Walk me through a deal you’ve worked on. (1-2 min)
First, you should provide the context of the deal and company. Explain the target business in an easy-to-understand way, and describe its key segments. Provide a quick overview of the acquirer and its strategic rationale. It’s important to explain upfront why the deal is happening and what the industry backdrop is. For example, is this […]
What are your three greatest strengths?
You should just be relatively honest about your three greatest strengths, while avoiding overconfident answers like intelligence. Passion, attitude, leadership, intellectual curiosity, work ethic, and resilience are some examples. First, list your 3 strengths. Then use this opportunity to tell a quick story about each strength and provide an example from work, school, or extracurricular […]
What is your greatest strength?
This is a personal question and you should generally just be honest about your greatest strength, but make sure the wording is right. Passion, attitude, leadership, intellectual curiosity, work ethic, resilient; the list goes on. Don’t say something that makes you seem cocky, like intelligence (everybody in IB is intelligent to some degree). Ideally, you […]
If Company A is 30% equity, 70% debt currently, but will have a capital structure of 50% equity, 50% debt in year 5, which capital structure do you use for your DCF?
The 50/50% capital structure would be used. When calculating WACC, we assume the optimal target capital structure, which is the capital structure the company will have in the long term and the optimal capital structure for a company in that industry.
What are some key debt metrics, and why are they important?
The leverage multiple, debt / EBITDA, is a common metric comparing debt and EBITDA. EBITDA is a proxy for cash flow that can be used to pay back the debt. It’s also a measure of the core profitability of the business that remains neutral in terms of capital structure, tax jurisdiction, and accounting policies. The […]
Do private equity companies add more value to portfolio companies through financial engineering or operational improvements?
Operational improvements adds more value as the impact is far more permanent than temporarily playing around with the capital structure. Strategic shifts or operational improvements may last a lifetime, while capital structure changes and financial engineering will only affect the company until the PE firm sells the company. This kind of question is usually asked […]
Would a company with a capital lease have a higher or lower EV / EBITDA multiple compared to an operating lease?
This depends if the ratio between the capital lease and the lease payment is higher or lower than the EV / EBITDA of the company. A capital lease is like buying the asset with debt. You pay interest and principal repayments. These payments are below EBITDA, meaning they are not treated as operating expenses (OPEX), […]
How can a PE firm incentivize management to stay and perform?
A PE firm can incentivize management to stay by getting management to put up some equity for the acquisition, also known as management rollover. Usually, management will anywhere from 5-20% of the company to ensure they have “skin in the game.” Another common method to incentivize management is with options. Options give management a percentage […]
What is debt sizing in project finance? (1 min)
Debt sizing is used in project finance (infrastructure) to figure out how much debt can be raised to support an infrastructure project each month / year. As dictated by the debt term sheet, there is usually a maximum leverage ratio (eg maximum of 70% debt and 30% equity) and a minimum debt service coverage ratio […]
What are the advantages and disadvantages of leading a deal by yourself vs. doing the deal with other PE firms as partners?
The advantage of being the only PE firm involved in the LBO is that you have complete control. You can dictate the type of debt financing to be raised and take full control when negotiating the financing terms with banks / institutions. You can choose whether or not to hire an investment bank as an […]
