LBO interview struggles

Question

Hi all,

I’m preparing for interviews at a mid-cap PE fund and just got told that my second-round will focus on LBO fundamentals and investment logic. I’ve done a few basic models in Excel and understand the structure, but when it comes to interpreting results (like IRR drivers or leverage effects), I feel lost.

Coming from an audit background (Big 4), I can crunch numbers, but I’m not used to thinking like an investor. I have 4 days before the interview. How do you think about value creation levers quickly during a live discussion?

Would love any advice or example cases I can practice that simulate the kind of reasoning expected in a PE interview.

Answer 1

Hi there,

in my experience there are two ways: quantitative and qualitative.

On the one hand, you can dissect the impact of the 3 main LBO drivers. 1). Usually you would keep the multiple constant or lower at exit (unless you purchase add-ons) so there is no or only a negative impact on the LBO. The effect of EBITDA-growth is quite clear to interpret and the leverage and cash covertion makes up the remainder of returns (neglecting mix-shift effects). Based on that you can give a first indication on which of the 3 levers had the largest impact. This can be drilled down into much higher detail of course.

On a qualitative perspective, you would need to better understand the market environment and the company. For example: where does the revenue growth come from? Is it mainly driven by market growth or does it imply market share gains, entering new markets (geographical expansion, product expansion etc.)? Are leverage assumptions realistic given the cash generation profile and Balance sheet?

There are several angles to question an LBO depending on the fund and the target in question, but making your own structure of points to diligence can help a lot.

Best,
David

Answer 2

Think in simple buckets. Value comes from EBITDA growth, margin improvement, debt paydown, and multiple expansion. In a live case, talk through how you'd grow revenue, cut costs, or improve operations. Then explain how leverage boosts equity returns if the company performs. For IRR, focus on entry price, EBITDA growth, and how much debt you repaid.

Practice with quick paper LBOs—build a rough 5-year model with simple assumptions, then ask what’s driving returns. Even if your numbers aren’t perfect, showing investor mindset and clear logic matters more. Keep it structured and stay calm under pressure.