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Consulting to private equity

Bryan asked on Mar 31, 2019
Preparing for 2 MBB final rounds, looking for strong case partners

Hi guys, I've spent 2 years in consulting in Asia and worked on numerous projects with private equity teams (both investment teams and portfolio teams), and am looking to try out for private equity investment roles - has anyone made this transition before? Keen to know what skills are most transferable to private equity, and how private equity firms assess consultants - would there be questions on previous PE / due diligence work?

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Serhat replied on Apr 26, 2019
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Many (if not all) PE funds would consider applicants from management consultant firms. They generally like the idea of having applicants with a diverse background and can think about problems in a different way than the typical finance kid. That being said, the fund will expect that you have roughly ~80% of the technical financial skills that an applicant coming from a traditional banking background would have.

You may need to devote a little time self-studying the basics. Here is a list of topics to cover and an intermediate level question you could expect in an interview (though they can get significantly more challenging based on the interviewer)

  1. Accounting skills: basic understanding of 3 financial statements
    1. Ex: if you sell $10 of inventory for $20 and no cash is collected today, how would impact the 3 financial statements?
  2. Financial skills:
      1. Understanding of key financial concepts: equity, debt, enterprise value, WACC etc (ex: how do you calculate the average cost of capital? //what is this number used for? // if we increase the amount of debt on a company, what happens to WACC
      2. Understanding of valuation methods (Comparables, Transaction Comps, DCF) and metrics (P/E, EV / EBIT(DA)) - calculation and applications
      3. Conceptual questions (ex: what sort of companies would you want to use EBIT multiples? // when would you use EBITDA as a multiple? Walk me through a DCF // what is the difference between levered and unlevered free cash flow?
    1. Modeling skills:
      1. Each fund will have you do a case study/modelling test in a later round. You should be able to build a basic LBO model from scratch, decently formatted in around 2 hours

This stuff is not rocket science and will not be overly hard for anyone who went to a decent college in a hard major. That being said, if you have little exposure to this information before I would assume that it represents roughly 1/3 of the volume of work required in a freshman level calculus class.

I would recommend the wall street oasis guide (WSO) or vault guides. They are well worth the money. The WSO guide, in particular, is helpful because they have lots of these technical questions at varying difficulties. I would suggest getting the guides because the questions I have listed above are fairly easy and you can likely expect questions that can be a fair amount more difficult.

Important note: Quotation from Quora

Vlad replied on Mar 31, 2019
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Hi,

You need multiple things:

  1. Network to get invited (it's almost impossible without network)
  2. Valuation skills (you'll be doing a valuation on paper)
  3. Fit - pretty standard, similar to consulting

Best

Jan
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replied on Apr 01, 2019
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Hi,

I made pretty much the same move, with difference that I went to Startup first and then to PE.

The work is different as the people in PE comparing to consulting.

1. Transferable skills - efficient and very conscise communication, together with clear recommendation - i.e. I woud / would not suggest to do the deal. Ability to do the slides is also a benefit, at the same time XLS skills will be lower compared to people coming from backgrounds like investment banking.

2. How do PE assess consultants - mixed view, very often people from PE think consultants are bullshitters. :-) However coming from MBB definitely creates good impression in PE.

During the interview be ready for case about valuation and a demand for faster answers. I.e. its not good to take the typical Consultant "one minute to structure thougts at the beginning of the interview"...

Alessandro
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replied on Apr 01, 2019
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Hi there,

Transitions to PE are quite common in London from MBB (especially Bain, given the private equity connections and strength of our Private Equity team.

If you have worked on Due Diligences, this is certainly extremely transferable as part of PE interviews involve a "case" fairly similar to a consulting case, but focused on either DDing a company, or finding value creation opportunities. You will also almost certainly be asked questions about previous DDs you have done - here be ready to go quite deep and answer both broad and deep questions. I'd suggest you sit down and reflect on each DD you did, and relook at the material - then think about how it links to the industry you worked in, the specific problem you looked at (e.g. how recession-resilient is this business?) to be able to engage in a discussion with your interviewer.

What you won't get from Consulting for interviews are mainly two things:

1) Deep knowledge of financials - e.g. deeper understanding of the links between the financial statements, importance of working capital, etc.

2) LBO/Valuation Modelling skills - you get these in consulting but mainly to make market models, not LBO models, so you need to practice this.

However, you should be able to pick this up fairly easily by dedicating some time to it. There are plenty of resources online - I would take a look at the Wallstreetoasis that has some good discussions and also (paid-for) materials on prepping.

Regarding Network, I would start reaching out to headhunters now. At least in London Network is not essential if you work at a top firm - most people just get invited through head hunters.

Good luck! PE transition is not easy for consultants, but it is certainly doable!

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