If you’re interviewing with a private equity fund, the chances are that you will come across a case study. For many candidates, this can be one of the most challenging elements of the interview process.
The private equity case study is in the recruitment process for a reason – to see if you can think for yourself. The first question you are going to be asked based on the case study is: ‘Do you want to invest in this company?’
This may present you with a dilemma. Having done loads of research on the fund you’re interviewing with before starting the interview process, you may well be aware that the case study company is one of the fund’s portfolio companies.
If this is the case, how do you respond? Do you give an unequivocal YES – you would invest? Or do you say NO – making it look like you disagree with the judgement of your potential employer?
The reality is that most people who attend our case study workshops will say YES in this situation.
The other reality is that most of them are saying YES for the wrong reason. They need to be saying yes based upon their own opinion of whether the case study is a good investment – not based upon their prior research into the fund.
Private equity teams are not stupid; they can be quite devious. They know you will have done some research. They could have changed the numbers in the case study. They could have added or taken away detail. They may be regretting the investment themselves. So make sure that you have your own opinion. That’s what they are looking for. Otherwise, what are you adding to their business?
Valuation: you need to say SOMETHING
The next test in the case study is how good you are at valuing the business. You need to show that you’re aware of the obvious relationship between the price and your investment decision. If you’d invest – would you do it at any price? And if you wouldn’t invest – if the price was low enough, would the answer still be no?
You will almost certainly be asked what you would pay for the business included in the case study. Too many people wimp out at this stage and will start putting caveats around the pricing decision. Don’t. If there’s one thing you can be sure of, it’s that if you dither around on pricing you won’t get the job. Don’t make life difficult for yourself, just deduce an EBITDA figure, think of a sensible multiple, usually between 5 and 8 and multiply the two together. Be brave: state a specific price. It works.
Use your common sense
Finally, use your common sense. In my experience common sense is not that common.
Remember: if something looks wrong and feels wrong, it probably is. Use your common sense and question it – don’t dig your heels in on a point that seems on the face of it to be out of line.
I have first hand experience of a case study interview where the interviewee calculated that it would take 35 years to payback some capital investment. This looked completely wrong compared to everything else he knew about the business. He told the interviewer that this was a terrible investment and shouldn’t under any circumstances be taken any further. It never occurred to him that he may have miscalculated the data and he argued himself into a very big hole. He should have said – this looks really odd – maybe I’ve made a mistake. If he hadn’t made a mistake he had still flagged the inconsistency, if he had made a mistake he was covered by his comment and showed a bit of humility.
Be aware of timing
Remember: you will never have enough time to complete a private equity case study.
Listen to what is required from you. Remember, there is no right or wrong answer. Have your own opinion and justify it from the evidence in front of you and from your own experience. Beware of inconsistencies in the information. Be yourself – there is no point in being in the wrong job.
Gail McManus is founder and managing director of PER, a recruitment firm focused on the needs of the private equity industry