What is the difference between a stock deal vs. an asset deal?
A stock deal is when an acquirer purchases all shares (ie equity ownership) of a firm to purchase the entire company. The acquiror assumes both the assets and liabilities of the company. This is by far the most common kind of deal. In a stock deal, proceeds to the seller are taxed at the capital […]
Private Equity: Walk me through your resume / tell me about yourself (1-3 min)
You want to tell a story about how you became interested in finance, investing, and improving businesses. It’s best to provide some context initially about yourself so the interviewer understands what’s unique about you: where you grew up, where you went to school, and how the first “spark” led to your interest in finance as […]
What makes a good LBO candidate?
The most important characteristic of a good LBO candidate is stable cash flows since the PE owner will have to service the debt and stay within covenants in order for the investment to be successful. This means recurring revenue is very valuable, meaning that the revenue is “sticky” and it’s hard for customers to switch […]
What is net working capital?
Net working capital represents the money tied up in the daily operations of the business. This includes both current assets and current liabilities. On the current assets side, we typically include accounts receivable, inventory, and prepaid expenses as part of net working capital. All these items will tie up cash, but are generally necessary for […]
What are the most important items to due diligence in an LBO?
Some of the most important due diligence is done on the industry, and this can include competitor analysis, pricing trends, volume analysis, and speaking with industry experts. Due diligence will also be done on the company’s growth and cost strategy, customers, customer contracts, products, distribution chain, risks, etc. There are many other common due diligence […]
What are the most important items to due diligence in an M&A deal?
The due diligence process for an M&A deal typically involves questioning and confirming all key aspects of the business, especially the growth trajectory of the business and industry. PE firms will often hire 3rd parties to help out with different aspects of due diligence. Some of the most important due diligence is done on the […]
How do you find the cost of debt when building a financial model?
If it’s a public company, you can look up the cost of debt on Bloombergor in their company filings. Different types of debt are often listed in thenotes to the financial statements in a quarterly or annual report and theinterest rate is sometimes provided. If it’s a private company, you can create “debt comps” by […]
What are beta comps and how do you unlever and relever beta?
Beta comps can be used to find beta for a private company or a newcompany with not enough public trading history. The four steps to do this are:
