What Are Private Equity Interview Questions?

Securing a position in the private equity (PE) industry is a challenge, given that the industry is extremely competitive. You may be a highly qualified candidate, but if you don’t perform well in private equity interview questions your qualifications won’t help you. The more prepared you are, the better your chances of succeeding in the interview process.

The types of questions in a private equity interview include technical knowledge, transaction experience, firm knowledge, and cultural fit. In addition, you may be asked to complete a case study. Answering questions with confidence and consistency is the key to converting an interview into a job offer. You’ll need broad knowledge of the financial industry, economics, mathematics, statistics, business administration, and current affairs to perform well.

Taking the time to review the common questions asked by PE employers can help you prepare responses in advance. This guide will help you prepare for the most common questions, as well as provide sample answers to questions you may be asked.

Key Learning Points

●  PE interviews are mainly about demonstrating your experience in the field through your resume and a list of the deals you’ve worked on. The interview also offers the opportunity to build relationships with decision-makers.
●  In general, there are four types of questions in a PE interview, which seek to determine technical knowledge, deal experience, firm and industry knowledge, cultural fit, and personality.
●  Technical and transaction questions require solid financial modeling and valuation experience and a deep understanding of how to make good investments.
●  Firm and fit questions address the soft skills necessary to succeed, and you should be prepared to talk about the PE industry, the company, and yourself in detail.
● If you’re preparing for an interview with a PE firm, you’ll benefit from reviewing some frequently asked questions. Determine what hiring managers are looking for in candidates and review some professional answers that can inspire your own.

Types of Questions

Private Equity Interview Questions

There are generally four types of questions in a private equity interview, including:

1.     Technical knowledge (finance, accounting, modeling)

Technical and in-depth private equity questions will allow hiring managers to assess your knowledge of the field. They seek to determine how much you know, and how you might react in a given situation.

2.     Transaction experience

Experience questions focus on previous private equity deals you’ve worked on. Hiring managers ask these questions to get a better sense of your qualifications and financial skills.

3.     Firm and industry knowledge

Hiring managers will ask general questions about private equity firms to learn more about you and to understand why you chose to work in this industry. These questions can help them determine how familiar you are with the company.

4.     Fit, background and personality

Private equity firms prefer rational, thoughtful candidates. The interviewer may ask questions to assess how passionate you are about working in private equity and whether you are willing to learn new things. Portray yourself as an aggressive value seeker.

Example Questions

If you’re interviewing for a job at a private equity firm, prepare for the most frequently asked questions.

Technical knowledge

1)   What are some ways in which private equity firms create value?

Private equity firms can create value in a number of ways, such as using cash flows to pay down debt. Since private equity firms typically use a greater percentage of debt to finance an acquisition, they can use the cash flows of the business to pay down debt over time, thus increasing value for all equity holders. They can also use dividend recapitalization to extract value in the form of dividends without having to sell the acquired company, or they can use revenue growth to increase EBITDA.

2)   What is a leveraged buyout (LBO) and how do you use an LBO model?

An LBO is the acquisition of a company that involves valuing the company’s equity and debt. Debt typically contributes more than 50% of an organization’s purchase price, while equity typically makes up less than 50%. You can use the LBO model to understand the size of the equity check that financial sponsors contribute to the acquired business. You can then make assumptions about the investment based on the EBITDA multiple paid.

3)   What qualities do you use to evaluate whether a company is a good LBO candidate?

When evaluating a company’s suitability for an LBO, I consider several variables, looking for a company that is well-positioned in the market to be an industry leader and to have a loyal and effective management team. I also examined a number of aspects, including whether the company has non-cyclical recurring cash flows and whether it has diversified revenue streams.

4)   How does add-on acquisition create value?

Private equity firms may use this strategy to create value because add-on acquisition can increase the value of the acquired firm’s cash flows by aligning them with those of the larger firm, which in turn increases the value of both parties involved. This strategy may also provide a competitive advantage to large acquiring firms competing with strategic buyers.

5)   Is it possible for a company to have a positive net income yet still go bankrupt?

Yes, it is possible for a company to have a positive net income and still go bankrupt. This can happen when a business’s demand for accounts receivable increases and the company is unable to collect payments from customers while accounts payable create pressure and the company is unable to defer payments to suppliers. These conditions can result in a deterioration of working capital.

If you want to master the core technical skills for Private Equity, from in-depth financial statement analysis to structuring complex add-on acquisitions in a leveraged buyout, to impress at interviews our online Private Equity Associate course will teach you everything you need to know.

Transaction experience

1)   Walk me through the most successful deal you have handled.

With a question about the most successful deal, you are given the opportunity to choose a story you want to highlight in the interview. You should use the STAR format to tell of your accomplishments. S/T (Situation/Task): you can start by providing a brief overview of the project or situation. You should try to make it short, providing enough context to help your interviewer appreciate the difficulty and importance of the task. A (Action): In this part, you can walk the interviewers through your key actions and the competencies involved in solving the tasks. R (Result): It’s essential that your story should have a “happy ending”. The last part of your answer should describe the positive and concrete outcome to impress the interviewers.

2)   If you noticed that a company representing a potential investment opportunity had a high employee churn rate, what would you do?

If I notice a company with a high employee churn rate, I’d be very cautious about investing in them. In general, a high employee churn rate is a sign of underlying problems in a company’s organizational structure. It also often leads to high customer churn, which can lead to revenue challenges and make it more difficult for companies to pay interest on time.

3)   If our private equity firm needed to exit an investment, what strategies would you explore?

There are several strategies that could be implemented to help a firm monetize its investment. The first option would be selling directly to a strategic buyer; these types of sales are often the most convenient and can ensure you receive the highest evaluation. The next option I would pursue is a secondary buyout, where another buyer could purchase your synergies. Finally, since your firm is quite large, I’d consider undergoing an initial public offering (IPO) to sell shares through the public market.

4)   When was the last time you made a change to a strategy and saw positive results?

In my last role as a private equity analyst, I noticed that our portfolio companies were struggling with their social media marketing strategies. They weren’t seeing the results they wanted, so I decided to create a new strategy for them. I created a plan that would allow these companies to use more effective methods of social media marketing while also saving money on their overall marketing budget. The companies implemented this strategy, and it helped them see an increase in sales.

5)   Provide an example of a time when you had to make a recommendation.

In my previous role as a private equity analyst, I worked with a client who owned several small businesses. One business was struggling financially, so we decided to sell it off. However, after selling the business, we realized that our client could have made more money if they kept the business open. So, we bought back the business at a higher price than what we sold it for.

Firm and industry knowledge

1)   Why are you interested in private equity?

I have been fortunate to work at [ bank], where I was able to learn a great deal about [X industry]. What I’ve realized is that the parts of the job I really enjoy are learning about new businesses and industries, along with their fundamentals, and truly understanding what drives their growth/performance over the longer-term. That is why I want to transition to private equity – because not only are you constantly looking at new industries and potential businesses to acquire, but you also get to focus on figuring out different ways to create value longer-term.

2)   What do you know about us and why do you want to work at our firm?

[X Firm] is one of the only private equity firms out there that has been extremely successful in adapting to changes in the consumer environment. Looking at your portfolio, I see that you’ve been able to pivot away from heavy exposure to retail toward service-based businesses that benefit from changes we’ve seen in consumer spending habits over the last decade, i.e more spending on experiences. Overall, I think your firm is one of the few that have been able to adapt to changing trends. It also seems that your firm is open to growing talent from within: as I look at the investment team, I see many partners who started out as associates at the firm – and that is not something you usually see at many private equity firms.

3)   Have you checked out our website? If so, what investment did you like the most, and why?

Your answer to this question will tell the interviewer a lot about your dedication to the company and your investing knowledge and philosophy. To answer this question correctly, make sure that you have studied the company’s website thoroughly. You should be able to identify one investment that you like and explain to them why it was a great investment.

4)   What is our firm’s investment strategy?

To answer this question well, you’ll have to do a lot of research. You can probably find an official statement on their website, but a more insightful answer would come from having read any interviews with founders or partners that talk about their approach, as well as from understanding the investment themes that span their portfolio companies.

5)   How do you stay informed about changes in the private equity industry?

I listen to several private equity podcasts each week, including Future Finance 360 and Private Equity Today. I’m also subscribed to multiple industry newsletters that I enjoy reading in the morning as I start my day. At least once a month I attend a networking event with other industry professionals, which helps me learn more about the investments they’re making as well as upcoming trends.

Fit and Personality

1)   Walk me through your resume.

This is self-explanatory; you should be prepared to answer this question in any interview. Don’t memorize what you are going to say because you will bore the interviewer. Sound excited to be there, walk through all the important parts of your background, the experience you are getting in your current role, and end with why you want to transition into private equity.

2)   What are three strengths you can bring to our firm?

Three of my biggest strengths are collaboration, critical thinking, and data modeling. In my current role, I collaborate closely with the CFO and other team members to develop accurate revenue forecasts. My ability to think through situations critically and to model data meaningfully also helps me analyze information and develop smart business suggestions.

3)   What makes you stand out as compared to other candidates?

I have five years of experience as an analyst in private equity, which has given me valuable skills like data analysis and financial modeling. I am also highly organized and detail-oriented, which helps me stay on top of my work. In addition, I am passionate about finance and investing, so I enjoy learning new things and working with others who are interested in these topics.

4)   How do you handle conflict in the workplace?

I haven’t experienced a huge amount of conflict with co-workers. However, when it does happen, I always try to resolve it straightaway, because I am a strong believer that conflict can have a negative impact on a team. I will try to resolve the conflict myself by first assessing if I did anything to contribute to it. I would then speak to my co-worker in private to get to the bottom of the problem. I would be calm, respectful, and professional while speaking to them, and I would seek a resolution that we were both comfortable with, so we could move forward quickly for the sake of the team.

5)   What are your personal strengths and weaknesses?

These types of questions are typical, but it is not easy to meet the interviewers’ needs. Using this question, they seek to assess what you think your strengths and weaknesses are, and they want to observe how you respond to challenges. Employers also look for the skills, experience and attitude needed to get the job done. So, you need to focus on what strengths you have that are good for the job, answer questions in a positive manner, be honest and sincere, and avoid mentioning weaknesses that would make you a bad fit for the job.

Tips for Answering Private Equity Questions

Here’s a list of tips that may help you answer private equity interview questions:

  • Think about the type of private equity fund you want to get into (mega/large fund or middle market fund), geographic location of PE firm, and the investment style (buyout, growth capital, etc.)
  • List your technical skills on your resume and prepare what you write in the resumes.
  • Practice before the interview.
  • Answer questions clearly.
  • Use technical questions to highlight your problem-solving abilities.

Conclusion

When recruiting, private equity firms look for proven achievers, top performers, and professionals with the caliber to optimize investments and returns on portfolios, rather than just being capable of performing the tasks required for deal execution. There are four main types of private equity interview questions: technical, transactions, firm, and fit. To respond to PE interview questions, candidates need to have extensive knowledge and a deep understanding of the financial industry, economics, statistics, mathematics, business administration, etc.

If you are interested in a career in Private Equity, the Private Equity Online Course will teach you everything you need to impress at interviews, including the core technical skills required so you can hit the ground running when you reach the desk.

Additional Resources

Private Equity Course

Investment Banking vs Private Equity

Hedge Fund vs. Private Equity

Investment Banking Vs. Asset Management