These pages are dedicated towards modeling / case study prep. I want to limit repetitive information you can find elsewhere online. For detail about what is PE, different types of PE strategies, and what the associate role looks like ---scroll to the bottom.
Modeling / Case Studies:
The LBO. Every single PE interview will require you to build out an LBO model. After all, buying companies with leverage is the crux of the job. To get start with prep, I'd recommend cranking through a few Paper LBOs. Check out our free Paper LBO prompt and answer key here: Paper LBO
Next, you'll need to start building full 3-statement LBOs in excel. We have plenty of real case studies with answers from firms like Oaktree, Apollo, Blackstone, and more ---all available to Premium Subscribers.
Below, I will detail some key components to know to crush your PE case studies. Readers of my undergraduate banking / consulting recruiting newsletter: The Pulse will recognize many of these points!
Components of a Good LBO Candidate:
How the LBO Process Works:
Key Scenarios to Account for:
MOIC & IRR Math:
Please note that these are approximations and ONLY work for 5-year investments with NO intermittent cash flow. Thankfully, most cases are based on a 5-year horizon
Levers for Juicing Returns:
A Little Bit About PE:
This is going to be brief, I do not want to waste time on areas you can just Google.
Private equity is the buying and selling of cash-flowing businesses using debt to enhance returns. Buying a company with a bunch of debt is called a leveraged buyout (LBO). On paper, PE firms have the ability to manage a company and change operations. In reality, there is very little time spent on operationally enhancing a portfolio company.
A fund raises capital from Limited Partners (LPs) such as insurance companies, endowments, and pension funds to buy companies and sell them within a 5-7 year horizon. PE is a lucrative business model because most funds deploy a 2/20 model (2% management fee on all AUM, 20% on excess returns from investments). Funds sell businesses to a). other funds, b). to strategic buyers, or c). to public markets investors by taking the company through an IPO. Most sales involve a sale to another fund.
Large funds tend to buy large companies. Small funds tend to buy small companies. Everyone tries to make a 20-25% IRR on their investments.
Different Types of PE:
Also, will not spend a ton of time here because you can find this detail on Google.
Private equity is broadly split across Mega-Fund ($100bn+ AUM), Upper-Middle Market ($500mm - $1bn AUM), Middle Market ($250mm - $500mm AUM), and Lower-Middle Market strategies (less than $250mm AUM).
Different Strategies:
The Associate Role:
PE is often referred to as banking 2.0---this is largely true at the junior level. Being an associate in private equity is basically the same as being an analyst in banking, except you have more responsibility and are expected to perform at a higher level of intensity.
Your core responsibilities include:
Once again, you're doing the grunt work. However, there is no room for error. These are investments that your bosses may have substantial money invested via carry. So, they care about every little detail and rely on you to do things right without being told twice / needing hand-holding.
Most sourcing work, board meetings, LP conversations, and investment ideas are taken care of by seniors at the fund.
So, why even go into PE if it is basically banking 2.0?
You need to take a long-term view here. Do you want to be your banking MD pitching shit all day to generate advisory fees? Or do you want to be your PE principal working to source deals and generate a paycheck from buying and selling businesses?
The latter tends to be more interesting work for most people. In PE, even as an associate, you get to wear an investor's hat. You get to look at companies and form a view on whether or not they are good to invest in. In banking, you just do what the client tells you and the bank puts very little money at risk.
^If you want to stick around in finance for a while, investing tends to be the better place to be in terms of money / lifestyle / interesting work. If you know you want to be an entrepreneur or leave finance, then I don't think PE is really going to teach you anything critical or do much more for your resume than banking would.