#1 – Why are you interested in Private Equity? Why our firm?

This is a general Private equity Interview Question. At basic level, the interviewer wants to
understand how much passion and interest you have for the private equity. So for the first
question, you need to give a background of your work (or internships) and tell the reason why
you have chosen to come into private equity. It will help to structure the answer beforehand so
that you can answer it properly.

Second part of this question is all about how much do you know about the firm and how your
goals and the firm’s goals are in alignment. To answer this question, you need to do your
research prior to the interview. And you need to tell them what they already know about the
company (the types of funds they are handling, the profit margin, the clientele, the growth
plans and so on and so forth).

#2 – What do you think this company does right? What do you think
we do wrong?
It is a trick question in Private equity interview and you shouldn’t fall for it.

First of all, no company ever does anything that’s wrong. Rather they have areas to improve
upon.

So your answer would be in the similar lines. Tell the interviewers about the strengths of the
company and what sorts of deals it has closed and how it added value to its clientele. However,
don’t talk about the improvement areas in a negative way; rather mention subtly about what it
can improve upon and few things about how it can improve.

#3 – Why not work for Hedge Fund / Portfolio Company?

This is a trick question in Private equity interview. Because through this question, the
interviewer is trying to understand whether you have a real interest for private equity or your
ultimate goal is to exit private equity and join something else.

Here your answer would be short and to the point.

Tell all the pros of the private equity (great work environment, great peers, great fund
management etc.) and all the cons of hedge fund (high risk, huge uncertainty etc.). And then
tell the interviewer why you are perfect for private equity.

Also, have a look at the differences between Private Equity and Hedge Fund

#4 – How did you help your previous company find value?

As a private equity professional, you should be able to have few solid examples with you where
you have helped your previous/current company find value. It can be creating operational
efficiencies which saved cost on M&A deal, or it can be your research which helped the
company launched new services/product line.

Whatever you mention, make sure it is something that you have proof of and where you can
use specific numbers to illustrate what you are speaking.

#5 – What makes a great private equity associate/ researcher/deal-

maker?
Private equity firms want three things –

 To find new, recurring & better investment opportunities.

 To make more money &

 To save more money.

As a private equity employee, your job would be the same. And you would answer this question
by telling something in the same line like finding new and regular opportunities to create value,
delivering on the things you said you would execute and saving cost through research and
operational efficiencies.

#6 – What industry trends you will look at when you are looking for a
potential investment?
This is not exactly a technical Private equity interview question. For a PE candidate like you, it
would be easier to answer this question. Here’s what you should focus on while answering this
question –

 Market position & competitive advantage: Before LBO, it’s important to know the

market position & competitive advantage of the potential investment. The

characteristics would include high entry barriers, strong customer relationships & high

switching cost.

 Stable & recurring cash flows: Without continuous and stable cash flow, no PE firm

would buy an investment.

  Multiple drivers to trigger growth: This one is crucial. Only one driver wouldn’t propel

the company to an expansive stage. More drivers, better-diversified growth strategies,

and better execution would be essential for long-term growth.

 Strong management: Most of the companies in the industry should have strong

management team so that the PE firm can get strategic guidance toward better future.

These are the keys that a PE investor would look at before thinking of an LBO. Other than these,
he would also look at changing habits of the customer, enhanced automation, application of
disruptive technologies etc.

#7 – If I would like to protect my downside, how would I structure the

investment?
The best way to protect downside is to go for a structured deal, even at the later stage of the
investment. For example, in 2010, Temasek invested into GMR Energy through a structured
paper which needs to be compulsorily converted into equity. Temasek invested $200 million in
GMR through its fully owned subsidiary Claymore Investments.

#8 – Did you look at our website? What investment did you like most?
And why?
To answer this question, all you need to do is to research about the company before you ever
go for the interview. Look at their website. Find out about their investments. And browse
through every possible news about the firm. And then analyse what you like and what you
didn’t like.

And then make a report which can tell them about your preference. If you can explain a little
and show them the report, they will understand that you have already done your homework
and you are very much sincere about this job.

#9 – If you can look into only one financial statement, what would it
be and why?
This is a basic private equity interview question, but it is asked often.

Most people choose the income statement because of accrual accounting method. But the
most important statement to analyse before anything is cash flow statement because through
cash flow statement only you can see the real picture of how much cash is coming in and how
much is going out irrespective of hefty profits and revenues.

#10 – If you can choose two financial statements, what they will be
and why?
This is the variation of the previous question but the answer to this question would be
completely different.

The answer would be balance sheet and income statement. If you have the beginning of the
year and the ending of the year values for all the items in balance sheet along with income
statement, you can make a cash flow statement by yourself.

#11 – How would you verify the information in a deal book given by
an investment banker?
To answer this private equity interview question, you need to have a prior experience in dealing
with investment bankers or you should ask someone who have dealt with the investment
bankers.

Usually, you need to make a question framework to check the information investment banker
has mentioned in the deal book.

Bill Snow, author of the Mergers & Acquisitions for Dummies has mentioned that you can begin
to ask the following questions to start the reference check and later if you need to dig deep,
you need to do so as well –

 Did they provide you the value that you paid for?

 Did they maintain integrity (did they do what they said they would do)?

 Did they attend all the meetings they said they would attend?

 If the buyer has tried to re-trade the deal how the investment banker has handled it?

 Without them could you do it?

#12 – How would you handle a situation where you have a question
and no-one has an answer?
This is a private equity interview question which will test your emotional agility in an
interview. When this question is asked, your answer would be brief and to the point.

You may say something like – “According to me, everything is figure-out-able. Let’s say no-one
has an answer to the question I have. Now if we talk about “no-one”, the first thing is who
these people are? These people are generally relatives, peer-group, friends, or family members.
But what if I can manage to ask a stranger or an expert? In this age of massive connectivity, not
getting an answer to a question is the rarest thing.”

#13 – If your investment increased by 25% and now you have $100;
how much did you begin with at the first place?
It is a simple private equity interview question and the interviewer wants to see how fast you
can answer it. 25% increase on the principal means 20% increase on the principal + interest.

That means you have started with = [100 – (100 * 20%0] = $80.

#14 – What would you prefer – a lump sum $1 million right now or
$2000 every month for the rest of your life?
This is a private equity interview question based on time value of money.

From the approach of the time value of money, $2000 this month wouldn’t be similar in value
in the next year. The value of money will reduce with time. So, it’s always better to receive a
million dollar right now than getting $2000 per month for the rest of your life.

#15 – Do you think that the market for mega-cap LBO/M&A is over?
To answer this private equity interview question, you need to be thorough with the current
events in your industry. Read up everything you can. And ask your connections – “what’s new in
the market?” and soak up knowledge as much as you can. A time was there when the industry
was ready for $100 billion LBO deal. But recently, this is very infrequent events. You can pick
something you have worked on before (if you ever worked on a mega-cap fund) and explain
why that isn’t a possibility as of now.

#16 – What do you think will happen to LBO / M&A in the next 10
years?
This is another private equity interview question which requires you to know about current
events.
If you want to get into a top-notch firm, learning must be your best friend. And if you are
browsing through the materials related to private equity, LBO & M&A, mega-cap funds,
acquisitions, financial analysis etc. you would know what to say to this question.

Basically, you need to give your point of view. And if you can cite any example of why you are
saying what you are saying, it would separate you from the crowd.

#17 – MNC Company has been struggling with real estate. What
would you do – to break it up or to try reinvigorating the business?
You can expect typical hypothetical private equity interview questions like this. All you need to
know for answering this question is to be informed about any important, recent event in the
similar industry.

Pick that up and explain how you would handle this particular situation.

#18 – If you have a chance to go after a company S, would you go after

it? And why?
This is another typical, hypothetical private equity interview question. If the interviewer is
talking about Company S, maybe this company is in the news.

If you see that this company has a lot of debt and no possible advantages, of course, you should
say “no” and if the company has decent financial statements, but there are few operational
issues, you need to explain how you would take up the challenge.

#19 – If you want to improve IRRs, what different levers can be used?
This is a technical private equity interview question and you need to know the exact answer.

Here are some possible levers you can use –

 You can increase the amount of debt in the deal. It will increase the leverage.

 You can reduce the purchase price that the private equity company has to pay to buy

out.

 You can also increase the company’s growth rate to enhance operating income / EBITDA

of the company.
Also, have a look at detailed article on NPV vs IRR

#20 – Would you ever invest in an airline? If yes, why? If not, why
not?
The answer may vary from person to person, but airlines aren’t very profitable on the surface
level.

To mention a statistical point of view, US domestic airlines have reported negative net income
in 23 out of 31 years since deregulation. However, passenger airlines have made some
consistent growth over the years, around 4.9% per year in terms of aircraft and 3.6% in terms of
aircraft-seats.

But even after all of this, an airline is a very risky investment and it’s better not to get into it