Private Equity
9 lbo modeling questions of the kind asked in private equity interviews. Each carries a model answer, the concepts a complete response must hit, and graded feedback on your own attempt.
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 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?
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.…
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.
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?
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.