Private Equity
Prepalyst has 20 buyout interview questions with model answers, covering lbo modelling, leverage capacity, value creation plans and exit paths. Every question is graded on technical accuracy, completeness and interview communication. Practice is free.
Opening question in most private equity interviews.
Describe the characteristics of an ideal LBO candidate, and then name a type of business that would be a poor LBO candidate despite being a good business.
A dominant PE strategy. Expect to discuss it in any mid-market fund interview.
Explain the economics of a buy-and-build strategy, including multiple arbitrage. What conditions make a roll-up work, and why do so many fail?
Underwriting an entry requires a view on the exit. Funds ask this at IC.
A sponsor is ready to exit a portfolio company. Compare a strategic sale, a sponsor-to-sponsor sale, an IPO and a continuation vehicle.
Asked to see whether you understand sponsor behaviour and its critics.
What is a dividend recapitalisation? Walk through the mechanics, its effect on sponsor returns, and the case against it.
Asked to test whether you understand the business you're joining, not just the deals.
Explain the economics of a private equity fund. Management fee, carry, hurdle and the distribution waterfall.
A judgement question with a sharp right answer about time and scale.
Define IRR and MOIC. A deal returns 3.0x over 7 years; another returns 1.8x over 2 years. Which is the better outcome, and what does that tell you about the limits of each metric?
Core to how sponsors think about people risk in a deal.
Why do sponsors want management to roll equity? How is a management incentive plan typically structured, and what does it tell you if management refuses to roll?
Tests how you'd actually run a workstream as an associate.
You have three weeks of exclusivity on a mid-market manufacturing business. Structure your commercial diligence. What are the three questions you must answer before the investment committee?
Tests whether you think like an investor rather than a modeler.
What are the three drivers of returns in an LBO? Rank them by how much you'd rely on each when underwriting a deal today, and explain why.
Tests the mechanic that actually drives LBO returns. And the one candidates get wrong.
Build a three-year term loan schedule with a cash sweep. Each year: open with the prior year's closing balance, accrue interest on the opening balance, take mandatory amortisation, then sweep 100% of the remaining free…
The standard private equity modelling test. Expect a hard time limit.
Build the returns for a five-year buyout. Compute the entry enterprise value from LTM EBITDA and the entry multiple, split it into debt and sponsor equity using the leverage assumption, then grow EBITDA to the exit year.…
Leveraged finance and private credit interviews go deep here.
Explain the difference between maintenance and incurrence covenants. What does "covenant-lite" mean, and why should a lender care?
Essential for leveraged finance, private credit and restructuring interviews.
Walk me down the capital structure of a typical LBO from most senior to most junior. For each layer, explain pricing, security, and who buys it.
Core to restructuring, special situations and distressed credit interviews.
What is the fulcrum security? Walk me through how you'd identify it, and explain the loan-to-own strategy.
A quantitative reasoning question asked without a model in front of you.
Take the same business bought at 10x EBITDA. Compare the outcome at 4x leverage versus 6x leverage, in both a good case and a bad case. What does this tell you about how sponsors should choose leverage?
The standard private equity screening exercise. Expect to do it on paper in under 10 minutes.
A sponsor acquires a company with $100m LTM EBITDA at 10.0x, funded with 6.0x debt and the rest equity. Assume: - EBITDA grows to $140m by year 5 - Cumulative free cash flow over the hold pays down $200m of debt - Exit…
Buy-and-build is the dominant mid-market strategy. Expect the maths without a calculator.
A platform was bought at 10.0x EBITDA with $100m EBITDA and 6.0x leverage. It acquires an add-on with $20m EBITDA at 6.0x, funded entirely with new debt. What happens to the sponsor's equity value and to leverage?
A private equity associate case in which the facts move after the initial underwriting.
You are the associate on a control buyout of Northstar Field Services, a route-based maintenance business. The partner wants a recommendation before final IC. Work through each update, commit to a decision, and finish…
Every buyout runs one, and associates are expected to interrogate it.
A seller presents $50m of "Adjusted EBITDA". What does a quality of earnings analysis look for, and which addbacks would you challenge?
Increasingly used as a take-home exercise in private equity recruiting.
Outline the structure of an investment committee memo recommending a buyout. What makes a memo persuasive, and what is the most common failure?
Write your answer, get it graded on technical accuracy, completeness and communication, and see exactly which mechanic you missed.
Firm names indicate where a question type is commonly reported in interviews. They are not sourced from, endorsed by, or affiliated with the firms named.