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Private Equity Case Studies in 3,017 Words

Since I was getting approximately 53 emails per day about this one, I decided to
make it easier and just tell you everything you need to know about private
equity case studies.
Lots of people are going through private equity recruiting this time of year, so
lets take a look at what to expect and how to tackle the case study a critical
part of most buy-side interviews.
Note that these case studies are completely different from the case
interviews you get in management consulting (not that I would even waste
space on consultants here, but just to clarify).
Why?
Although I labeled these private equity case studies above, youll encounter them in almost every buy-side
interview, from mega-funds to tiny 4-person firms to everything in between.
Not all hedge funds do them, but any fund that does some long-term investing (as opposed to effectively day-trading)
will usually make you complete some type of case study as part of the interview process.
Sometimes theyre formal and sometimes theyre informal, but theyre always important if you screw yours up, you
probably wont be moving onto the next round or getting an offer.
Who?
No matter your profile or previous background, youll encounter case studies if youre trying to move into private
equity.
So even if youre a consultant or youre moving in from a different field altogether, you will still have to complete case
studies.
No one ever says, Oh, well you you didnt do much modeling so we can just skip that part of the interview.
Instead, they assume that you know how to do it and then weed out people who dont.
Even if you are applying to PE firms straight out of undergrad, or youre applying as an intern, youre still likely to get
case studies multiple friends who did this had case studies pretty much everywhere.
The only exception here is senior-level hires but then, if youre reading this right now youre probably not
interviewing for Partner-level positions
What?
The case study is designed to answer 1 simple question: Should we invest in this company?
The firm could ask you to complete the case study in a couple different ways:

1. Most Common: You get materials on the company they want you to analyze (financial statements, 5-10 page
document describing it, maybe some outside research) and you have anywhere from a few days to a week to
complete a short presentation.
2. Part of the Interview: Some places will make the case study a part of the interview itself they might give you
basic information on the company and then give you 2-3 hours to do your work and present to them
immediately afterward. More common at mega-funds.
3. Just the LBO Model: This is less common, but they could also give you 30 minutes to create a simple LBO
model of a company just to verify that you actually know how to do this.
This article will focus mostly on #1 and #2, since #3 is just a sub-set of those.
Hedge funds are less formal than PE firms if they ask you to do a case study at all, and in other fields like corporate
development and venture capital youll either have more of an informal case study, or you wont do one at all.
Case Study Ingredients
At the bare minimum, youll usually get some type of Word document describing the company in question (called an
Information Memorandum (IM) or Offering Memorandum (OM) or Executive Summary in banker terminology).
It might be short (10 pages or less) or it might be quite long dozens or even 100+ pages. If youre analyzing a public
company, they might just point you to the 10-K or 10-Q (annual report and quarterly report, respectively) instead.
Its rare to get extremely detailed operating models because you dont have time to go into pages of detail.
Outside research is similarly rare.
The firm usually wont give you guidance on how to value the company or how to build your models, but thats for an
entirely different reason: they want you to figure it out .
Structure: Simple FTW!
Simplicity is the most important word for your case study.
If they dont give you a structure to adhere to, I would recommend the following:
1. 1 Summary slide in the beginning.
2. 2-3 Qualitative slides discussing the market, management, and anything unique to the deal.
3. 3-4 Quantitative slides that go into the appropriate valuation, and what kind of returns the firm can expect.
4. 1 Conclusion slide summing up everything and giving a yes/no investment decision.
Yes, for actual portfolio companies (in PE) and clients (in banking) your presentations and models will be more
complex, but you do those over months and years.
Slide Structure
Have a maximum of 3 or 4 (large) bullet points on each slide and if youre showing graphs or the output of
valuations or your LBO model, dont squeeze 25 different things on one page. Keep it to a max of 3-4 different charts
or graphs per slide (roughly 1 per quadrant) or it gets very confusing.
Rather than trying to fit a huge mass of text on each slide as you might do in pitch books you want to focus on
the main points only because youre going to present live to your interviewer(s) later on.
Put too much text in your presentation and the interviewers will focus on the text rather than what youre saying.

Summary Slide
Do the following in 3-4 major bullets:
Do we invest in this company? Yes or no no maybes or conditional upon statements they want a
decision one way or the other.
Support your decision with major points: Give 1-2 bullets to support your decision, focusing on the major
items not tiny details that dont matter.
Hedge your decision by pointing out the key investment risk: No investment is perfect, and everything has
risks associated with it point out the major 1 or 2 risks that are apparent with your company right here.
This may sound stupid to you, but a Partner at a middle market PE firm once told me that over half the interviewees
failed to make a decision one way or another in their case studies.
Heres an example of what you might write in your summary slide if we were considering the buyout of Harrahs
casino chain back in 2006:
Harrahs is a compelling investment that could generate a 5-year IRR of 15-20% with reasonable assumptions
Supported by strong market fundamentals, success in recent international expansion, and healthy cash flow
Current public market valuation under-values company by approximately 10%, creating solid investment
opportunity
Key investment risk is strength of US economy and risk of consumer spending falling
Yes, I realize this deal was a great example of an investment gone horribly wrong once the casino industry imploded,
but these points are for illustrative purposes.
Qualitative Slides
These slides are highly dependent on the company youre analyzing at a minimum, though, you need to think about
the following:
Market: Is this an industry thats growing? Will it grow more quickly/slowly in future years? Do you see positive
or negative trends due to technology / regulations / competitors? Where does this company stand next to the
competition?
Competition: How does this company fare against its competitors? Does it have some type of unique
advantage that others cant replicate? What about the barriers to entry?
Growth Opportunities: How quickly can the company grow in the future? Is there any low hanging fruit or
room to easily win more customers / revenue in the future? Do you expect it to grow faster or slower than the
market as a whole?
Risks: Every investment carries with it risks are the key risks here related to the market, or the economy as
a whole? To the competition? To government regulations? And is there any way of mitigating these risks?
Other: If theres anything especially notable about the management team, the products/services or other items
unique to the deal, you can mention them as well but stay away from saying, The CEO is great! because
you have no way of knowing that.
Focus on the first 4 items because those are the main ones that impact your investment decision.
Quantitative Slides
These slides should address valuation and expected returns.

The biggest mistake you can make is going into an unnecessary level of detail by doing any of the following:
1. Spending hours and hours searching for EBITDA add-backs and adjustments for each company in their filings .
2. Spending hours debating which pub comps and transaction comps you should be using.
3. Creating a detailed LBO model that handles 500 different cases and also adjusts perfectly for items that no one
cares about.
No one is going to look at how you came up with these numbers, so keep it simple and use Capital IQ (or whatever
information service you use) to gather the data automatically.
A sample structure for this section might look like:
Valuation Overview: How much is this company worth, and what methodologies are you basing it on? This is
where your football field chart goes.
Valuation Detail: Here you can show the pub comps and transaction comps you picked, along with your DCF
output. Depending on the company and situation, you may be using different or additional methodologies as
well this is most common for real estate, energy, and financial services.
LBO Model Output: Dont go into a ton of detail here just show your assumptions and the output of the
model under a range of sensitivities (even though this is a simplified model, its still important to show
sensitivity tables on the IRR and it takes 2 seconds to add).
Depending on how much output you have, these sections could comprise anywhere between 3 and 4 slides. Resist
the temptation to write 20 slide chock-full of numbers this isnt banking.
Valuation
Do a simple Capital IQ search for companies in the same industry with revenue or market caps in the same range,
and if you know anyone at the relevant industry group at your firm, request that information from them.
If youre not in banking and/or you dont have Capital IQ access, this section will be more difficult to complete try to
get a friend who has access to send you login information, or get the information directly from friends with access.
And if you absolutely cant get access or you are under extreme time pressure (its an on the spot case study), you
can skip parts of this and just show a DCF (or DDM if its a financial company, etc.) to support your valuation.
You definitely need to give some indication of value here but if you dont have or cant get access to all the
information you need, focus on what you can do (e.g. DCF in place of public/transaction comps).
LBO Models
Forget about all the complex LBO models youve built: you want to make this as simple as possible. Ive already
written at length about what a PE interview LBO model needs to include in the article on private equity interviews, but
just to recap some of that here:
1. Assumptions Purchase/Exit EBITDA multiples, leverage, growth, and profitability.
2. Sources & Uses How much debt / equity youre using, and then how much of that is being spent on
acquiring the company vs. transaction fees / paying off debt.
3. Simple Income Statement / Cash Flow Statement / Debt Schedule The Balance Sheet is not necessary if
you think about it, so I would only include it if they specifically ask for it, or you need it because of an unusual
investment scenario. Excluding the Balance Sheet saves you time without detracting much from your model.

4. Returns & Sensitivities Do a simple IRR calculation and show IRR over a range of purchase/exit multiples
and your other assumptions.
Forget about multiple tranches of debt, PIK, PP&E schedules, asset write-ups, book/cash tax reconciliations,
management option pools, and focus on the bare minimum.
You may have to stray from this if your company has NOLs (Net Operating Losses) and anything unusual that needs
to be taken into account (minority interests, other unusual investments, pending divestitures etc.) but you should still
focus on what you need rather than what looks cool .
The LBO modeling course in Breaking Into Wall Street covers the type of model that you could use for PE interviews.
Conclusions Slide
This should not be much different from your Summary Slide in the beginning just re-state what you had there in
different words, and perhaps add more detail.
Instead of just making a yes/no investment decision, for example, you can also specify here at what price level
youd invest, either in dollars per share (public companies) or as a lump sum (private companies / divestitures).
You may also want to go into more detail on what can be done to mitigate the risks you brought up here or on the Intro
slide.
Decision-Making
Reading all this, you might be wondering, But wait how do I actually make an investment decision?
And that tells you exactly why investors dont have it easy: its never a clear-cut decision. But remember that your
actual yes/no decision doesnt really matter that much what matter is how you back it up and support it with your
work.
Making investment decision goes way beyond the scope of this article, but here are a few guidelines:
The numbers matter, but mostly for initially testing whether or not something could work if a company is
already over-valued by 50%, for example, chances are it will be a bad investment. If your LBO model never
shows the IRR going above 10% even with crazily optimistic assumptions, its also a bad idea.
Your decision should ultimately come down to qualitative factors, with the valuation and returns you
calculated to be used as support.
Your support shouldnt be We should invest in this company because its under-valued by 10%.
You want to say, We should invest in this company because its set to grow faster than the overall market, its lightyears ahead of its competition, and on top of all that we could get a 20% IRR even with very conservative
assumptions.
So, What Matters?
Anyone reviewing your case study will be most concerned with your thought process unlike banking, formatting
and small details dont matter much.
Your communication skills are more important than your knowledge of finance for these case study exercises
if you cant explain your points simply and reach a solid conclusion, you wont get an offer.
So dont get preoccupied with minutiae focus on your investment thesis and the major reasons youre
recommending or not recommending an investment.

Factors Outside the Slides

Your presentation style, the number of people watching, and how much time youre given can also come into play, but
its very difficult to generalize here because each firm does it differently.
You might present to just 1 interviewer, or it might be to all Partners at the firm in which case you better know your
stuff.
A lot of this comes down to public speaking, which again is beyond the scope of this article but here are a few
guidelines Ive followed when giving speeches and making presentations:
Have some notes with you, but dont write down word-for-word what youre going to say.
Speak twice as slowly as you normally would and look at different people in your audience every few
seconds (only applicable if you are presenting to multiple people, of course).
Always practice beforehand, even if you only have 15 minutes just practice running through it in front of the
mirror and going through all your points, without reading anything word-for-word.
How Much It Matters
The case study certainly weighs in heavily, though its not the only factor in private equity interviews top firms
usually have many, many rounds of interviews, and even smaller and middle-market firms can take weeks or months
to make a decision, simply because they can afford to be very selective about who they hire.
I would compare a case study in private equity interviews to technical questions in investment banking interviews:
doing a poor job can kill your chances, but being a superstar wont necessarily help you . Case studies
are more of a way to weed out people than anything else.
As with any other type of interview, your success comes down to fit questions and your story after youve
cleared the technical hurdles if everyone likes you and is confident youd do well, you have a good shot at getting
an offer.
Also note that while private equity interviews are very competitive, you would be mistaken to overestimate the
competition.
Most candidates have terrible stories and also have no idea why they actually want to do anything in life from
getting into investment banking or consulting to moving into private equity.
The last thing a PE firm wants to see is yet another person whos trying to get in because they heard it was cool,
because all their friends were doing it, or because they want to make a lot of money and have no idea how else to do
it.
So if you make sure your story is solid, come across as a likable person, and do your case study reasonably well,
you stand a good shot at getting an offer no matter how competitive it is.
No, I Dont Have Any Sample Case Studies and I Dont Have a Guide (Yet)
Before anyone asks: no, I dont have any sample case studies because I lost all my documents from banking.
If you want to practice, I would suggest getting a CIM or OM on a company you dont know well and running through
the exercise above or just pick a random public company and go through their filings.
I receive many questions on a PE interview guide, but again I dont have anything at the moment PE interviews are
less about specific technical questions (except at mega-funds) and more about your deal / client experience and the
case study. If I were to create such a guide, it would be mostly example-based and next year is the earliest it would be

out.
But hey, until then you have this article and everything else here on private equity interviews, private equity resumes,
and how to get a private equity job in the first place.

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