveat to this advice is that you need to recognize situations where this may not be true. If you’re coming from a banking group that runs broad sell-side processes and discuss a deal that you marketed to this specific sponsor, then there’s a non-zero chance that your interviewer knows the real numbers better than you do. If this is the case, and you’ll know beforehand if there’s a chance, then it is critical that you do real work to prepare.

Mentioned previously, you should be prepared to give your thoughts on the deal. Obviously, if you were either buy-side advisory or sell-side on an LBO you should have this ready to go.

But you should also prepare answers for things like capital raises or even restructuring mandates.

If you were a public markets investor evaluating your IPO, would you participate? If you were the creditor of your trouble client, how would you feel about taking the keys of the business?

Whatever the situation is, it’s always best to have an opinion that you can back up with a couple key points. You’re not expected to be Carl Icahn, just to show that you’ve thought about the bigger picture for more than 30 seconds over the course of your work on the deal.

LBO Modeling & Technicals

Every process will have at least some form of a technical interview or LBO model test (or multiples of both). The key here is to demonstrate that you have a reasonable understanding of the fundamental drivers of an LBO, and can actually model them should you get the job.

Paper LBOs

The most universal ask in this category will be a paper LBO. You’ll be given a set of simple assumptions and be expected to model out an investment using mental math with pen and paper.

No excel allowed, but also highly simplified assumptions. You’ll need to prepare for this, because it’s not the type of thing you can do for the first time in an interview.

As a personal anecdote – I always think back to my days as a first-year analyst trying to make a lateral move. I hopped on the phone with an industrials banker for what was supposed to be an informational interview.

Two minutes into the call he asked me to get out a pen and paper. I’d snuck out of the office last minute to take the call in an empty conference room somewhere in our building, so had nothing on me and no way to quickly get anything.

I stuttered for a few seconds, then figured I could use my phone to write whatever was needed, so answered that I was all set.

The associate proceeded to start rattling off paper LBO assumptions. I was six months into my analyst stint at a biotech-focused group with zero LBO exposure, so had absolutely no idea what was happening.

Needless to say, I did not get to the right answer, or any answer at all. I did not get a call back after that one.

LBO Model Tests

The next step up, in terms of level of complexity, will be a full Excel-based LBO model test. In my experience, these often happen earlier in the process – typically in the second round after you’ve completed an initial screening.

It’s seen as more of a check the box exercise. You won’t get hired for building out the world’s most insane model, but you will get dinged if you can’t pull one together.

In the on-cycle process, with rushed timelines, you’re most likely to get a simpler 30-minute or 60-minute test. There may be one or two nuances thrown in (PIK toggles, preferred note, dividend recap, add-on acquisition), but generally won’t be too complicated.

More complex versions will ask you to build a full three-statement model from scratch, potentially giving you up to three hours to complete.

Occasionally you’ll receive a take home test, but these are typically only given as part of a case study (see below).

Private Equity Technical Interview Questions

Straight technical interview questions are less common in private equity than they are in investment banking. There’s usually more of an emphasis on the next level of thinking – drawing conclusions from numbers, rather than memorizing how to get to the numbers.

That said, they do come up often enough that you should make sure you’re prepared. It would be a shame to ball out on a three-hour case study and then pack your bags because you couldn’t tell someone how $10 of depreciation flows through the three statements.

You should go check out our guide on private equity interview questions. In addition to that, below are a few key themes to think about:

• Price vs. volume questions in revenue builds – would you rather have an increase in price or an increase in volume, etc.
• LBO-related questions – walk me through an LBO, explain the key drivers, etc.
• Accounting questions – you’ll still have to field things like PP&E or depreciation through the three statements
• Operating leverage questions – explanation of fixed vs. variable costs and walkthroughs of specific scenarios
• Debt-related questions – things like PIK notes, covenant types, etc.

You’ll have fewer general M&A or valuation questions than you see in investment banking, so I wouldn’t spend as much time covering those as you prepare.

Case Studies & Investing Questions

The last key item to prepare for private equity interviews is the case study. Formats vary widely by firm, but generally involve synthesizing a piece or pieces of information and providing an investment recommendation.

You might get a company presentation, evaluate it in 30 minutes, and verbally discuss with the interviewer for 30 minutes.

You might get a CIM and set of financials, build a three-statement LBO, and prepare a short investment memo over the course of a few hours.

You may receive a take-home request to analyze a public company, build a detailed LBO model, and prepare a full presentation to discuss with interviewers.

Regardless of the format, you should practice your ability to take in information on a business and prepare an informed opinion on its investment merit.

There are case studies floating around online (including a bunch in our private equity course). You can also grab the financials of any public company (that would be a potential LBO target) and complete your own. Take a look at public filings, earnings transcripts, equity research reports, industry initiation of coverage, available market studies, etc.

Presenting Your Case Study

When you present your findings, the most important thing is to actually take a position. You (or your memo) should clearly state whether you would invest or not invest in the opportunity.

The worst thing you could do is not pick a side and give a discussion with no point to it.

One strategy I’ve found helpful is to focus your argument on the top two-three points. There will be a ton of angles and considerations when you’re evaluating the company, but try to understand and relay the most critical factors influencing your final decision.

Interviewers will want to see that you were able to pick up on what matters most and convey that in your presentation.

Be prepared to defend your position as well. Interviewers will question you and try to poke holes in your thesis. They might even completely agree with everything you’re saying, but will want to understand how confident you are and how well thought out your thesis is.

If you’re just starting out and struggling to understand what to focus on, the Porter’s Five Forces framework is always a good place to start.

Investing Questions

It’s highly likely you’ll get a number of investing-related questions. These can come in a number of different forms, the most common of which are about your prior deals (as mentioned), characteristics of an attractive LBO candidate, diligence red flags, interesting portfolio companies, hypothetical situations, or potential public company targets.

Most people will tell you that you won’t get asked to pitch an investment because private equity interviews are very different than that of hedge funds. They would be right the majority of the time, but not always.

I think it’s pretty important to have something back pocket that you can reference if you’re asked to pitch a potential take private. It doesn’t have to be complex or even complete, but you’ll want to have something.

An easy way to do this is think of a deal you’ve worked on that’s attractive, and pick some of the public comps for your client. Figure out the best one and read the handful of most recent equity research reports on them.

Pull an initiation of coverage report on the industry for some deeper market understanding, and take a quick look at their financials to make sure an LBO makes sense.

It won’t take you too long to pull together an acceptable response and could save you from an embarrassing interview gaffe.

Thinking Like an Investor

The key requirement for private equity firms is that the candidate is able to “think like an investor.” This is opposed to the stereotypical investment banking mindset of blind execution and process-oriented labor.

It sounds ridiculous, but it can actually be a pretty difficult shift for a lot of investment banking analysts. After two years of filling out data rooms and updating trading comps, a lot of people have the tendency to crank out the work with as little thought as possible and pray that they don’t get very many comments.

The big step in private equity is that you’ll have to both crank out the deliverables and take the time to understand what they mean. Then you’ll need to summarize that information and convey it to your deal team or investment committee.

It’s not always going to be critical, but occasionally your work product could mean the difference between doing a deal or passing on an opportunity.

In the interview process, private equity firms want to do what they can to suss out if you’re able to make this transition.

Like we talked about earlier, this will mean things like asking your opinion on your deal experience or interrogating you in the case study readout.

It’s harder to sit down and specifically prepare for this one, but you can start to do things to help build this skill. Try to be conscious of broader considerations in your banking deals. Take a look at strategy-focused articles in the Financial Times and Bloomberg, thinking through whether or not you agree with a certain company’s approach.

Eventually it will become second nature. You’ll be able to immediately recognize areas of risk and areas of opportunity, as well as understand the key questions you’d need to ask to diligence something. But, that’s not going to happen overnight (and may not happen until well into your time in private equity).

How to Actually Prepare

We’ve talked a lot about what to prepare for, but how do you actually do it?

This tip isn’t some secret, super nuanced piece of information, but I promise it will make you significantly better.

Do mock interviews. Take the time to practice giving your answers out loud. Keep working until your polished, sharp, and sound like you know what you’re talking about.

Get a friend in your analyst class to prepare with and take turns swapping roles between interviewer and interviewee. It might be embarrassing or uncomfortable at first, but you will become such a stronger candidate with not much additional effort.

If you absolutely don’t have anyone else to prepare with, just sit in your bedroom and talk out loud. Write out a list of common questions, write out your deal experiences and financials, talk think through your resume and background – then start saying them out loud until they’re essentially memorized (while still maintaining a conversational delivery).

At a certain point, memorizing more technicals will not help you. In terms of return for your time invested, this is one of the best things you can do.

Private Equity Interview & Process Structure

Usually you’ll have an initial screening round focused on deal discussions and background, potentially with some technicals. This will likely be with a more junior investment professional (probably senior associate or VP).

Next, you’ll transition to a model test or case study. As part of this step, you may have a presentation or discussion. Occasionally you’ll have a group interview, with multiple people evaluating your presentation and asking you questions.

After that, you’ll probably start to move up the ladder and have discussions with principals, junior MDs, or junior partners. Terminology will be different across firms, but just think about the next rung up the ladder from VP. You may speak to a few different people in this step (multiple interviews or group interview).

Nearing the end, you’ll probably talk to one of the more senior members of the investment team. Maybe group head or industry lead at a megafund, or a managing partner at a middle market firm.

At this point you’ll either shortly receive an offer, or not hear back. Some of the more helpful headhunters will give you the heads up if you didn’t get the offer, but most will probably ghost you.

If you don’t hear back, there may be a small chance you’re on a waitlist to see if the top choice doesn’t accept their offer. However, I probably wouldn’t hold my breath if it’s been more than a few days.

Keep in mind, this timeline is a broad generalization. An on-cycle process will tend to move much faster, while an off-cycle process could add additional steps and stretch out over the course of a few weeks.

Closing Thoughts on Private Equity Interview Preparation

Given it’s a rushed timeline and there’s a lot to prepare, be sure to focus your efforts where you’ll get the highest return. Knock out the paper LBO and model test prep, know your deals, rehearse the background, and then hit the case studies and technicals.

At the end of the day it’s a competitive recruiting process and you won’t land everything. But don’t worry, because there will always be more interviews in the pipeline.