All questions tagged Private Equity - Consulting Q&A - PrepLounge.com

.. Sorry, non that I know of which such an active and well-built community like here!

But you can find many forums dedicated to IB/PE/VC and also find people there offering coaching sessions on that - however not in such systematic way like on PrepLounge!

Hope that helps - if so, please be so kind and give it a thumbs-up with the green upvote button below!

Robert

Hi there,

Many consultants leave for PE - If you are good at DDs, it should be fine. (at the end of the day, PEs are in the business of valuations and deals - so you already have 50% of the business requirements) - the other 50% is relatively easy if you are interested in it. It's really not more than simple additions and subtractions (except for leveraged buyouts, those can be confusing sometimes :))

The technicality of the job should not be a showstopper - just remember how much you learnt on the job in your current company. The question you need to ask yourself are the following:

• Are you ready to leave consulting?
• Does PE fit with your mid-term/long-term plan (you don't need to have a plan, does PE fit with the overall picture you have for yourself 3-5 years down the line)
• Does the job offer you the lifestyle you would like to have?
• Do you think you can work well with this PE team?
• Does the job offer you a career ladder that is in line with your expectations?

Also, it never hurts to go through the interview process to discover the role a bit more and your "valuation" of this position might improve ;)

I hope this helps - Best of luck in the process!

Khaled

Hi Anonymous,

congratulations on your offer! In terms of the job expectations, you will mainly have to work on due diligence (usually 4-week period projects) to assess if an acquisition makes sense. This normally involves industry analysis (including analysis of market potential, competitors and customers), target analysis (business plan assessment) and synergies analysis (potential revenue/cost gains) to assess if the acquisition makes sense based on the goal of the PE (usually, an exit in a certain number of years for a certain multiple).

In terms of preparing in advance before you start, I would recommend working on technical, communication and stress management skills.

• On the technical side, Excel will be the most important technical thing to master at the beginning, in particular for VLOOKUPs and Pivot tables; you could also review PowerPoint, which you will also use quite a lot.
  • At BCG we got learning courses we could use to improve on them, and you may receive the same for your target firm, but so far that you have already mastered the skills before joining (you can find several courses online for both), even better.
  • Tip for Excel: learn how to use as much as possible the keyword and relegate the touchpad to the minimum – this will skyrocket your productivity in the long term. Some computer programs such as KeyRocket provide tips to improve on this.
• For what concerns communication, I would recommend the classic book on the topic: “How to Win Friends and Influence People” by Dale Carnegie.
• For stress management, I would recommend two books:
  • “The Miracle Morning” by Hal Elrod – great tips to start in the right way your day
  • “The Magic of Thinking Big” by David Schwartz – a great sum up of some of the best tips be positive, productive and achieve more

Below you can also find a list of things that could be useful to practice during your first weeks:

1. Take notes when your manager tells you something – this will help you to remember details and will show you care about them to the team.
2. Always double check. The first impression is very important in consulting: if you show you are reliable from the beginning, you create a reputation of a reliable person. Double checks should be done on expectations for your job, your excel analysis, your slides – basically everything.
3. Define priorities before starting any set of tasks. The majority of the results usually come from a subset of activities – this is true also for your tasks in consulting. You have to identify which they are and prioritize them – the application of the so-called 80-20 rule or Pareto Principle.
4. Socialize with your colleagues and start to build a network. Consulting is a people business and you should build a good network both within and outside the company. A good start is key to develop good relationships long-term
5. Organize your private life activities. You want to organize your calendar to leave some space for personal activities (sport/ friends/ family). This is not easy but can be managed if you organize well, and long-term will be critical to keep a balance between work and private life. Also, it is better to align with your manager/teammates from the beginning on your core needs, so that there are no surprises later on.
6. Ask for feedback every two-three weeks – this will show you are proactive and willing to learn.
7. Ask for help when you don't know what to do – better to let know you are in trouble with meeting a deadline then missing the deadline.
8. Be social and respectful with the support staff – these people are great and influential as well in the company.

Hope this helps,

Francesco

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. 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?
   2. 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

Hello,

Just to give a ballpark figure, typical Buyout-focused PE firms target +20% IRR over a period of 5 years, implying a Multiple on Invested Capital (MoIC) of at least 3.0x. Notice that the profitability of the underlying asset is not so important; it's more of an input to achieve that.

On the case you presented:

• ROI of 25%, thus MoIC of 1.25x is way too small
• A key driver of profitability is the exit value, which you are not considering.. and what is the entry price? or is it a greenfield investment? (usually a PE firm acquires an established company)
• Difficult to imagine a situation of annual cash flows of $2M and profits of $0.4M
• Aren't you mixing CapEx and annual costs? Or is it a coincidence they are the same? And CapEx of 4x revenues is huge

In a nutshell, I would not invest in this deal and I believe you are making too simplistic assumptions.

Best,

Francisco

Hello,

First of all congratulations on the move. Yes, PLs can transition to PE but I would advise on moving within 2 years. As a former BCG and currently working in PE, here are my 2 cents to maximize your chances:

• Know the whole recruitment process inside-out: role of Headhunters, paper LBOs, multiple rounds of interviews that cover fit, technical aspects & deal Exp. and cases
• Practice the aforementioned parts until you can answer them during your sleep
• Network as crazy - most people won't reply to your cold calls so you have to strategic in this approach and work with the sheer numbers
• Position yourself to do as many DD cases as possible and, if you're lucky, getting into the PE practice area helps quite a lot
• Firms hire, and increasingly so, people with exp. in consulting and will test you particularly if you are as technically sound as your IB counterparts. This means FInancial Modeling (vs. for IB candidates they'll test on strategic, structured thinking).

If you need any other hint let me know

Best,
Francisco

Hello!

Congrats on the offer!

Entering PE after a carreer of 2-3 years in McKinsey USA as a BA is something that many people do, so it´s easy if you follow the right path.

Actually, I know a person who worked with me in DD in 2017 who did precisely this in the US.

What you need to do is to make contacts in the PE practice asap, to ensure to be staffed in as many projects as posible. The way to do this is to find your first project in PE and ensure you rock it, to build a good relationship with the partners. Once you have achieved this, things will be easier, since all you need to need is express your interest in continuing your carreer in the practice and they will staff you.

However, bear in mind that PE and DDs are actually challenging and exhausting cases, you can´t do too many of those in a row without having a burnout.

Hope it helps!

Cheers,

Clara

Hi there,

The payback period is the time needed for an investment to reach a breakeven point. As a consequence, assuming the company is bought at the beginning of year one, you can simply check the sum of the inflows for profits and the expected selling price at that time would be at least equal to the buying price.

Best,

Francesco

Hi!

Here is how to be rigorous in your thinking:

1. You need to ALWAYS define your focus metric! Profitability is not universally defined. It is usually profit relative to something (mostly profit/revenue, but can also be profit/cost, profit/customer base or dozens of other versions). Clarifying what profitability means for this particular client is your duty as consultant (candidate).
2. Then you need to deconstruct this focus metric into its components and check, which one has changed in the direction wthat would cause the term to decline (nominator must have increased relatively to the denominator!). Then you drill deeper to isolate the numerical driver of this unfavorable change.
3. Once you know what is mathematically driving the decline in profitability, then you start asking qualitative questions to understand the underlying reasons for this decline.
4. After you understand the problem driver(s) and the underlying reasons, you are well equipped to outline strategic options to adress these very reasons.

Hope this is helpful.

Cheers, Sidi

Hi,

PE is not a common exit, simply because there are so many MBB alums and a very limited number of PE roles.

To give you some context - at my MBA class at Harvard, we had more ex-PEs looking for a PE job than the final PE job offers. As you can see - the PE world is very very small

Salaries are much higher if you stay long term since PE assumes Carry. Once you are in - the salaries are the same no matter what was your background. However, keep in mind that some PEs have operational roles (typical for ex consultants) where the salaries are lower than with investment roles

In private equity interviews, the cases will be much more detailed in the financial part. Depending on the company you'll need to:

• Find the relevant information in P&L and Balance sheet
• Do the simplified valuation using NPV: calculate cash flows and make assumptions about growth rate and discount rate
• Do the valuation using comps - you'll have to explain which comps you will use and why

Good luck!

Hi,
since the 90+% of the PE associates come from MBB, top MBA or top investment bank, with scenarios 1. and 2. you would build the most appealing CV. However, I would recommend applying right now to PE and playing your cards.

Best,
Anto

Hi,
one of the most important aspects to stress in an M&A will be the revenue and cost synergies of the 2 companies.

During a PE investment instead will be crucial to investigate the ability of the target company to increase - in the short-middle term - profit and value. Then, you can think even on synergies with the other firms in the portfolio.

Best,
Antonello

Agree that it gets a bit more challenging when you become more senior in consulting. So move earlier if you can.

In additional, if you know PE is the place you want to go, esp the investment team, then try to be selective / more strategic in the consulting projects you work on. You likely would benefit from doing a lot more corporate development work, including Due Diligence.

Hi,

most frequently from MBB and top MBA.

Best,

Antonello

Hi Anonymous,

since all the experiences you had were internships, I would actually include the consulting one as well. You can easily build the story that you wanted to try different things to understand what is really interesting for you, and after doing both PE and consulting you understood consulting is the most suitable career path.

It is quite normal for people to have internships in different sectors to understand how they are before choosing a career path; so far that the brand name or the sector is fitting consulting, there are no issues with that. I myself did an internship in banking before consulting and that was totally fine for the interviewers.

The fact that you had internships in both consulting and PE and that you now want to start in consulting can actually be considered as a plus. Consulting companies appreciate candidates who are sure about consulting as a career path and the fact you want to go back after trying also other experiences can reinforce that belief.

Best,

Francesco

Hi,

There are two types of cases you can have:

1. Commercial due-diligence of the target company
2. Synergies calculation of two merging companies

Note also that it can be a mix of both.

1. For Due Diligence you can use the following structure (It's the official framework from Bain website):

Market

• Size
• Growth rates
• Profitability
• Segments and growth
• Regulation

Competition

• Market shares of competitors and their segments (see the next point)
• Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
• Unit economics of the players (Margins, relative cost position)
• Key capabilities of the players (e.g. suppliers, assets, IP, etc)

Company

• Revenue and growth rates
• Profits
• Unit economics (Margins, costs) in current or target markets
• Key capabilities

Feasibility of exit (in case of a PE company):

• Exit valuation
• Exit time
• Existence of buyers
• Risks

2. For Synergies Calculation you can use the following structure:

1. Revenue synergies - here you calculate the synergies in price and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
3. Financial synergies - working capital, capital structure, tax
4. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
5. Total synergies potential in $, adjusted by risk (probability of failure)

Good luck!

Hi Mia,

you should be able to find PE cases in the major casebooks online as they are quite popular (eg Kellogg) – just filter the casebook by keywords; VC cases are definitely less frequent, both in casebooks and in interviews, although most of the time the structure you can use is similar.

In case you need specific support with them please feel free to PM me.

Best,

Francesco

Hi there!

The reason why most strategies (80%) fail is execution. I would start by stressing this concept. For sure the PE firm identified a strategy to make the target grow before acquiring it. So, your action plan has two core macro-steps:

1. Communicating the strategy and the change;
2. Implementing the strategy.

In terms of communication, it’s important to make everyone in the company aware of the change and committed to it. You’ve to create the momentum and keep it high (eg., through interviews with colleagues, banners on the walls, newsletter, etc.)

At the same time, you have to start implementing your plan. On the one hand, by focusing on your clients, in order to increase revenues, on the other one, by focusing on internal operations and supply chain management in order to improve your cost structure.

This is the general framework I’d suggest you adopt. The specific actions will depend on the strategy proposed by the PE firm.

Best of luck!

Hi,

There are two types of frameworks you may use:

1. Commercial due-diligence of the target company
2. Synergies calculation of two merging companies

Note also that it can be a mix of both.

1. For Due Diligence you can use the following structure (It's the official framework from Bain website):

Market

• Size
• Growth rates
• Profitability
• Segments and growth
• Regulation

Competition

• Market shares of competitors and their segments (see the next point)
• Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
• Unit economics of the players (Margins, relative cost position)
• Key capabilities of the players (e.g. suppliers, assets, IP, etc)

Company

• Unit economics (Margins, costs) in current or target markets
• Brand
• Product mix
• Key capabilities

Feasibility of exit (in case of a PE company):

• Exit valuation
• Exit time
• Existence of buyers
• Risks

2. For Synergies Calculation you can use the following structure:

1. Revenue synergies - here you calculate the synergies in price and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
3. Financial synergies - working capital, capital structure, tax
4. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
5. Total synergies potential in $, adjusted by risk (probability of failure)

Good luck!