Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Sidi

99% Recommendation Rate

410 Meetings

3,800 Q&A Upvotes

USD 389 / Coaching

3

Private Equity Acquisition cases

Hi there,

I am trying to understand the general, high level differences between a standard M&A case, and a Private Equity acquisition case.

My understanding is that a lot of M&A cases focus on finding synergies between the two companies. Making sure that both companies fit well culturally is an important aspect to consider.
In a PE case, the objective is obvioulsy to make money, the mother company is a financial firm and hence there are no synergies here. We also dont talk about cultural fit because such acquisition is not a merger.
Are my understandings here correct ?

So when approaching a PE case, is it bascially a subset of M&A cases where we should scrap the synergies form our framework and focus mainly on financial metrics (attractiveness of the market, then stand alone value of the target company) ?

Hi there,

I am trying to understand the general, high level differences between a standard M&A case, and a Private Equity acquisition case.

My understanding is that a lot of M&A cases focus on finding synergies between the two companies. Making sure that both companies fit well culturally is an important aspect to consider.
In a PE case, the objective is obvioulsy to make money, the mother company is a financial firm and hence there are no synergies here. We also dont talk about cultural fit because such acquisition is not a merger.
Are my understandings here correct ?

So when approaching a PE case, is it bascially a subset of M&A cases where we should scrap the synergies form our framework and focus mainly on financial metrics (attractiveness of the market, then stand alone value of the target company) ?

(edited)

3 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Sidi

99% Recommendation Rate

410 Meetings

3,800 Q&A Upvotes

USD 389 / Coaching

Hi!

As usual - instead of just outlining topics and buckets à la Victor Cheng (which have no explicit inherent logic), the key to an outstanding case performance is laying out the precise logic according to which you will answer the question!

In PE cases, the current purchasing price is only of secondary importance! The only thing that really matters is whether you believe that you can resell the company after a couple of years at a price that exceeds the current asking price by the minimum ROI percentage.

For example, if the asking price is 100MM USD and the PE fund has a minimum ROI requirement of 35% and wants to hold the company no longer than 4 years, then the only thing that matters is whether you believe that this company can be sold for more than 135MM USD in 4 years!

So you have to understand/find out how valuation works in this industry. If, e.g., there is a pertinent industry multiple (say 10), then this mens that if you believe you can get the target company to annual profit of more that 13.5MM USD, then this will make sense financially.

So the task is then to analyze, whether it is realistic to bring the target company to this profit level of 13.5MM USD per year.* If yes, this is a good deal based on the financial analysis.

Cheers, Sidi

*: So you will need to check the Status Quo, how far is the target company away from the required annual profit, and how can profits be brought to that level. This is an embedded diagnostic question within a larger strategic go- or no-go question. The analysis is done with the usual instrument: a driver tree which disaggregates the focus metric (profit) in order to identify optimization potential.

Hi!

As usual - instead of just outlining topics and buckets à la Victor Cheng (which have no explicit inherent logic), the key to an outstanding case performance is laying out the precise logic according to which you will answer the question!

In PE cases, the current purchasing price is only of secondary importance! The only thing that really matters is whether you believe that you can resell the company after a couple of years at a price that exceeds the current asking price by the minimum ROI percentage.

For example, if the asking price is 100MM USD and the PE fund has a minimum ROI requirement of 35% and wants to hold the company no longer than 4 years, then the only thing that matters is whether you believe that this company can be sold for more than 135MM USD in 4 years!

So you have to understand/find out how valuation works in this industry. If, e.g., there is a pertinent industry multiple (say 10), then this mens that if you believe you can get the target company to annual profit of more that 13.5MM USD, then this will make sense financially.

So the task is then to analyze, whether it is realistic to bring the target company to this profit level of 13.5MM USD per year.* If yes, this is a good deal based on the financial analysis.

Cheers, Sidi

*: So you will need to check the Status Quo, how far is the target company away from the required annual profit, and how can profits be brought to that level. This is an embedded diagnostic question within a larger strategic go- or no-go question. The analysis is done with the usual instrument: a driver tree which disaggregates the focus metric (profit) in order to identify optimization potential.

(edited)

Book a coaching with Axel

100% Recommendation Rate

45 Meetings

760 Q&A Upvotes

USD 179 / Coaching

Hi,

For a private equity fund the goal is to maximize returns and reach an annual return ~15% p.a. or whatever exceeds their internal target. As such the most important drivers to understand will be:

  1. Valuation of the asset
  2. Market attractiveness (size, growth, competitive landscape and trajectory)
  3. Value creation levers (revenue, cost, strategic, org/governance)
  4. Exit plan in ~5 years time

As you correctly point out any synergies or cultural considerations are not going to be relevant in this situation and would only indicate to your interviewer that you are using a generic M&A framework.

-A

Hi,

For a private equity fund the goal is to maximize returns and reach an annual return ~15% p.a. or whatever exceeds their internal target. As such the most important drivers to understand will be:

  1. Valuation of the asset
  2. Market attractiveness (size, growth, competitive landscape and trajectory)
  3. Value creation levers (revenue, cost, strategic, org/governance)
  4. Exit plan in ~5 years time

As you correctly point out any synergies or cultural considerations are not going to be relevant in this situation and would only indicate to your interviewer that you are using a generic M&A framework.

-A

(edited)

So how would I structure this ? 1- market attractiveness 2- business case including purchase price, expected performance and exit strategy ? — Anonymous A on Aug 11, 2020

Book a coaching with Ian

100% Recommendation Rate

90 Meetings

5,635 Q&A Upvotes

USD 239 / Coaching

Hi there,

There's absolutely right!

PE firms specifically go out and buy companies in order to make money from them (i.e. they either expect future profits to do well or they want to re-jig some things to add value). They're basically investment shops buying assets.

An M&A is when a "normal" company wants another company because they see value to their existing business. This is a much more "personal" decision and can often be tied to another objective rather than just pure profits (i.e. could be growth, market entry, facing off competition, etc.)

Hi there,

There's absolutely right!

PE firms specifically go out and buy companies in order to make money from them (i.e. they either expect future profits to do well or they want to re-jig some things to add value). They're basically investment shops buying assets.

An M&A is when a "normal" company wants another company because they see value to their existing business. This is a much more "personal" decision and can often be tied to another objective rather than just pure profits (i.e. could be growth, market entry, facing off competition, etc.)

Related BootCamp article(s)

Interviewer-Led vs Candidate-Led cases

Case Interviews can be led by the candidate or by the interviewer: In Candidate-led cases the main challenge is the structure. In Interviewer-led cases the main challenge is to adapt quickly

Related case(s)

Bain case: Asian lubricants producer

Solved 134.5k times
Bain case: Asian lubricants producer LubricantsCo, a very successful Asian premium producer of lubricants in their native region, would like to further increase their revenue and profit. The product range ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial applications (e.g. fats, heavy-duty oils). According to preliminary examinations, further growth potentials in the Asian core market are rather limited. Thus LubricantsCo would like to investigate options to internationalize in the passenger car business – also outside the premium segment which is given priority. Therefore your consulting firm was instructed to elaborate a market entry strategy for the European market.  
4.6 5 28573
| Rating: (4.6 / 5.0)

LubricantsCo, a very successful Asian premium producer of lubricants in their native region, would like to further increase their revenue and profit. The product range ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial applications (e.g. fats, heavy-duty oils). ... Open whole case

Bain Case: Old Winery

Solved 56.8k times
Bain Case: Old Winery You have inherited the “Old Winery” from your grandfather, a winery which has been family owned for five generations and can be dated back to the 16th century. Half of the eleven hectares are used to grow white grapes, the other half to grow red grapes. They are grown in the conventional way, i.e. they are not organically farmed and certified. The vine stocks are in a good condition regarding age and care. Overall, only ¼ of the harvest is made into wine by the winery itself; the rest is sold. Your grandfather never wanted to change the image of the winery and left the managerial and administrative task to a young and energetic wine-maker. Due to the not so well-known brand , the demand for the “Old Winery” wine is currently rather low. You do not intent to run the winery operatively, given your limited knowledge of wine making, but find the idea of owning a winery exciting. Your plan is to give the winery some fresh impetus.
4.4 5 1496
| Rating: (4.4 / 5.0)

You have inherited the “Old Winery” from your grandfather, a winery which has been family owned for five generations and can be dated back to the 16th century. Half of the eleven hectares are used to grow white grapes, the other half to grow red grapes. They are grown in the conventional way, i.e. ... Open whole case

McKinsey Questions

Solved 37.5k times
McKinsey Questions Tell me of a situation where you had an opinion and no one seemed to agree with you. What was your goal when you decided to join university / work / clubs / a sports team? Did you have a goal that you were not able to reach? What did you do? What do you want to be remembered for and how are you achieving it? What is your typical way of dealing with conflict?
4.5 5 859
| Rating: (4.5 / 5.0) |
Difficulty: Intermediate | Style: Fit interview | Topics: Personal fit

Tell me of a situation where you had an opinion and no one seemed to agree with you. What was your goal when you decided to join university / work / clubs / a sports team? Did you have a goal that you were not able to reach? What did you do? What do you want to be remembered for and how are you ... Open whole case

BCG Questions

Solved 25.7k times
BCG Questions What arouses your interest when you are working / studying / doing another activity (from the CV)? Tell me of a time where you had no idea what you were doing. When did you use an uncommon approach to do something? Have you ever had responsibility for other people? Tell me of a situation where you were not the official leader.
4.5 5 207
| Rating: (4.5 / 5.0) |
Difficulty: Intermediate | Style: Fit interview | Topics: Personal fit

What arouses your interest when you are working / studying / doing another activity (from the CV)? Tell me of a time where you had no idea what you were doing. When did you use an uncommon approach to do something? Have you ever had responsibility for other people? Tell me of a situation where ... Open whole case

Bain Questions

Solved 23.9k times
Bain Questions Tell me about a difficult situation you had to cope with. Tell me of a task which you didn’t like doing and explain why you performed it nevertheless. Why do you do things? What do you like doing most / What is your favorite hobby? Walk me through a situation where you showed leadership skills.
4.6 5 293
| Rating: (4.6 / 5.0) |
Difficulty: Intermediate | Style: Fit interview | Topics: Personal fit

Tell me about a difficult situation you had to cope with. Tell me of a task which you didn’t like doing and explain why you performed it nevertheless. Why do you do things? What do you like doing most / What is your favorite hobby? Walk me through a situation where you showed leadership skills ... Open whole case