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PE Case Interviews

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Hi, does anyone have any useful resources to prepare for PE case interviews , i.e. at firms like Warburg Pincus and Bain Cap? Because "cases" can be a really general umbrella term, I'm wondering if people have any insights on how they approached these interviews and what each firm's case style is like. Thank you!

Based on the most helpful WSO content, preparing for PE case interviews involves understanding the structure of a case study and being able to analyze a Confidential Information Memorandum (CIM). In most interviews, you'll be asked to walk through a case study, which usually involves analyzing an old sell-side process.

For instance, during the interview process, you might be asked to create a memo that condenses the important parts of the CIM and analyzes the pros and cons.

In addition, the WSO Private Equity Interview Prep Pack and the Private Equity Master Package could be beneficial resources for you. These resources provide detailed PE LBO Tests and case studies that can help you prepare for the technical aspect of the interviews.

As for the specific case style of firms like Warburg Pincus and Bain Capital, it's important to note that the style can vary from firm to firm. However, a common theme is the need to think like an investor. You might be asked questions like "why is this company a good or bad investment?" and you'll need to be able to comment on the industry, the company's performance, and whether you would invest.

Remember, practice makes perfect. The more you familiarize yourself with the process and practice case studies, the more comfortable you'll be during the actual interview. Good luck! Sources: Private Equity Interview Questions - 13 Topics to Know , Private Equity Recruiting Process (From Banking) , WSO Hall of Fame: Private Equity Forum , How to Prep Before Starting PE Gig , 3 Things to keep in mind for case interview prep: Fall Interview Season is around the corner

I’ ve got Carlyle ’s case study from a few years ago. Was for an Associate position in their PE group. Willing to trade if folks have from any other PE funds , including LMM and MM .

Pm me - I’ve got two TPG cases

PM me as well, have a few MM case studies to trade.

I cam trade with KKR and other ones if you want

Have a bunch of MM /UMM cases if you want to trade

Do people have VP level cases as well?

Hey - does anyone have Nordic Cap and Apax or either of these?

Hi - Anyone with EQT case?

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Private Equity Case Study: Example, Prompts, & Presentation

Private equity case studies are an important part of the private equity recruiting process because they allow firms to evaluate a candidate’s analytical, investing, and presentation abilities.

In this article, we’ll look at the various types of private equity case studies and offer advice on how to prepare for them.

This guide will help you ace your next private equity case study, whether you’re a seasoned analyst or new to the field.

Types Of Private Equity Case Studies

Case studies are very common in private equity interviews, and they are a key part of the overall recruiting process.

While you’re extremely likely to encounter a case study of some kind during your recruiting process, there is considerable variety in the types of case studies you might face.

Below I cover the major types:

Take-home assignment

In-person lbo modeling assignment.

For this case study, you’ll get some company information (e.g. a 10-K or a CIM) and be asked to assess whether or not you’re likely to invest.

Generally, you’ll get between 2-7 days to prepare a full presentation or investment memo with your recommendations that you’ll present to the interviewer. To support your investment recommendation, you’ll be expected to complete a full LBO model . The prompt may give certain details or assumptions to include in the model.

This type of test is most common during “off-cycle” hiring throughout the year, since firms have more time to allow you to complete the assignment.

This is pretty similar to the take-home assignment. You’re given company materials, will build a financial model, and decide whether you would invest.

The difference here is the time you’re given to complete the case. You’ll generally get between two to three hours, and you’ll typically complete the case study in the firm’s office, though some firms are becoming newly open to completing the assignment remotely.

In this case, you’ll typically only complete an LBO model. There is usually no presentation or investment memo. Rather, you’ll do the model and then have a short discussion afterward.

This is a shorter, more condensed version of an LBO model. You can complete a paper LBO with a piece of paper and a pen. Alternatively, you may be asked to discuss it verbally with the interviewer.

Rather than using an Excel spreadsheet, you use an actual sheet of paper to show your calculations. You don’t go into all the detail but focus on the essence of the model instead.

In this article, we’ll be focusing on the first two types of case studies because they are the most widely used. But if you’re interested, here is a deep dive on Paper LBOs .

Private Equity Case Study Prompt

Regardless of the type of case study you’re asked to do, the prompt from the interviewer will ultimately ask you to answer: “would you invest in this company?”

To answer this question you’ll need to take on the provided materials about the company and complete a leveraged buyout model to determine whether there is a high enough return. Generally, this is 20% or higher.

Usually, prompts also provide you with certain assumptions that you can use to build your LBO model. For example:

Pro forma capital structure
Financial assumptions
Acquisition and exit multiples

Some private equity firms provide you with the Excel template needed for an LBO model, while others prefer you to make one from scratch. So be ready to do that.

Private Equity Case Study Presentation

As you’ve seen above, if you get a take-home assignment as a case study, there’s a good chance you’re going to have to present your investment memo in the interview.

There will usually be one or two people from the firm present for your presentation.

Each PE firm has a different interview process, some may expect you to present first and then ask questions, or the other way around. Either way, be prepared for questions. The questions are where you can stand out!

While private equity recruitment is there to assess your skills, it’s not all about your findings or what your model says. The interviewers are also looking at your communication skills and whether you have strong attention to detail.

Remember, in the private equity interview process, no detail is too small. So, the more you provide, the better.

How To Do A Private Equity Case Study

Let’s look at the step-by-step process of completing a case study for the private equity recruitment process:

Step 1: Read and digest the material you’ve been given. Read through the materials extensively and get an understanding of the company.
Step 2: Build a basic LBO model. I recommend using the ASBICIR method (Assumptions, Sources & Uses, Balance Sheet, Income Statement, Cash Flow Statement, Interest Expense, and Returns). You can follow these steps to build any model.
Step 3: Build advanced LBO model features, if the prompts call for it, you can jump to any advanced features. Of course, you want to get through the entire model, but your number 1 priority is to finish the core financial model. If you’re running out of time, I would skip or reduce time on advanced features.
Step 4: Take a step back and form your “investment view”. I would try to answer these questions:
What assumptions need to be present for this to be a good deal?
Under what circumstances would you do the deal?
What is the biggest risk in the deal? (e.g. valuation, growth, and margins).
What is the biggest driver of returns in the deal? (e.g. valuation, growth, and debt paydown).

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How To Succeed In A Private Equity Case Study

Here are a few of my tips for getting through the private equity fund case study successfully.

Get the basics down first

It’s very easy to want to jump into the more complex things first. If you go in and they start asking you to complete complex LBO modeling features like PIK preferred equity, getting to that might be on the top of your list.

But I recommend taking a step back and starting with the fundamentals. Get that out the way before moving on to the complicated stuff.

The fundamentals ground you, getting you through the things you know you can do easily. It also gives you time to really think about those complex ideas.

Show nuanced investment judgment; don’t be too black-and-white

When giving your investment recommendation for a private equity fund you shouldn’t be giving a simple yes or no.

It’s boring and gives you no space to elaborate. Instead, go in with what price would make you interested in investing and why. Don’t be shy to dig in here.

Know where there is a value-creation opportunity in the deal, and mention the key assumptions you need to believe to create that value.

Additionally, if you are recommending that the investment move forward then bring up things you would want to know before closing a deal. You can highlight the key risks of the investment, or key things you’d want to ask management if you could meet with them.

At the end of the day, financial modeling is a commodity skill. Every investor can do it. What will really set you apart is how you think about the deals, and the nuance you bring to analyzing them.

You win by talking about the model

Along those lines, you don’t win by building the best model. Modeling is just a check-the-box thing in the interview process to show you can do it. The interviewers need to know you can do the basics with no glaring errors.

What matters is showing that you can discuss the investment intelligently. It’s about bringing a sensible recommendation to the table with the information to back it up.

How Do I Prepare For A Private Equity Case Study?

There is no one-size-fits-all when it comes to preparing for a private equity case study. Everyone is different.

However, the best thing you can do is PRACTICE, PRACTICE, and more PRACTICE!

I know of a recent client that successfully obtained an offer from multiple mega funds . She practiced until she was able to build 10 LBO models from scratch without any errors or help … yes, that’s 10 models!

Now, whether it takes 5 or 20 practice case studies doesn’t matter. The whole point is to get to a stage where you feel confident enough to do an LBO model quickly while under pressure.

There is no way around the pressure in a private equity interview. The heat will be on. So, you need to prepare yourself for that. You need to feel confident in yourself and your capabilities.

You’d be surprised how pressure can leave you stumped for an answer to a question that you definitely know.

It’s also a good idea to think about the types of questions the private equity interviewer might ask you about your investment proposal. Prepare your answers as far as possible. It’s important that you stick to your guns too when the situation calls for it, because interviewers may push back on your answers to see how you react..

You need to have your answer to “would you invest in this company?” ready, and also how you got to that answer (and what new information might change your mind).

Another thing that gets a lot of people is limited time. If you’re running out of time, double down on the fundamentals or the core part of the model. Make sure you nail those. Also, you can make “reasonable” assumptions if there’s information you wish you had, but don’t have access to. Just make sure to flag it to your interviewer

How important is modeling in a private equity case study?

Modeling is part and parcel of private equity case studies. Your basics need to be correct and there should be no obvious mistakes. That’s why practicing is so important. You want to focus on the presentation, but your calculations need to be correct first. They do, after all, make up your final decision.

How can I stand out from other candidates?

Knowing your stuff covers the basics. To stand out, you need to be an expert in showing how you came to a decision, a stickler for details, and inquisitive. Anyone can do the calculations with practice, but someone who thinks clearly and brings nuance to their discussion of the investment will thrive in interviews.

Private equity case studies are a difficult but necessary part of the private equity recruiting process . Candidates can demonstrate their analytical abilities and impress potential employers by understanding the various types of case studies and how to approach them.

Success in private equity case studies necessitates both technical and soft skills, from analyzing financial statements to discussing the investment case with your interviewer.

Anyone can ace their next private equity case study and land their dream job in the private equity industry with the right preparation and mindset. If you’re looking to learn more about private equity, you can read my recommended Private Equity Books.

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How to prepare for the case study in a private equity interview

If you're interviewing for a job in a private equity firm , then you will almost certainly come across a case study. Be warned: recruiters say this is the hardest part of the private equity interview process and how you handle it will decide whether you land the job.

“The case study is the most decisive part of the interview process because it’s the closest you get to doing the job," says Gail McManus of Private Equity Recruitment. It's purpose is to make you answer one question: 'Would you invest in this company?'

In most cases, you'll be given a 'Confidential Information Memorandum' (CIM) relating to a company the private equity fund could invest in. You'll be expected to a) value the company, and b) put together an investment proposal - or not. Often, you'll be allowed to take the CIM away to prepare your proposal at home.

“The case study is still the most decisive element of the recruitment process because it’s the closest you get to actually doing the job. Candidates can win or lose based on how they perform on case study. People who are OK in the interview can land the job by showing the quality of their thinking, ” says McManus. “You need to show that you can think, and think like an investor.”

"The end decision [on whether to invest] is not important," says one private equity professional who's been through the process. "The important thing is to show your thinking/logic behind answer."

Preparing for a PE case study has distinctive challenges for consultants and bankers. If you're a consultant, you need to, "make a big effort to mix your strategic toolkit with financial analysis. You need to prove that you can go from a strategic conclusion to a finance conclusion," says one PE professional. Make sure you're totally familiar with the way an LBO model works.

If you're a banker, you need to, "make a big effort to develop your strategic thinking," says the same PE associate. The fund you're interviewing with will want to see that you can think like an investor, not just a financier. "Reaching financial conclusions is not enough. You need to argue why certain industry is good, and why you have a competitive advantage or not. Things can look good on paper, but things can change from a day to another. As a PE investor, hence as a case solver, you need to highlight and discuss risks, and whether you are ready or not to underwrite them."

Kadeem Houson, partner at KEA consultants, which specialises in hiring junior to mid-level PE professionals, says: “If you’re a banker you’re expected to have great technical skills so you need to demonstrate you can think commercially about the numbers you plugged in. Conversely, a consultant who is good at blue sky thinking might be pressed more on their understanding of the model. Neither is better or worse – just be conscious of your blank spots.”

A good business versus a good investment

For McManus, one of the most important things to consider when looking at the case study is to understand the difference between a good business and a good investment. The difference between a good business and a good investment is the price. So you might have a great business but if you have to pay hugely for it it might not be a great business. Conversely you can have a so-so business but if you get it a good price it might make a great investment. “

McManus says as well as understanding the difference between a good business and a good investment, it’s important to focus on where the added value lies. This has become a critical element for private equity firms to consider as competition for assets has become even more fierce, given the amount of dry powder that funds now have at their disposal through a wide array of funds. “Because of the competition for transactions generally you have to overpay to win a deal. So in the case study it’s really important you think about where the value creation opportunity lies in this business and what the exit would be,” says McManus.

She advises candidates to be brave and state a specific price, provided you can demonstrate how you’ve arrived at your answer.

Another private equity professional says you shouldn't go out on a limb, though, and you should appear cautious: "Keep all assumptions conservative at all times so as not to raise difficult questions. Always highlight risks, downsides as well as upsides."

Research the fund – find the angle

One private equity professional says that understanding why an investment might suit a particular firm could prove to be a plus. Prior to the case study, check whether the fund favours a particular industry sector, so that when it comes to the case study, you can add that to the investment thesis. “This enables you to showcase you have read up on the firm’s strategy/unique characteristics Something that would make it more likely for the fund you’re interviewing with winning the deal in what’s a very competitive market, said the PE source, who said this knowledge made him stand out.

However, the primary purpose of the case study is to test the quality of your thinking - it is not to test you on your knowledge of the fund. “Knowing about the fund will tick an extra box, but the case study is about focusing on the three most critical things that will drive the investment decision,” says McManus.

You need to think through these questions and issues:

We spoke to another private equity professional who's helpfully prepared a checklist of points to think about when you're faced with the case study. "It's a cheat sheet for some of my friends," he says.

When you're faced with a case study, he says you need to think in terms of: the industry, the company, the revenues, the costs, the competition, growth prospects, due dliligence, and the transaction itself.

The questions from his checklist are below. There's some overlap, but they're about as thorough as you can get.

When you're considering the industry, you need to think about:

- What the company does. What are its key products and markets? What's the main source of demand for its products?

- What are the key drivers in that industry?

- Who are the market participants? How intense is the competition?

- Is the industry cyclical? Where are we in the cycle?

- Which outside factors might influence the industry (eg. government, climate, terrorism)?

When you're considering the company, you need to think about:

- Its position in the industry

- Its growth profile

- Its operational leverage (cost structure)

- Its margins (are they sustainable/improvable)?

- Its fixed costs from capex and R&D

- Its working capital requirements

- Its management

- The minimum amount of cash needed to run the business

When you're considering the revenues, you need to think about:

- What's driving them

- Where the growth is coming from

- How diverse the revenues are

- How stable the revenues are (are they cyclical?)

- How much of the revenues are coming from associates and joint ventures

- What's the working capital requirement? - How long before revenues are booked and received?

When you're considering the costs, you need to think about:

- The diversity of suppliers

- The operational gearing (What's the fixed cost vs. the variable cost?)

- The exposure to commodity prices

- The capex/R&D requirements

- The pension funding

- The labour force (is it unionized?)

- The ability of the company to pass on price increases to customers

- The selling, general and administrative expenses (SG&A). - Can they be reduced?

When you're considering the competition, you need to think about:

- Industry concentration

- Buyer power

- Supplier power

- Brand power

- Economies of scale/network economies/minimum efficient scale

- Substitutes

- Input access

When you're considering the growth prospects, you need to think about:

- Scalability

- Change of asset usage (Leasehold vs. freehold, could manufacturing take place in China?)

- Disposals

- How to achieve efficiencies

- Limitations of current management

When you're considering the due diligence, you need to think about:

- Change of control clauses

- Environmental and legal liabilities

- The power of pension schemes and unions

- The effectiveness of IT and operations systems

When you're considering the transaction, you need to think about:

- Your LBO model

- The basis for your valuation (have you used a Sum of The Parts (SOTP) valuation or another method - why?)

- The company's ability to raise debt

- The exit opportunities from the investment

- The synergies with other companies in the PE fund's portfolio

- The best timing for the transaction

BUT: keep things simple.

While this checklist is important as an input and a way to approach the task, w hen it comes to presenting the information, quality beats quantity. McManus says: “The main reason why people aren’t successful in case studies is that they say too much. What you’ve got to focus on is what’s critical, what makes a difference. It’s not about quantity, it’s about quality of thinking. If you do 30 strengths and weaknesses it might only be three that matter. It’s not the analysis that matters, but what’s important from that analysis. What’s critical to the investment thesis. Most firms tend to use the same case study so they can start to see what a good answer looks like.”

Houson agrees that picking out the most important elements in the case study are more important than spending too much time on an elaborate model. “You don’t necessarily need to demonstrate such technical prowess when it comes to building the model. But you need to be comfortable about being challenged around the business case. Frankly it’s better to go for a simple answer which sparks a really interesting conversation rather than something that is purely judged from a technical standpoint. The model is meant to inform the discussion, not be the discussion itself.”

Softer factors such as interpersonal skills are also important because if the case study is the closest thing you’ll get to doing the job, then it’s also a measure of how you might behave in a live situation. McManus says: “This is what it will be like having a conversation at 11am with your boss having been given the information memorandum the day before. Not only are the interviewers looking at how you approach the case study, but they’re also looking at whether they want to have this conversation with you every Tuesday morning at 11am.”

The exercise usually takes around four hours if you include the modelling aspect, so there is time pressure. “Top tips are to practice how to think in a way that is simple, but fit for purpose. Think about how to work quickly. The ability to work under pressure is still important,” says Houson.

But some firms will allow you do complete the CIM over the weekend. In that case on one private equity professional says you should get someone who already works in PE to check it over for you. He also advises getting friends who've been through case study interviews before to put you through some mock questions on your presentation.

But McManus says this can lead to spending too much time and favours the shorter method. “It’s fairer and you can illustrate the quality of your thinking over a short space of time.”

The case study is conducted online, and because of Covid, so too are many of the follow-up discussions, so it’s worth thinking about how to present yourself on zoom or Teams. “Although a lot of these case studies over the last couple of years have been done remotely, in many ways that’s even more reason to try to bring out a bit of engagement and personality with the people you’re talking to."

“ There’s never a right or wrong answer. Rather it’s showing your thinking and they like to have that discussion with you. It’s the nearest you get to doing the job. And that cuts both ways – if you don’t like the case study, you won't like doing the job. “

Contact: [email protected] in the first instance. Whatsapp/Signal/Telegram also available (Telegram: @SarahButcher)

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Wall Street Oasis Private Equity Course Review (2024)

Cracking the private equity scene today is a whole new ball game. As someone who’s been in the hot seat recruiting PE associates, I’ve seen firsthand how the game’s changed. The bar’s higher now, with candidates bringing sharper interviewing skills and technical know-how to the table. This shift? It’s thanks to a bigger pool of go-getters and a flood of online resources demystifying PE recruiting. It’s crucial for any up-and-coming private equiteer to nail the fundamentals.

Now, I’ve got a fresh opportunity to give you some recommendations, just like I did with Wall Street Prep’s courses . This time, it’s about Wall Street Oasis’s Private Equity courses. We’ll dive into both their Interview Course and the more extensive Master Program . Stick with me, and I’ll give you the lowdown on whether these courses are your ticket to PE success.

Wall Street Oasis Private Equity Interview Course

Unlike Wall Street Prep’s Private Equity Masterclass , this course was crafted to focus not just on technical skills but primarily on cracking the recruiting process itself. Sometimes in private equity, landing a job is less about showcasing how well you can do the job and more about demonstrating your ability to secure the position. Here are my overall thoughts on it:

Comprehensive Coverage

With 15+ hours of LBO modeling tests, case studies, interview Q&A and nuanced industry background, the content coverage is thorough and all-encompassing.
The last section on the history and current trends in fund strategies, tactics and evolution of deal types is particularly helpful if you’re asked to craft coherent answers on why you want to work in specific teams or strategies.
It also delves into the art of discussing past deal experiences effectively, ensuring you can present your background and skills persuasively.

Quality of Content

The content here is obviously created by people who have actual real world private equity experience.
In terms of technical depth, it’s no better or worse than the content from other providers out there but it’s definitely accurate and good enough for get into any firm.
Additional content like deal cheat sheets and sample recordings are very instructive on how you can structure your answers in an interview setting.

Track Record

You have probably heard of Wall Street Oasis and use the forums if you’re even tangentially interested in financial careers. So the name speaks for itself.
This course has helped more than 9,000 candidates ace their PE interviews and they have real world testimonials to back up that claim.
Personally, I have spoken to several associate candidates who said they took this course and they all had positive things to say.

Community Support

An often-overlooked aspect of the course is the networking opportunities and community support it offers. Candidates gain access to a vast network of industry professionals and peers, providing a platform for exchange of ideas, experiences, and opportunities.
The course also comes with a Networking Course to guide you on how to get in front of firms in the first place. After all, what good is knowing how to interview when you don’t have a chance to interview in the first place.

Wall Street Oasis Private Equity Master Program

The PE Master Program is Wall Street Oasis’s answer to Wall Street Prep’s PE Masterclass and is even more comprehensive. You will get 12 courses diving deep into both the technical and practical aspects of Private Equity. I think if you are from a non-traditional background or a college student with no prior experience with M&A / Private Equity, this is the all-encompassing course for you. Here are my thoughts on this program:

Content Coverage

You can see more details here. But in short, you get 12 difference courses: 4 on the fundamental skills for financial analysis and preparation of deliverables, 7 focusing deeper on different aspects of financial modelling, and finally putting it all together with a walkthrough of the private equity deal process.
In total, the program comes with 70+ hours of contents and will be more than sufficient to prepare you to run your first private equity deal.
Nothing beats actual deal experience, but this program would equip you with knowledge comparable to someone with some real deal experience.
As with the Interview Course, it is obvious that the materials here were created by actual industry professionals. WSO’s founder, Patrick, was himself from PE before creating the site.
Unlike the interview course, the materials in this course are aimed primarily at skill mastery rather than recruiting. So is relevant whether you’re already in the industry, trying to break-in or simply want to develop a skillset to evaluate deals.
Apparently, more than 25,000 people have taken this program and the reviews have been great.
The program has helped people land and thrive in positions across top Private Equity firms like Apollo, KKR, CVC, TPG, Blackstone etc.
Moreover, the program also offers a 12-month money-back guarantee, underscoring its quality and value.

Other factors

You get complimentary access to Wall Street Oasis’s Company Database, Macabacus plug-ins and some ancillary content.
24 months of support from actual industry professionals who will answer your questions on any lesson within 48 hours.
And finally, you have lifetime access to future content updates.

Overall Conclusion

As someone deeply entrenched in the private equity world, I can confidently endorse Wall Street Oasis’s Private Equity Courses. Here’s how to choose:

Private Equity Interview Course : Perfect if you’ve got some experience and need to refine your interview skills to ace that crucial step.

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S T R E E T OF W A L L S

Lbo modeling test example.

When interviewing for a junior private equity position, a candidate must prepare for in-office modeling tests on potential private equity investment opportunities—especially LBO scenarios. In this module, we will walk through an example of an in-office LBO modeling test. In-office case studies and modeling tests can occur at various stages of an interview process, and additional interviews with other members of the private equity team could occur on the same day. Therefore, you should strive to be able to do these studies effectively and efficiently without draining yourself so much that you can’t quickly rebound and move on to the next interview. Make sure to take your time and build every formula correctly, since this process is not a race. There are many complex formulas in this test, so make sure you understand every calculation.

This type of LBO test will not be mastered in a day or even a week. You must therefore begin practicing this technique in advance of meeting with headhunters. Repeated practice, checking for errors and difficulties and learning how to correct them, all the while enhancing your understanding of how an LBO works, is the key to success.

Investment Scenario Overview

Given Information (Parameters and Assumptions)

Step 1: income statement projections, step 2: transaction summary, step 3: pro forma balance sheet.

Step 4: Full Income Statement Projections

Step 5: Balance Sheet Projections

Step 6: cash flow statement projections, step 7: depreciation schedule, step 8: debt schedule, step 9: returns calculations.

Below we provide the given information from a real-life LBO test that was given to a pre-MBA associate candidate at a large PE firm. We will use it as an example of how to build an LBO model from scratch during the interview. Remember that candidates will receive a laptop and a printout with key information regarding the transaction to complete this assignment.

ABC Company, Inc.

Scenario Overview and Revenue Assumptions:

ABC Company, Inc. is a developer of software applications for smartphone devices. The company sells two products for the various smartphones. The first is a software application called Cloud that tracks weather data. The second application, Time, acts as a calendar that keeps track of a user’s schedule. ABC Company prices Cloud at $16.00 and Time at $36.00 per software license. ABC Company sold 1.5 million copies of Cloud and 3 million copies of Time in 2010. That was the first year ABC Company generated any revenue.

Each software application requires the payment of a $5.00 renewal fee every year. ABC Company renews approximately 25% of the licenses it sold in the prior year; this renewal fee acts as a source of recurring revenue. To simplify, assume that renewals happen for only one additional year and that the recurring revenue stream is based on the prior year’s new licenses. Note that ABC Company does not incur any additional costs for renewals.

COGS assumptions (assume constant throughout the projection period):

Packaging costs = $1.50 per unit
Royalties to technology patent owners = $3.00 per unit
Marketing expense = $3.00 per unit
Fulfillment expense = $4.00 per unit
Fees to smartphone companies = 15% of sale price (does not include renewal fees)
ABC Company incurs a 15% bad debt allowance on total revenues (consider this as part of cost of sales, wherein ABC Company is unable to collect from customers’ credit card companies).

G&A and other assumptions (assume constant throughout the projection period):

Rent of development property and warehouse facilities = $350,000 annually
License fee to telecom internet providers = $1.5 million annually
Salaries and benefits = $1.75 million annually
Sales commissions = 5% of all sales including renewals
Offices and other administrative costs = $750,000 annually
CEO salary and bonus = $1.25 million annually + 3% of all sales including renewals
Federal tax rate = 35% and state tax rate = 5% on EBT

Starting Balance Sheet:

Investment Assumptions:

Due to the depressed macroeconomic and investing environment, the PE fund is able to acquire ABC Company for the inexpensive purchase price of 5.0x 2011 EBITDA (assuming a cash-free debt-free deal), which will be paid in cash. The transaction is expected to close at the end of 2011.

Senior Revolving Credit Facility: 3.0x (2.0x funded at close) 2011 EBITDA, LIBOR + 400bps, 2017 maturity, commitment fee of 0.50% for any available revolver capacity. RCF is available to help fund operating cash requirements of the business (only as needed).
Subordinated Debt: 1.5x 2011 EBITDA, 12% annual interest (8% cash, 4% PIK interest), 2017 maturity, $1 million required amortization per year. (Hint: add the PIK interest once you have a fully functioning model that balances.)
Assume that existing management expects to roll-over 50% of its pre-tax exit proceeds from the transaction. Existing management’s ownership pre-LBO is 10%.
Assume a minimum cash balance (Day 1 Cash) of $5 million (this needs to be funded by the financial sponsor as the transaction is a cash-free / debt-free deal).
Assume that all remaining funding comes from the financial sponsor.
Assume that all cash beyond the minimum cash balance of $5 million and the required amortization of each tranche is swept by creditors in order of priority (i.e. 100% cash flow sweep).
Assume that LIBOR for 2012 is 3.00% and is expected to increase by 25bps each year.
The M&A fee for the transaction is $1.5 million. Assume that the M&A fee cannot be expensed (amortized) by ABC and will be paid out of the sponsor equity contribution upon close.
In addition, there is a financing syndication fee of 1% on all debt instruments used. This fee will be amortized on a five-year, straight-line schedule.
Assume New Goodwill equals Purchase Equity Value less Book Value of Equity.
Assume Interest Income on average cash balances is 1%.

Hint: The first forecast year for the model will be 2012. However, you will need to build out the income statement for 2010 and 2011 to forecast the financial statements for years 2012 through 2016.

Build an integrated three-statement LBO model including all necessary schedules (see below).
Build a Sources and Uses table.
Make adjustments to the closing balance sheet of ABC Company post-acquisition.
Build an annual operating forecast for ABC Company with the following scenarios (using 2010 as the first year for the revenue forecast; note that 2010 EBITDA should be approximately $25 million). Assume that in 2011 there is 5% growth in units sold (both Cloud and Time units).
Upside Case: 5% annual growth in units sold (both Cloud and Time units)
Conservative Case: 0% annual growth in units sold (both Cloud and Time units)
Downside Case: 5% annual decline in units sold (both Cloud and Time units)
Build a Working Capital schedule using Accounts Receivable Days, Accounts Payable Days, Inventory Days, and other assets and liabilities as a percentage of Revenue. Assume working capital metrics stay constant throughout the projection period and assume 365 days per year.
Build a Depreciation Schedule that assumes that existing PP&E depreciates by $1 million per year, and that new capital expenditures of $1.5 million per year depreciate on a five-year, straight-line basis.
Build a Debt schedule showing the capital structure described earlier. Use average balances for calculating Interest Expense (except for PIK interest—assume that PIK interest is calculated based on the beginning year Subordinated Debt balance and not the average over the year).
Create an Exit Returns schedule (including both cash-on-cash and IRR) showing the returns to the PE firm equity based on all possible year-end exit points from 2012 to 2016, with exit EBITDA multiples ranging from 4.0x to 7.0x.
Display the results of all of these calculations using the “Upside Case.”

Note that the above description incorporates all of the information, assumptions and assignments that were given in this LBO in-person test example.

As part of the first step, build out the core operating Income Statement line items for years 2010 through 2016.

Make a distinction between 2011 assumptions and 2012-2016 assumptions
Take the provided assumptions and make the revenue and cost build based upon them.

OFFSET is a simple Excel formula that is used commonly to interchange scenarios, especially if the model becomes very complex. It simply reads the value in a cell that is located an appropriate number of rows/columns away, based on the parameters given to the function. Thus, for example, =OFFSET(A1, 3, 1) will read the value in cell B4 (3 rows and 1 column after A1).

Next, build the costs related to Revenue based upon the information given in the case.

Then, build the G&A expenses from the given information.

Finally, build a simple summary schedule for the above projections.

As part of the second step, build out the transaction summary section which will consist of the Purchase Price Calculation, Sources and Uses, and the Goodwill calculation.

This model assumes a debt-free/cash-free balance sheet pre-transaction for simplification. Without debt or cash, the transaction value is simply equal to the offer price for the equity (before fees and minimum cash—discussed below).
The funding for this model is fairly simple: the funded credit facility is 2.0x 2011E EBITDA, the subordinated debt is 1.5x, and the remaining portion is the equity funding, which is a combination of management rollover equity and sponsor (PE firm) equity. (Note that the 5.0x 2011E EBITDA is the offer value for the equity before the M&A and financing fees and the minimum cash balance, not after. After fees/cash, it ends up being 5.25x.)
The management rollover is simply half of the management team’s proceeds from selling the company. Since management owned 10% of the company before the transaction, it constitutes 5% of the offer price for the original equity.
The sponsor equity is the “plug” in this calculation. In other words, it is the amount that is solved for once all other amounts are known (offer price + minimum cash + fees – debt instruments – management rollover equity).
The total equity (including management rollover) represents about 30-35% of the funding for the deal, which is about right for a typical LBO transaction.
Goodwill is simply the excess paid for the original equity (offer price – book value of equity).

As a next step, build out the Pro Forma Balance Sheet using the given 2011 balance sheet. To do this, you need to incorporate all the transaction and financing-related adjustments needed to produce the Pro Forma Balance Sheet. Each adjustment is discussed in detail below.

Since this is a cash-free and debt-free deal to start, there are no Pro Forma adjustments for the cancelling or refinancing of debt.
Cash increases by $5 million upon close because the sponsor is funding the minimum cash balance (minimum cash that is assumed to be needed to run the business).
The New Goodwill is simply the purchase value of the equity (not including fees) less the original book value of the equity.
The adjustment for Debt Financing Fees reflects the cost of issuing the new debt instruments to buy the company. This fee is considered an asset, and is capitalized and amortized over 5 years.
The Debt-related adjustments reflect the new debt instruments for the new capital structure.
The Equity adjustment reflects the fact that the original equity is effectively wiped out in the transaction—the “adjustment” amount shown here is simply the difference between the new equity value and the old one. The new equity value will equal the amount of the total equity funding for the transaction (sponsor plus management’s rollover) less the M&A fee, which is accounted for as an off balance-sheet cost.
VERY IMPORTANT: This stage of the LBO model development (once Pro Forma adjustments have been made to reflect the impact of the transaction on the balance sheet) is a very good time to check to make sure that everything in the model so far balances and reflects the given assumptions. This includes old and new assets equaling old and new liabilities plus equity; new sources of capital equaling the transaction value, which equals the offer price for the original equity (adjusting for cash, old debt and fees), etc.

Step 4: Full Income Statement

Next, build the full Income Statement projections all the way down to Net Income. Note that a few line items (especially Interest Expense!) will be calculated in later steps. Once the Cash Flow section and other schedules are built, link all the final line items to complete the integrated financials.

You can link the Revenue, COGS and SG&A calculations to the operating model (built in Step 1) to get to EBITDA.
D&A will be linked to the Depreciation Schedule that you will need to build (schedule of the Depreciation of the existing PP&E and new Capital Expenditures made over the projection period).
Interest Expense and Interest Income will be linked to the Debt Schedule that you will need to build. There will be a natural circular reference because of the cash flow sweep feature of the LBO model, combined with the fact that Interest Expense is dependent upon Cash balances. This is usually one of the last things you should build in an LBO model.
The amortization of Deferred Financing Fees is fairly straightforward: it uses a straight-line, 5 year amortization of the fees described in the case write-up and computed in Step 2.
The tax rates apply to EBT after all of these expenses have been subtracted out. They are given in the case write-up.

Next, forecast the Balance Sheet from 2011 to 2016. Note that we start with the 2011 Pro Forma Balance Sheet from Step 3 , not the original Balance Sheet.

Laying out the Balance Sheet is similar to laying out the Income Statement—you’ll have to set up the framework for some line items and leave the formulas blank at first, as they will be calculated in the other schedules you will create.
Cash remains at $5 million throughout the life of the model, as we’re assuming a 100% cash flow sweep and that the minimum cash balance is $5 million. (Cash would only start to increase if we project out long enough that all outstanding Debt is paid off.)
Accounts Receivable (AR): Calculate AR days (AR ÷ Total Revenue × 365) for 2011 and keep it constant throughout the projection period.
Inventory: Calculate Inventory days (Inventory ÷ COGS × 365) for 2011 and keep it constant throughout the projection period.
Other Current Assets: Keep this line item as a constant percentage of revenue throughout the projection period.
Accounts Payable (AP): Calculate AP days (AP ÷ COGS × 365) for 2011 and keep it constant throughout the projection period.
Other Current Liabilities: Keep this line item as a constant percentage of revenue throughout the projection period.
Total Deferred Financing Fees are computed based upon the Debt balances and percentage assumptions given in the model. Deferred financing fees are then amortized, straight-line, over 5 years.
The Credit Facility and Subordinated Debt line items will link to your Debt schedule. Their balances will decrease over time as a function of the cash available for Debt paydown (since the case write-up specifies a 100% cash sweep function).
Equity (specifically Retained Earnings) will increase each year by the same amount as Net Income, because there are no dividends being declared. If dividends were to be added into the model, you would calculate ending Retained Earnings as Beginning Retained Earnings + Net Income – Dividends Declared.
As discussed earlier, the balance sheet has the pleasing feature that if it balances, the model is probably operating correctly! Now is another good time to make sure everything balances before proceeding.

Next, forecast the Cash Flow Statement as requested in the Exercises section.

Start with Net Income and add back non-cash expenses from the Income Statement, such as D&A, Non-Cash Interest (PIK), and Deferred Financing Fees.
Next, subtract uses of Cash that are not reflected in the Income Statement. These include the increase in Operating Working Capital (which you calculated using your balance sheet) and Capital Expenditures (which is calculated here or, alternatively, could be calculated in the Depreciation Schedule to be built shortly).
Next, calculate the change in cash, which will be interconnected with the Debt schedule. In this case, the model is assuming a 100% cash flow sweep (after mandatory debt amortization payments), so cash should not change after the 2011PF Balance Sheet amount of $5 million.
Even though the amount is not changing, the Cash line item should link back to the Balance Sheet. This is because the model could later be used to relax the assumption that 100% of excess cash is swept to pay down Debt. If it’s less than 100%, Cash would accumulate, and that would need to tie in to the other financial statements.

Next, forecast the Depreciation schedule as requested in the Exercises section.

The original PP&E is depreciated $1 million annually, as stated in the assumptions.
New Depreciation is calculated based on the annual investment in Capital Expenditures over the projection period. This new Depreciation is created using a waterfall (see above): each year new Capital Expenditures occur and need to be depreciated; each year, Capital Expenditures from previous projection years in the model may have to be partially depreciated in that year. The sum of all of the component Depreciation line items (one row for each year, plus the Depreciation on the original PP&E) gives the total Depreciation Expense for the year.

Note that this model is less complex than it could be. Given that Capital Expenditures do not change each year, and that each new Capital Expenditure is depreciated according to the same simple schedule, the numbers and calculations are fairly straightforward. Here, we’re simply assuming that new Capital Expenditures are expensed evenly over a 5 year period (using straight-line depreciation), as specified in the case write-up.

Next, forecast the Debt Paydown and Interest Expenses for each year via the Debt Schedule, as requested in the Exercises section.

WARNING: Be very careful about changing formulas once you have built the iterative calculation. If you do so and introduce an error, it could bust your entire model if you’re not careful. This is because the error will travel all the way through the iterative calculations and end up everywhere! If you run into this problem, break the circular reference entirely (by deleting it), reconstruct the calculations for the first forecast year (2012), and then copy and paste them across the columns, one year at a time (2013, then 2014, etc.). Many PE professionals have spent late nights in the office trying to recover from an accidental error introduced into a circular LBO model formula!
The non-discretionary portion is the required amortization payments made on debt (in this case, there is only required pay-down for subordinated debt).
The discretionary portion is the sweep portion of the remaining LFCF less required amortization. Since we’re assuming a 100% cash flow sweep, all of the LFCF is used to pay down debt—first the Senior Credit Facility, then the Subordinated Debt. The cash flow sweep and required payments will help you calculate the beginning and ending balances of both of the debt tranches.
Also note that we need to include a fee for the availability of the unused portion of the RCF, even if the business never uses it—this is a typical, annual commitment fee arrangement for revolving credit facilities.
The interest rate on the debt is a floating rate (this means an interest rate that is dependent on LIBOR, according to the assumptions provided). We need to calculate interest based on this rate times the average S/RCF balance over the year.
The 8% cash interest is calculated based upon the average of the debt balance, just like with the S/RCF.
However, the 4% PIK (non-cash) interest will accrue based upon the beginning debt balance, not the average.
Because of this difference (and the fact that one source of interest uses cash and the other does not), we need to make sure we’re using separate line items for the two types of Interest Expense.
We also need to be aware of the mandatory amortization payment of $1 million per year, provided in the assumptions. This amount will get paid down out of LFCF no matter what.
Interest Income on Cash is fairly easy to calculate—it is the Cash interest rate (1%) times the average balance throughout the year. This amount will increase Cash.
Total Interest needs to be linked to the Income Statement.
Non-Cash Interest needs to be added back to Net Income in the Statement of Cash Flows to assist in deriving LFCF (it’s a non-cash expense).
Any LFCF that is not used to pay down Debt needs to link to the Cash line item of the Balance Sheet. (In this model none will, but you should include this measure in case the model is later used to either relax the 100% cash sweep assumption, or to project financials beyond the point at which all debt has been paid off).
All Debt balances paid down by LFCF need to link to the Debt line items on the Balance Sheet.

In the final step of the LBO test, build out the Returns calculation required in the Exercises section.

For each year, we simply take EBITDA multiplied by a range of purchase multiples to get to a total Exit Value for the company (Transaction Enterprise Value, or TEV).
Next, we subtract out Net Debt (which is dependent on the 3-statement model you just created) to get to Equity Value.
Next, we calculate the portion of the Equity Value that belongs to the management and the sponsor by using the initial equity breakdown for each party.

LBO Case Study: Conclusion and Final Comments

We hope that this case study provides some insight into all of the considerations that need to be made in building a realistic LBO model based on a case study in a Private Equity interview, and that the 9-step breakdown helps you simplify the task into easy-to-replicate and easy-to-execute steps.

No one becomes an expert LBO modeler overnight, so the key to doing well in this portion of the process is practice, practice, and more practice. With enough sample LBO cases, you should be able to master the steps needed to confidently build a fully functioning, professional LBO model on interview day.

Good luck with the modeling case and with the interviews!

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Infrastructure Private Equity: The Definitive Guide

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If I put together a list of the longest-running “unfulfilled requests” on this site and BIWS , infrastructure private equity would be near the top of that list.

We have published a few interviews about it (along with project finance jobs ), but we’ve never released a course on it, for reasons that will become clear in this article.

UPDATE: We now have a Project Finance Modeling course . Check it out!

And while I’m skeptical about the long-term prospects of private equity , especially at the mega-funds, there are some bright spots – and I think infrastructure is one of them.

But before delving into deals, top firms, salaries/bonuses, interview questions, and exit opportunities, let’s start with the fundamentals:

What is Infrastructure Private Equity?

At a high level, infrastructure private equity resembles any other type of private equity : firms raise capital from outside investors (Limited Partners) and then use that capital to invest in assets, operate them, and eventually sell them to earn a high return.

Profits are then distributed between the Limited Partners (LPs) and the General Partners (GPs) – with the GPs representing the private equity firm.

Just as in traditional PE, professionals spend their time on origination (finding new assets), execution (doing deals), managing existing assets, and fundraising.

The difference is that infrastructure PE firms invest in assets that provide essential utilities or services.

Real estate private equity is similar because both firm types invest in assets rather than companies.

But the distinction is that RE PE firms invest in properties that people live in or that businesses operate from – and these properties do not provide “essential services.”

Sectors within infrastructure include utilities (gas, electric, and water distribution), transportation (airports, roads, bridges, rail, etc.), social infrastructure (hospitals, schools, etc.), and energy (power plants, pipelines, and renewable assets like solar/wind farms).

Many of these assets are extremely stable and last for decades.

Some, like airports, also have natural monopolies that make them incredibly valuable (well, except for when there’s a pandemic…).

Infrastructure assets have the following shared characteristics:

Relatively Low Volatility and Stable Cash Flows – Power plants can’t just “shut down” unless human civilization collapses.
Strong Cash Yields – Unlike traditional leveraged buyouts, where all the returns might depend on the exit, infrastructure assets usually yield high cash flows during the holding period.
Links to the Macro Environment and Inflation – Investors often view infrastructure assets as “inflation hedges” because they’re linked to population growth, GDP, and other macro factors that change the demand for infrastructure.
Low Correlation with Other Asset Classes – For example, returns in infrastructure investing don’t correlate that closely with those in traditional PE, equities, fixed income, or even real estate.

On the last point, here’s what JP Morgan found when comparing infrastructure, real estate, and the S&P 500 from 1986 to 2013:

Infrastructure Private Equity - Correlations

Holding periods are also longer, partially because customer contracts tend to be lengthy, such as power purchase agreements that last for 15 years.

Overall, infrastructure private equity sits above fixed income but below equities in terms of risk and potential returns; it might be comparable to mezzanine funds .

The History and Scale of Infrastructure Investing

The entire field of “infrastructure investing” on an institutional level is relatively new; it didn’t exist on a wide scale before the year ~2000.

It started in Australia in the 1990s, spread to Canada and Europe in the early 2000s, and eventually made its way to the U.S. as well.

Partially because it is a newer field, infrastructure private equity has raised less in funding than real estate private equity or traditional private equity:

Infrastructure PE: $50 – $100 billion USD per year globally
Real Estate PE: $100 – $150 billion
Traditional PE: $200 – $500 billion

Despite the lower fundraising, “small deals” are quite rare in infrastructure because of the nature of the assets.

The average deal size is over $500 million, and the top 10 deals each year are in the multi-billions, up to $10+ billion.

Public Finance vs. Project Finance vs. Infrastructure Private Equity vs. “Infrastructure Investing”

Several terms are closely related to infrastructure, so let’s go down the list and clarify the differences before moving on:

“Infrastructure Investing” – This one is the broadest term and could refer to investing in the debt or equity of infrastructure assets. Investors could fund the construction of new assets or acquire existing, stabilized ones. And the investors could be PE firms, pensions, sovereign wealth funds , and many others.
Infrastructure Private Equity – This term refers to investing in the equity of infrastructure assets to gain ownership and control. There are dedicated infra PE firms, but plenty of pensions, large banks, SWFs, and other entities also make “equity investments in infrastructure.”
Project Finance – This one refers to investing in the debt of infrastructure assets (both new and existing ones), which is mostly about assessing the downside risk, how much money could be lost in the worst-case scenario, and then offering terms commensurate with the risk.
Public Finance – This one also relates to investing in the debt of infrastructure assets, but in this case, it’s to support governments and tax-exempt entities that need to raise funds to build assets.

Infrastructure Private Equity Strategies

The main investment strategies are similar to the ones in real estate private equity: core , core-plus, value-add , and opportunistic .

The main difference is slightly different names: “greenfield” refers to brand-new assets that a sponsor is building, while “brownfield” refers to existing assets that it is acquiring.

Here’s a quick summary by category:

Core: There’s limited-to-no growth here; examples might be regulated electricity distribution assets, such as power lines. Governments set rates, so there’s little revenue risk. Most of the returns come from the asset’s cash flows, and the expected IRRs are usually below 10%.
Core-Plus: These assets have modest growth potential (via additional CapEx or other improvements), or they’re stabilized assets operating in regions outside developed markets. The expected IRRs might be in the low teens.
Value-Add: These assets require serious operational improvements or re-positioning. The risk and potential returns are higher, and more of the potential returns come from capital appreciation rather than cash flows during the holding period. An example might be acquiring a small airport and then performing additional construction to turn it into more of a regional hub.
Opportunistic: These deals are the riskiest ones because they often produce limited-to-no cash flow for a long time, and they depend on building new and unproven assets (e.g., a new power plant or toll road). The potential IRRs might be 15%+, but there’s also a huge downside risk.

A single infrastructure PE firm could have different types of funds, each one specializing in one of these categories, but in practice, the first three strategies are the most popular ones.

One final note: in addition to everything above, public-private partnerships (PPP) represent another strategy within this sector.

For example, a private firm might build a toll road, and the local government might guarantee a certain amount in revenue per year as an incentive to complete the project.

Sometimes PPP deals are labeled “core” even when the asset changes significantly or is built from scratch because the revenue risks are much lower if there’s government backing.

Yes, construction overruns and delays could still be issues, but the overall risk is lower.

The Top Infrastructure Private Equity Funds

You can divide infrastructure investors into a few main categories: actual private equity firms (“fund managers”), large banks, pension funds, sovereign wealth funds, and the investment arms of insurance companies.

Technically, only the private equity firms count as “infrastructure private equity” – but each firm type here still invests in the equity of infrastructure assets.

For many years, fund managers dominated the market, but institutional investors such as pension funds have been building their internal investment teams to do deals directly.

Private Equity Firms and Fund Managers

Some PE firms focus on infrastructure; examples include Global Infrastructure Partners, IFM Investors, Stonepeak Infrastructure Partners, I Squared Capital, ArcLight Capital, Dalmore Capital, and Energy Capital Partners.

Then, some firms invest in a broader set of “real assets,” with Brookfield in Canada being the best example (it has also raised the third-highest amount of capital for infrastructure worldwide).

In the U.S., Colony Capital and AMP Capital are examples (they do both real estate and infrastructure).

Finally, there are large, diversified private equity firms that also have a presence in infrastructure, such as KKR, EQT, Blackstone, Ardian, and Carlyle.

Large Banks

The biggest “infrastructure investing firm” worldwide is Macquarie Infrastructure and Real Assets (MIRA) , which is a branch of the Australian bank Macquarie.

Many of the other large banks also do infrastructure investing, but they often use different names for their infra businesses (e.g., Goldman Sachs and “West Street Infrastructure Partners” or Morgan Stanley and “North Haven Infrastructure Partners”).

JP Morgan and Deutsche Bank are also active in the space.

There are also infrastructure investment banking groups , which advise sponsors and asset owners on deals rather than investing in debt or equity directly.

Pension Funds

Canadian pension funds , such as CPPIB and OTPP, are some of the biggest investors in the infrastructure space, and they all have internal teams to do it.

These funds have advantages over traditional PE firms because their returns expectations are lower, and they’re non-taxable in Canada , so they can afford to out-bid other parties and pay high prices for Canadian assets.

In Europe, various pension managers, such as APG and PGGM in the Netherlands and USS in the U.K., also invest in infrastructure, and in Australia, plenty of “superannuation funds” (AustralianSuper, QSuper, etc.) also do domestic infrastructure deals.

Sovereign Wealth Funds

These are very similar to pension funds: historically, they acted as Limited Partners, but they’ve been building their internal teams to invest in infrastructure directly.

Just like pensions, they also target lower returns, but they also have far more capital since they’re backed by governments in places like the Middle East and Asia.

Names include the Abu Dhabi Investment Authority, the Abu Dhabi Investment Council, the China Investment Corporation, and GIC in Singapore.

For more about these points, please see our coverage of investment banking in Dubai and sovereign wealth funds .

Insurance Companies

Most insurance companies do not invest directly in infrastructure, but many are Limited partners of existing funds.

Well-known names include Swiss Life, Allianz Capital Partners in Germany, and Samsung Life Insurance in South Korea.

Other Investment Firms

There are plenty of “miscellaneous” firms that do infrastructure investing as well.

For example, some construction companies invest their cash into infrastructure, and some larger, energy-focused PE funds such as Encap and Riverstone have also gotten into it.

There’s a blurry line between “energy private equity” and “infrastructure private equity” in the U.S., which is why firms like ArcLight and Energy Capital could be in either category.

Infrastructure Private Equity Jobs: The Full Description

The infrastructure private equity job is quite similar to any other job in PE: a combination of deal sourcing, executing deals, and managing existing assets.

Deal sourcing consists of inbound flow from bankers, competitive auctions, secondary deals from other financial sponsors, and sometimes buying entire infrastructure companies or individual assets.

Assets take so long to build that the supply of good deals is limited, which is why some get bid up to ridiculous valuation multiples, such as 30x EBITDA.

When evaluating deals, assessing the downside risk is critical because the upside is quite limited.

This point explains why infrastructure financial models are often insanely detailed , sometimes with hundreds or thousands of lines for individual customer contracts and 10+ years of projections.

You can’t just say, “Assume revenue growth of 5%” – it has to be backed by contract-level data and extensive industry research.

As in real estate, infrastructure deals often use high leverage (think: 80%+), and the debt may be “sculpted” to meet a minimum Debt Service Coverage Ratio (DSCR) requirement:

When you evaluate deals, you focus on:

Contracts – How does the asset earn revenue, how much water/electricity/energy has it promised to deliver, and are there any onerous terms? Are there step-ups for inflation? Are any counterparties promising to pay for fuel or other expenses?
Expenses and CapEx – Will the asset need major CapEx for maintenance or expansion? What do its ongoing operating expenses look like, and are they expected to grow in-line with inflation or above/below it?
Growth Opportunities – The asset’s overall growth rate should be aligned to its key macro drivers, especially for “core” deals. For example, if air traffic in the region is growing at 2% per year, but an airport’s revenue is growing by 5%, something is off – unless the airport is planning to expand in some way.
Downside Protection – What happens if inflation exceeds expectations? How easily can customers cancel their contracts? If something goes wrong, does the government back the asset or promise anything? What if there’s a construction delay or cost overrun?
Debt – How much leverage is being used, what are the rates, and how much refinancing risk is there? Could the asset potentially support a dividend recap ? Is there any chance that it might not be able to comply with covenants, such as a minimum Debt Service Coverage Ratio (DSCR)?

Project Finance & Infrastructure Modeling

Learn cash flow modeling for energy and transportation assets (toll roads, solar, wind, and gas), debt sculpting, and debt and equity analysis.

Infrastructure Private Equity Salary and Bonus Levels

Now to the bad news: salary and bonus levels in infrastructure range from “a bit lower” to “quite a bit lower” than traditional private equity compensation because:

Management fees tend to be lower (1.0% to 1.5% rather than 2.0%).
Carry is still based on 20% of the profits and an ~8% hurdle rate, but since holding periods are much longer, it takes more time to earn the carry. Also, it’s more difficult to exceed the hurdle rate.

Infrastructure Investor has a good set of recent compensation figures , excluding carry.

To summarize and round the numbers a bit, compensation ranges at dedicated infrastructure and energy PE firms are:

Associates: $150K – $300K total compensation (50/50 base/bonus)
Vice Presidents: $250K – $500K
Directors: $400K – $900K
Managing Directors: $750K – $1.8 million

If you also factored in carried interest, these numbers would increase modestly for Directors and MDs.

Expect lower compensation at pension funds, sovereign wealth funds , and insurance firms because they do not have carried interest at all.

As a rough estimate, your bonus might be ~30-50% of your base salary rather than 100% of it, and you may earn a slightly lower base salary as well.

The upside is that the lifestyle is also much better: you might work only ~40-50 hours per week at some of these funds.

You get busier when deals are heating up, but it’s still a vast improvement over the typical IB/PE hours .

The Recruiting Process: How to Get into Infrastructure Private Equity

Similar to real estate private equity, infrastructure private equity firms are also more forgiving about candidates’ backgrounds.

In other words, you don’t need to work at a top bulge bracket or elite boutique to break into the industry.

You could potentially get into the industry from many different backgrounds:

Investment banking , ideally in groups like infrastructure , energy , renewables , or power & utilities that are directly related.
Project finance since PF represents the debt side of infrastructure deals, and you need to understand both equity and debt to evaluate any deal.
Real estate since some segments of infrastructure, such as schools and hospitals, overlap quite a bit; also, many companies structured as REITs own infrastructure assets.
Other areas of private equity , such as firms that focus on renewables, energy, or power and utilities, since they’re all related to infrastructure.
Infrastructure corporations/developers for obvious reasons (especially if you target greenfield-focused firms).

Some people also get in from areas like infrastructure/project finance law or infrastructure groups at Big 4 firms.

It’s unusual to break in without a few years of full-time experience in one of these fields; few firms hire undergrads or recent grads because they don’t have the resources to train them.

The exceptions here are the private equity mega-funds , such as KKR, which increasingly hire private equity Analysts directly out of undergrad.

Most infrastructure PE firms use off-cycle processes to recruit (i.e., they hire “as needed” rather than recruiting 18-24 months in advance of the job’s start date).

Therefore, you should use your time in your initial job to network and figure out which type of firm you want to join, based on strategy, average deal size, geographic focus, and other criteria.

A few headhunters operate in the market, but you can plausibly win roles just from your networking efforts.

One Search is the one recruiting firm dedicated to “real assets” (infrastructure, energy, and real estate), and they’re the best source for positions at infra PE firms – if you decide to go through recruiters.

The Infrastructure Private Equity Interview Process

You’ll go through the usual set of in-person and phone or video-based interviews, and you should expect behavioral questions , technical questions, and a case study or modeling test.

The behavioral/fit questions are all standard: walk me through your resume , describe your past deals, tell me your strengths and weaknesses, and so on.

The technical questions tend to focus on the merits of different infrastructure assets, the KPIs and drivers, and how you evaluate deals and use the right amount of leverage.

And the case studies and modeling tests are much simpler than on-the-job models because you usually have only 1-3 hours to complete them.

If you’re already familiar with Excel, LBO modeling, and/or real estate financial modeling , these tests should not be that difficult.

You do need to learn some new terminology, but projecting the cash flows and debt service and calculating the IRR are the same as always.

Infrastructure Private Equity Interview Questions And Answers

Here are a few examples of sector-specific interview questions:

Q: Why infrastructure investing?

A: You like working on deals involving long-term assets that provide an essential service and also do some social good.

Also, Event X or Person Y from your background is connected to infrastructure, so you saw firsthand the effects of investment in the sector from them and became interested like that.

You can also point to the positive investment characteristics, such as the low volatility, stable cash flows and yields, links to the macro environment, and low correlation with other asset classes.

Q: What are the key drivers and key performance indicators (KPIs) for different types of infrastructure assets?

A: This is a broad question because each asset is different, but to give a few examples:

Power Plants: Capacity (maximum output), production (electricity produced, which is a fraction of the total capacity), contracted rates for both of those, fixed and variable operating expenses, annual escalations for the revenue rates and expenses, and required maintenance or growth CapEx.
Airports: Total passenger volume and average fees per passenger, fees from rent and fuel, operating expenses such as payroll, insurance, maintenance, and utilities, required CapEx, and assumed inflation rates for all of these.
Toll Roads: Traffic levels and Year-Over-Year (YoY) growth rates, the toll rate per vehicle per day, fixed expenses for operations and maintenance and variable expenses linked to per-car figures, required CapEx, and inflation rates for all of these.

Q: Walk me through a typical greenfield deal/model.

A: You assume a certain amount of construction costs and a timeline for the initial development, and you draw on equity and debt over time to fund it, putting in the equity first to satisfy lenders. Interest on the debt is capitalized during the construction period.

When construction is finished, the construction loan may be refinanced and replaced with a permanent loan as the asset starts operating and eventually stabilizes.

Then, you forecast the revenue, expenses, and cash flow in different scenarios and size the debt such that it complies with requirements, such as a minimum Debt Service Coverage Ratio (DSCR).

At the end of the holding period, you assume an exit based on a percentage of the asset’s initial value or a multiple of EBITDA or cash flow.

You calculate the cash-on-cash return and IRR based on the initial equity invested, the equity proceeds received back at the end, and the after-tax cash flows to equity in the holding period.

Q: Walk me through a typical brownfield deal/model.

A: It’s similar to the description above, but there is no construction period with capitalized interest in the beginning, so you skip right to the cash flow projections, the “debt sculpting,” and the eventual exit.

Q: How would you compare the risk and potential returns of different infrastructure assets? For example, how does a regulated water utility differ from an airport, and how do they differ from telecom infrastructure like a cell tower?

A: Regulated utilities for water and electricity have lower risk, lower potential returns, and a higher percentage of total returns coming from the cash yields.

That’s because local governments set the allowed rates, and demand doesn’t fluctuate much unless the local population grows or shrinks significantly.

On the other hand, there’s also little downside risk because people can’t stop drinking water or using electricity even if there’s an economic crisis.

Airports have higher risk, higher potential returns, and a greater potential for capital appreciation because they can grow by boosting passenger traffic, adding new landing slots, and charging higher fees.

But there’s also more risk because passenger traffic could plummet in an economic recession, a war, or a pandemic.

With telecom assets like cell phone towers, the risk and potential returns are even higher, with much of the returns expected to come from capital appreciation.

There are different lease types (ground leases and rooftop leases), and location is even more critical than with other infrastructure, so these assets are closer to real estate in some ways.

Q: How would you value a toll road or an airport?

A: You almost always use a DCF model for these assets because cash flows are fairly predictable.

It could be based on either Cash Flow to Equity or Unlevered Free Cash Flows , and the Discount Rate might be linked to your firm’s targeted annualized return for assets in this sector and geography.

If the Discount Rate is the Cost of Equity, then it’s linked to the targeted equity returns; for WACC , the Cost of Debt is linked to the weighted average interest rate on the debt used in the deal.

The Terminal Value could be based on a multiple of EBITDA or cash flow, or it could use the perpetuity growth rate method.

Q: Why can you use high leverage in many infrastructure deals? And what are some of the important credit stats and ratios?

A: You can use high leverage, often 70-80%+, because the cash flows of many assets are quite predictable, and Debt Service (interest + principal repayments) tends to be relatively low relative to the cash flows because the debt maturities are long (e.g., 10-15+ years).

Some of the most important ratios include the Debt Service Coverage Ratio (DSCR) and the Loan Life Coverage Ratio (LLCR) , along with standard ones like the Leverage and Coverage Ratios used in debt vs. equity analysis .

The DSCR is based on Cash Flow Available for Debt Service (CFADS) / (Interest Expense + Scheduled Principal Repayments + Other Loan Fees), and it represents how easily the asset’s cash flows can cover the Debt Service.

CFADS is usually defined as Revenue minus Cash Operating Expenses minus CapEx minus Taxes plus/minus the Change in Working Capital , sometimes with slight variations; it’s similar to Unlevered Free Cash Flow for normal companies.

Importantly, depreciation must be excluded, except for its tax impact, because it’s non-cash.

The LLCR is defined as the Present Value of the total Cash Flow Available for Debt Service over the loan’s life divided by the current Debt balance.

The Discount Rate should be based on the weighted average interest rate on the Debt.

Higher numbers are better because it means the asset’s cumulative cash flows can more easily pay for the debt.

Q: What is “debt sculpting” in infrastructure deals, and why is it so common?

A: In infrastructure, the amount of Debt is often based on a minimum DSCR or LLCR rather than a percentage of the purchase price or a multiple of EBITDA.

Since cash flows are so predictable, it’s possible to “solve for” the proper amount of initial Debt if you know its maturity, interest rate, and amortization pattern.

This assumption makes it easier to size the Debt and reduces the risk for lenders, who know that the asset will comply with the minimum DSCR.

Infrastructure Case Study Example

UPDATE: Please see our Project Finance & Infrastructure Modeling course for many additional and better case study examples.

Real-life infrastructure models can be complex, but time-pressured case studies are a different story.

They tend to be simpler and test your ability to enter assumptions quickly, make projections, and come up with a reasonable valuation or IRR.

Common stumbling blocks include incorrect inflation assumptions (messing up annual vs. quarterly vs. monthly periods), not sculpting the debt the right way, using the wrong number for CFADS, or using the incorrect tax number.

Here’s a simple example of a valuation case study (no solutions, sorry):

“Your firm is considering acquiring a brand-new natural gas power plant with the following characteristics:

Capacity: 500MW
Heat rate: 7,500Btu/kWh
Annual dispatch: Expected capacity factor of 50%

The plant’s revenue sources include:

Capacity payment: $135/kW-year
Energy payment: $10/MWh, escalating at 2% per year

Operating expenses include the following:

Fixed O&M expense: $30/kW-year, escalating at 2% per year
Labor and operations: $5/MWh, escalating at 3% per year
Water and consumables: $1/MWh, escalating at 2% per year

Annual fuel is not an expense because the contract counterparty provides it.

Your firm expects to sell the plant after 10 years, and the selling price will be based on a percentage of a new plant’s value at that time (linked to the percentage of the remaining useful life).

Comparable projects cost $1,000/kW currently and are expected to increase in price at 2% per year, with a useful life of 40 years.

The Debt will be based on the following terms:

Tenor: 10 years, fully amortizing
Interest Rate: 5%, fixed rate
Amortization: Sculpted amortization to achieve a 1.40x Debt Service Coverage Ratio (DSCR) in each year based on Cash Flow Available for Debt Service (CFADS)

Please value the power plant on an after-tax basis using a 12% Cost of Equity and assuming a 25% tax rate and 20-year depreciation based on MACRS.”

Infrastructure Private Equity Exit Opportunities

The most common entry points into infrastructure PE are also the most common exit opportunities: investment banking, project finance, real estate, other areas of PE, infrastructure corporates/developers, and Big 4 infrastructure groups.

It tends to be difficult to move into generalist roles coming from infrastructure because the perception is that it’s very specialized.

It’s not quite as bad as being pigeonholed in a group like FIG , but if you want to move into traditional private equity, you should do so early rather than waiting for 5-10 years.

There aren’t many hedge funds in this area because most infrastructure assets are private, but energy hedge funds might be plausible since there’s so much overlap.

Venture capital is not a likely exit opportunity because infrastructure assets are the opposite of early-stage startups: stable, with highly predictable cash flows and growth profiles.

Resources for Learning More About Infrastructure Private Equity

Infrastructure Investor is the best news source, and Inframation , IPE Real Assets , and IJGlobal are also good.

Preqin issues good infrastructure reports once per year, which you can Google, and this guide from JP Morgan also has a concise sector overview .

And, of course, there’s our Project Finance & Infrastructure Modeling course if you want both short/simple and longer case study examples and video-based training:

Infrastructure Private Equity: Pros and Cons

Summing up everything above, here’s how you can think about the industry:

Benefits/Advantages:

High salaries and bonuses , at least if you work at a dedicated PE firm rather than a pension, SWF, or insurance company.
You get to work on deals that do some social good , at least in certain sectors, and that provide benefits to individuals, such as diversification, inflation hedging, and strong cash yields.
Each asset requires different assumptions and drivers, so you’re always learning new skills (compared with vanilla IB/PE, where deals start to look the same after a while).
The hours and lifestyle are better if you’re at a pension, SWF, or insurance company – but total compensation is also below standard PE pay.
It’s more feasible to get into the industry without working at a top BB or EB bank for two years; they care more about your skills and sector experience than your pedigree.

Drawbacks/Disadvantages:

It is a small industry if you go by the number of dedicated, independent PE firms, so it can be tricky to find openings and advance.
It is also specialized , though arguably less so than something like FIG; that said, you can still get pigeonholed if you stay too long and then decide you don’t like it.
Compensation is lower at the non-PE firms, and even at the dedicated PE firms, the MD/Partner-level compensation has a lower ceiling.
You’re further removed from real life than you might expect because finance professionals cannot “evaluate” a power plant or water treatment facility in the same way they could inspect an apartment building; you rely on outside specialists for much of this process.
Although each deal is different, some of the modeling work can become repetitive because you have to look at so many individual contracts and build very granular assumptions.

Overall, infrastructure private equity is a great career option, but it’s a bit less of a “side door” or “back door” than real estate private equity because you do need some relevant deal experience first.

The best part is probably the optionality – if you want higher pay and longer hours, you have options, and if you want a better lifestyle with lower pay, you can also do that.

And with the dismal state of infrastructure in most countries, it’s safe to say that there will always be demand for investment – even if it takes a few broken bridges and toll roads to get there.

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

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41 thoughts on “ Infrastructure Private Equity: The Definitive Guide ”

Hi Brian. Thanks for writing such articles, I find them really helpful as a beginner. I do have a quite different background than most aiming to head into infrastructure investment banking/PE and thought it would be great if I could have your perspective.

I did my undergrad in Civil Engineering, from one of the top 5 unis in Asia (HKU) and graduated with a 2:1. I have since worked for about three years now, at a leading engineering and consulting firm within the infrastructure sector, in the capacity of both an engineer and a management consultant concurrently. I have worked on some really high profile infrastructure projects worth 3.5 Bill USD and have been involved in management consulting projects that have influenced the infrastructure sector at a national level within Asia. I am really passionate about working within the infrastructure finance space and thus I also ended up taking CFA on the sides. I have passed both Level 1 & 2 of the program with good scores. I am headed to UCL coming fall for their MSc program in Infrastructure Investment & Finance, it’s a specialized program focused specifically on infrastructure and is offered by their faculty of Built Environment which is currently ranked the world’s best department as per QS Subject Rankings.

I do really wanna switch over to the finance side of infrastructure, but I do lack direct work experience in the finance aspect of it. Do you think that my profile is decent to target the big investment banks/funds in London/Asia focused in the infra space? I am specifically interested in advisory or buyside roles. I will be applying for analyst roles in the coming intake and wanted someone’s independent perspective.

Thanks. Yes, I think your profile is good enough since PF/infrastructure is quite specialized and they want people who know the sector really well. Finance is easy to learn if you’re already an engineer – it’s much harder to find people who know the sector and everything that can happen on the ground with infrastructure projects.

Thank you very much for your answer Brian! Really appreciate your perspective.

Hi, thank you for the article, very helpful. Could you please share any insights on how easy it would be to move from renewable energy infra PE to another sector in infra PE? Thanks in advance!

I think it should be doable because you use the same modeling techniques and analysis in all areas of infra PE. It’s just that the numbers and assumptions differ between different asset types. But it’s not like you’re moving from FIG to oil & gas, for example, where everything is different.

This may be the single best resource on the internet for an infrastructure finance overview. I used this to initially break into project finance and now work at an infra-PE fund. The quality on this website always blows me away. Thank you for taking the time and effort to write such high quality guides, this infra one and the many others!

Thanks! Glad to hear it.

I’ve found your article really insightful and was hoping to ask for a bit of advice on breaking into the industry.

I’ve been looking into a PPP investment arm of a construction conglomerate. Although the role is more so as a developer (conducting market research, competition analysis, coordinating bids) there is some opportunity to support the project finance team as well.

Do you feel this is a good opportunity in general to gain industry experience, rather than perhaps in an infra advisory big 4 capacity?

Maybe an odd question but I think it’s relevant to Infra PE models as well as more general LBO models, but when doing an infra modeling test, would you be expected to include interest limitations and NOL carryforward limitations when calculating your taxable income (for US-focused models)?

So, we don’t officially teach infrastructure modeling currently, which means I can’t answer your question definitively, but in the models I’ve gathered, I’ve seen both approaches (factor in these tax elements or ignore them). I think it mostly depends on the model complexity and if you’re doing it at the corporate or asset-level.

Hardly any LBO models, in practice, include the bits around interest deduction limitations because they’re not common constraints with normal leverage levels.

is it possible for the section where you mentioned TV is determined by the perpetuity growth rate or an exit multiple, that for infrastructure assets, i generally see them modelled to the end of concession in which case there isn’t really a terminal value.

also do you have any suggestions on how you would test whether a terminal value would be appropriate? i.e. not too big or smal?

We don’t officially cover infrastructure modeling on this site and do not usually answer technical questions in these articles, so I can’t tell you for sure. The approach you suggested sounds reasonable, but many infra assets do assume a Terminal Value if the asset is expected to last for decades. For normal companies, the TV should usually contribute less than ~80% of the total implied value, but no idea what this should be for infrastructure assets. I assume much less because of the longer holding periods/projections.

Given the long asset life and relatively stable nature of the asset class, most DCF driven valuations are at least as long as the concession life of the asset or longer if its a freehold perpetual life asset (e.g. landlort ports in the UK). For this reason TV usually tends to be a smaller proportion of the PV compared to other asset classes. In terms of methodology, people tend to use both perpertuity and multiple based methodologies. Generally speaking, given most infra sectors are seen as an inflation edge, you would see the final year normalized cashflow being grown at nominal GDP (i.e. real GDP growth + inflation). Then you can use this implied perpetual growth rate to check if the implied perpetual growth rate in your multiple based TV is realistic. If you are running a levered DCF, i.e. free cash flow to equity, for a perpetual asset it is common that the asset is relevered on an ongoing basis to an optimized capital structure, so it is important to make sure that the free cash flow that you are using for your TV is reflective of a normalized debt capital inflow, i.e. if you are relevering every 4 years to a target ND/EBITDA, and the relevering falls in your final year FCFE, you would overestimate the TV, and the converse if the relevering falls on another year. You could avoid that if you relever every year. Regarding assets with concession life, I have seen concession life extension assumptions being included in models, but in that case you would need additional assumptions, as you would effectively be capturing the PV of the spread between the concession rights payment (outflow) and the inflows from the later years. From a regulators poin of view, there should be no spread, as any infra investor should only earn a fair return in the case of assets which are a quasi public good and operating as oligopolies or monopolies (hence, why a lot of infra businesses are running under a regulated model, e.g. RAB based returns). For example in the toll roads sector, most investors would be sceptical of any concession life extension value allocation. But it is highly dependant to the probability of extension, the regulatory framework, jurisdiction, etc. Hope this helps.

Hi Brian – I wanted to enquire what financial modelling foundation would set me up for a Infra PE role. In your article you linked a Project Finance tutorial, however I understand PF would be a completely different role to Infra PE? Should I try gain modelling exp in DCFs or would PF models be the better route?

Project Finance and Infrastructure PE are similar. Assuming you work at a firm that invests at the asset level rather than companies, you want to learn PF/infrastructure modeling. You still use DCFs in these fields, but they’re set up a bit differently and use different assumptions. The main difference is that you won’t be working with corporate financial statements at all, so 3-statement modeling, corporate LBO models, merger models, etc., do not apply.

Brian, this was incredibly thorough and very appreciated, thank you! Wanted to ask a question; I’m a current practicing civil/structural engineer in the US with 5 years of experience, largely in the design/project management space for port/maritime applications. Is there a path to Infra PE with this background? Would an MBA/MSF be a necessary stepping stone? Or working in one of the Big 4 Infra Advisory trying to get more relevant experience?

I think you would need another degree or an actual finance/advisory role to get in. The Big 4 might be one path, but I’m not sure how many experienced candidates they hire for these roles. The MBA/MSF route is safer but also costs more time and money.

Any chance we can get the solution to the case study? Just want to compare with what I’m putting together.

Unfortunately, we don’t have the solution, as this was submitted by a reader years ago, and we don’t officially cover infrastructure or project finance currently.

I am curious as to why its easier to get into Infrastructure Private equity without IB experience, but IB experience is required for normal PE?

It’s because of the specialization and deal/modeling skill set. Infrastructure is very specialized and doesn’t follow the accounting rules that standard corporations do because everything is cash flow-based, and you need to know the nuances of things like customer contracts for individual assets, escalation rates, etc., none of which you learn in most IB groups.

Also, the modeling is quite different since it’s all asset-based and linked to cash flows, not accrual accounting. Therefore, most IB modeling experience won’t carry over that well.

So, all else being equal, they’d prefer someone who knows infrastructure very well to someone with IB experience but in an unrelated group with no exposure to asset-level modeling.

Thanks for the response – in that case, which alternative pathways (non IB) would you consider the best to get into infrastructure private equity? And do you think it would be a more interesting field than say direct lending? (as i think Direct lending / credit investing roles also don’t require IB?)

I don’t think there is one “best” option because people tend to get in from varied backgrounds. There’s a list of possibilities under “The Recruiting Process” here. Anything infrastructure-related works, whether it’s project finance, a normal company, the same sector at a Big firm, etc. It’s hard to compare to direct lending because it depends on what you’re looking for. Direct lending compensation is lower, and you tend to see and close more deals, but you don’t go as in-depth into each one. It’s probably a bit easier to get into direct lending because it doesn’t have “private equity” in the name.

Hi Brian. Thanks for the great article. I was wondering how difficult you think it would be to break into infra PE as an analyst from a tech IB group. Will the difference in coverage group be too large of a hurdle to overcome? Can a bank’s “prestige” override that? Thanks!

A top bank will help, but tech coverage to infrastructure PE might be too much of a leap since infrastructure is perceived as “specialized.” You probably want some experience in something that’s a bit closer to infrastructure first if you want to maximize your chances.

Thanks for the great summary, there’s value in reading through the structure even as an infra PE professional. Would caveat that because of the higher prevalence of auctions due to pricings getting competitive the work-life balance I see is getting worse even on the pension fund end of the scale and so comp is adjusted accordingly. Smaller funds that can avoid competition and do bilaterals pay less and can offer better hours but not always as that highly depends on deal flow vs team size and the number of people on the deal team and the level of detail required in the DD, at least in Europe.

Thanks for adding that.

Brian – great guide, as always. Really appreciate you taking the time to put this together.

I’m a civil engineer by training, with a few years of Big 4 infra advisory experience (Canada and UK).

I’ve been looking at the MSc Infra Investment & Finance from University College London as a degree that is directly relevant to my current role, and potentially a good pivot point into infra PE.

Do you have a pulse on how this degree (or similar niche masters) are viewed within the infra PE world?

For reference: https://www.ucl.ac.uk/prospective-students/graduate/taught-degrees/infrastructure-investment-finance-msc

Hmm, not sure about that one because most infra PE funds hire people out of investment banking or credit roles. If you’ve already had Big 4 infra advisory experience, I’m not sure the degree adds a whole lot because it’s not like you’re an engineering with no other experience making a huge change. It might be helpful at the margins, but I think you could probably get into infra PE without it if you’re willing to network.

Appreciate the detail and comprehensiveness of this post!

One thing – on the definition of project finance, I am used to hearing a much broader definition that includes the entire capital stack of a separate legal entity (the project), all of which have senior claims over the (multiple) parent owners’ equity holders or debtors. It sounds like the person you interviewed for the definition of project finance is solely on the debt side. In renewable energy, for example, project finance refers to the project’s sponsor equity, tax equity, and debt financing.

Yes, that may be true. We tend to refer to equity investing in the sector as “infrastructure private equity” and debt investing as “project finance” for clarity. Otherwise it gets too confusing if both terms potentially refer to the same thing.

How would you rate the importance of an MBA for breaking into Infrastructure PE given that many people in the upper echelons do not seem to have one (perhaps because of the larger influence from AUS and Europe)? If someone was infra PE-adjacent (Fund of Funds), would it be better to simply hustle to build up a network?

Not important. Networking and work experience are far more important.

Hi, I am starting in Equity Research in a company that overlooks Mining, Construction and Energy sectors. My plan is to move into PE or IB after an MBA and I will like to know which of those three sectors will give me the best background to make the jump.

Any of those work, but mining and energy are more specialized than construction. So construction is probably the safest bet for generalist IB/PE roles.

Love your posts. Thank you so much for the guidance you provide!

I will be starting next summer as a corporate banking analyst for a large US bank, covering Renewable Energy companies. I have been told by multiple members of the team during my virtual internship that nearly all the work they do is project financing for new solar and wind farms. Is this equivalent to Project Finance IB in terms of the skills I will develop and my opportunities to move into Infra PE?

Yes, maybe not “equivalent,” but similar.

AI and Machine Learning in Private Equity: A Case Study

Feat. Blueprint Prep, a New Harbor Capital portfolio company

In today's ever-evolving technological landscape, private equity firms must remain agile and adaptable to stay on top of advancing technology such as artificial intelligence (AI) and machine learning. AI has the power to revolutionize how private equity firms operate, streamlining processes and unlocking the power of data for firms.

In this Partnership Perspectives blog post, we will highlight some ways in which private equity firms like New Harbor Capital and our portfolio companies are beginning to think about and deploy AI.

Identifying Relevant Investment Opportunities

The deal origination process is the heart of any private equity firm’s operations. Firms are constantly looking for new investment opportunities, but it can be challenging to identify relevant deals in a competitive market. AI can help private equity firms identify relevant investment opportunities by analyzing large datasets and identifying patterns and trends that would be difficult or impractical to spot manually. AI can also conduct industry research and competitor analyses to supplement a private equity deal team’s sourcing efforts.

Enhancing the Due Diligence Process

Due diligence is a critical step in the private equity investment process, where firms meticulously assess the risks and opportunities associated with a potential investment. AI can support and streamline the due diligence process by automating repetitive tasks like data aggregation and analysis. AI can quickly and efficiently analyze financial statements, contracts, and other legal documents to identify potential red flags or risks associated with a target company. This not only saves teams time, but also enhances accuracy, ensuring firms gain a comprehensive understanding of a potential investment.

Streamlining Operational Efficiency

AI can modernize operational efficiency for private equity firms by automating repetitive tasks and streamlining internal processes, such as meeting scheduling, compliance and regulatory reporting, and project management, freeing up human capital as a result. This allows private equity professionals to redirect their efforts toward more value-added activities, like deal origination and relationship management.

Blueprint Prep: A Case Study in AI-Powered Personalized Learning

New Harbor is not only leveraging AI at a firm level to gain a competitive advantage - we are also encouraging our portfolio companies to do the same. One example is Blueprint Prep , a leading platform for high-stakes test preparation and continuing education. Blueprint has been using AI to drive personalized learning at scale for several years.

Founded in 2005, Blueprint Prep is a leading platform for test prep related to high stakes exams, certification and licensure in the U.S., offering live and self-paced online courses, private tutoring, self-study materials, and question banks for pre-law, pre-med, and medical school students, as well as residents, practicing physicians, PAs, and NPs.

Blueprint began its journey with AI by focusing on personalized and adaptive practice question banks. The Blueprint team has developed machine learning models that feed each learner the highest-value practice content at every step of their journey. They also use AI tools to build personalized study plans for students.

Most recently, Blueprint released a first-gen AI feature : a conversational AI chatbot that acts as a tutor for MCAT students, helping them understand the strategy behind certain exam questions. The AI chatbot, named Blue, is the first of its kind in the MCAT test preparation market. It can provide students with personalized guidance on how to tackle Critical Analysis and Reasoning Skills (CARS) questions through genuine one-on-one conversations while adapting in real time to their individual learning needs.

The launch of Blue comes at a time when interest in the use of AI in medical school and healthcare education is on the rise. AI offers medical schools the ability to provide a more personalized curriculum that can adjust to each student's needs. As the demand for medical education increases, AI technology is fast becoming necessary to meet the evolving needs and preferences of students.

Blueprint’s Founder and CEO, Matt Riley, believes that AI will continue to be a disruptive force in the education and online learning industry: “In our space, AI will be incredibly beneficial to learners. No longer will they need to labor through piles of content without knowing how to drive results. With AI, we can now make the entire learning journey more efficient and enjoyable, which will unlock tons of untapped human potential.”

As private equity firms strive to maintain competitiveness amidst a constantly evolving technological landscape, the adoption of AI and machine learning will be increasingly important. By embracing AI’s capabilities, private equity firms can gain a distinct advantage — identifying more relevant investment opportunities, enhancing the due diligence process, streamlining internal operations, and adeptly managing risks. As AI continues to advance, private equity firms that embrace and integrate it into their operations and workflows will be at a significant competitive advantage.

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The fishy death of Red Lobster

Endless Shrimp didn't sink the seafood chain. Wall Street did.

With the chain on the verge of bankruptcy, it has become abundantly clear that Red Lobster letting customers eat all the shrimp their hearts desire was not a great business idea . It's also not the reason the restaurant is in a deep financial mess .

In mid-April, Bloomberg reported the debt-laden seafood chain and home of beloved cheddar biscuits was considering filing for Chapter 11 bankruptcy protection. Red Lobster is being bogged down by increased labor costs and expensive leases on its restaurants. Some observers were quick to blame the financial woes on its decision last year to make its "Endless Shrimp" promotion, which used to be an occasional, limited-time offering, permanent. The move was not a smart one. While Red Lobster increased traffic somewhat, people coming in to chow down on all-you-can-eat shrimp was a money bleeder. The company blamed Endless Shrimp for its $11 million losses in the third quarter of 2023, and in the fourth quarter, the picture got even worse, with the restaurant chain seeing $12.5 million in operating losses.

But the story about what's gone wrong with Red Lobster is much more complicated than a bunch of stoners pigging out on shrimp (and, later, lobster ) en masse. The brand has been plagued by various problems — waning customer interest, constant leadership turnover, and, as has become a common tale, private equity's meddling in the business.

"If anything, the Endless Shrimp deals are probably as much a symbol of just either desperation or poor management or both," Jonathan Maze, the editor in chief of Restaurant Business Magazine, said.

Red Lobster first opened in Lakeland, Florida, in 1968 and was acquired by the food conglomerate General Mills in 1970. General Mills then spun the chain off in 1995 along with the rest of its restaurant division, which also included Olive Garden, as Darden Restaurants. In 2014, amid flagging sales and pressure from investors, Darden sold Red Lobster for $2.1 billion to Golden Gate Capital, a San Francisco private-equity firm.

If anything, the Endless Shrimp deals are probably as much a symbol of just either desperation or poor management or both.

To raise enough cash to make the deal happen, Golden Gate sold off Red Lobster's real estate to another entity — in this case, a company called American Realty Capital Properties — and then immediately leased the restaurants back. The next year, Red Lobster bought back some sites, but many of its restaurants were suddenly strapped with added rent expenses. Even if Darden had kept Red Lobster, it's not clear it would have taken a different route: A press release from the time says it had contacted buyers to explore such a transaction. But in Maze's view, the sale of the real estate was sort of an original sin for Red Lobster's current troubles. He compared it to throwing out a spare parachute — chances are, you'll be OK, but if the first parachute fails, you're in deep trouble.

"The thing that private equity does is just unload assets and monetize assets. And so they effectively paid for the purchase of Red Lobster by selling the real estate," he said. "It'll probably be fine, generally, but there's going to come a time in which your sales fall, your profitability is challenged, and your debt looks too bad, and then suddenly those leases are going to look awfully ugly."

That time, according to recent reporting, is now. With struggling sales and operational losses, the leases are an added headache that is helping push the company to the brink, though bankruptcy may help Red Lobster get some wiggle room on them.

Eileen Appelbaum, a codirector of the Center for Economic and Policy Research, a progressive think tank, and a longtime private-equity critic, said in 2014 that private equity wouldn't be the solution to Red Lobster's ills. She isn't surprised about how this is all turning out.

"Once they sell the real estate, then the private-equity company is golden, and they've made their money back and probably more than what they paid," she said, noting that this was a common theme in other restaurants and retailers and adding: "The retail apocalypse is all about having your real estate sold out from under you so that you have to pay the rent in good times and in bad."

After the real estate move, Golden Gate sold 25% of the company in 2016 to Thai Union, a Thailand seafood company, for $575 million and unloaded the rest of the company to an investor group called the Seafood Alliance, of which Thai Union was a part, in 2020. Golden Gate likely came out ahead, but the same can't be said for Thai Union, which also controls the Chicken of the Sea brand. It is now looking to get out of its stake in Red Lobster and took a one-time charge of $530 million on its investment in the fourth quarter of last year. In 2021, Red Lobster refinanced its debt, with one of its new lenders being Fortress Investment Group, an investment-management group and private-equity firm. According to Bloomberg, it's one of the "key lenders" involved in debt negotiations now.

Beyond the pandemic-related troubles that hit restaurants across the country , analysts and experts say that Red Lobster's particular problems are attributable to a mix of poor brand positioning and unstable leadership. The seafood-restaurant business is a tough one in the US, and people who are hankering for lobster or fish are increasingly going to steak houses that offer those options, said Darren Tristano, the CEO and founder of Foodservice Results, a food-industry consultancy.

"What's truly happened with Red Lobster is that the consumer base has changed and Red Lobster hasn't," he said. "Red Lobster isn't losing to a competitor in their space — they're losing to competitors outside their space."

John Gordon, a restaurant analyst in San Diego, said Red Lobster had been on the decline for 20 years but that it didn't "fall on the knife" until Thai Union got it. "They were totally unprepared to hold a casual-dining restaurant," he said. Kim Lopdrup, Red Lobster's longtime CEO, retired in 2021, and since then, the restaurant hasn't had much in the way of stable leadership. His successor resigned after only a matter of months, and the role remained vacant for more than a year before someone else was appointed. He's left, too, and now Jonathan Tibus, an expert in restructuring, is at the helm.

"One of the problems is that Thai Union just had no credibility in terms of recruiting a new CEO," Gordon said.

Essentially, Red Lobster finds itself in a landscape where there just aren't a lot of bright spots. Add on the weight of the debt and lease obligations the company's private-equity owners saddled the brand with, and a turnaround becomes a gargantuan task.

"It's hard to blame leadership when you have a problem that is unsolvable — I mean, getting the consumer back in the door, increasing traffic. All-you-can-eat shrimp can only do so much," Tristano said.

Red Lobster did not respond to a request for comment for this story. Golden Gate declined to comment. Thai Union pointed to a press release about its intention to exit its investment and said it didn't wish to comment further.

One bad promotion should not doom a restaurant chain like that.

As to what drove Red Lobster to the edge, it's clear that despite not being a very good idea, the blame doesn't fall on Endless Shrimp. Years of changing tastes, tough industry conditions, and poor brand management all contributed to the chain's difficult position. But plenty of other restaurants have faced similar issues and aren't on the verge of bankruptcy. What separates Red Lobster is a decade of private-equity and investor tampering. Pinging from owner to owner makes it hard to settle on a turnaround vision. The company faces challenges that necessitate a long-term view that requires patience — the kind that the short-term-focused Wall Street often struggles to tackle. Whether Red Lobster can turn it around from here remains to be seen: Even if it files for bankruptcy protection, the chain may not disappear. Plenty of companies go bankrupt and keep on keeping on.

"You've got to at least be able to pay your bills, and what's happened over the last five years is the cost of operating a restaurant has taken off," Maze said. "One bad promotion should not doom a restaurant chain like that."

Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.

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PE Interview Case Studies
1) Paper LBO. Flip over the resume, make up the assumptions on your own, calculate an IRR and ROIC. Very high level. 2) 30 minute "fill in the blanks" LBO. Make high level assumptions and complete the template on site during the interview process. 3) Take home LBO.
Some Thoughts on Private Equity Case Study Interview
Want to land at an elite private equity fund try our comprehensive PE Interview Prep Course. Our course includes 2,447 questions across 203 private equity funds that have been crowdsourced from over 500,000 members. The WSO Private Equity Interview Prep Guide has everything you'll ever need to land the most coveted jobs on Wall Street.
Case Studies in PE
Private Equity Interview Btcamp (1 day) Detailed PE LBO Tests + Case . Venture Capital Bootcamp (4 Hrs) ... In formal case study interviews, many PE firms will actually give you a (usually old) CIM. In shorter discussions, they will give you a short prompt about the company (think the CIM's exec summary) or a public company/major private ...
Private Credit Case Study
private credit. case study. United States - Midwest. 8. jckund. I went through the process last year and am currently working in the space, albeit at a smaller fund. I think the case study itself in terms of format is pretty straight-forward: get a , build a model and do a write-up highlighting business overview, customers, suppliers, go-to ...
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PE Interview - Case Study Help (Urgent) kanon. 12,107 VC. Subscribe. I've got a case study interview coming up in 1-2 wks. It's 3 hours to read the case, do financial analysis, and prepare a presentation/report. I haven't gotten much clarity from the firm on the amount of financial analysis that needs to be done (re: build a simple lbo model ...
PE CASE STUDY REPOSITORY
To be honest, it is quite easy to create your own case studies. In my experience, most PE funds give you either an IM or for public companies some company materials (Capital Markets Day presentation, Annual Report, etc.) with broker reports and ask: "You habe 3h time. Please prepare a short presentation (5-10 pages) outlining whether this company would be a good investment for Fund XYZ.
PE Case Interviews
61,141. O. 4mo. Based on the most helpful WSO content, preparing for PE case interviews involves understanding the structure of a case study and being able to analyze a Confidential Information Memorandum (CIM). In most interviews, you'll be asked to walk through a case study, which usually involves analyzing an old sell-side process.
Private Equity Case Study: Full Tutorial & Detailed Example
The private equity case study is an especially intimidating part of the private equity recruitment process.. You'll get a "case study" in virtually any private equity interview process, whether you're interviewing at the mega-funds (Blackstone, KKR, Apollo, etc.), middle-market funds, or smaller, startup funds.. The difference is that each one gives you a different type of case study ...
Private Equity Interviews
Here, the Purchase Enterprise Value is $1.5 billion, and the PE firm contributes 40% * $1.5 billion = $600 million of Investor Equity. The "average" amount of proceeds is $225 * 10 = $2,250, and the "average" Exit Year is Year 4 (no need to do the full math - think about the numbers - and all the Debt is gone).
Mastering Your Private Equity Case Study: Essential ...
The case study is the pivotal phase of a private equity interview, demonstrating your ability to perform the job effectively. It involves assessing a Confidential Investment Memorandum (CIM ...
Private Equity Case Study: Example, Prompts, & Presentation
How To Do A Private Equity Case Study. Let's look at the step-by-step process of completing a case study for the private equity recruitment process: Step 1: Read and digest the material you've been given. Read through the materials extensively and get an understanding of the company. Step 2: Build a basic LBO model.
How to prepare for the case study in a private equity interview
Preparing for a PE case study has distinctive challenges for consultants and bankers. If you're a consultant, you need to, "make a big effort to mix your strategic toolkit with financial analysis. You need to prove that you can go from a strategic conclusion to a finance conclusion," says one PE professional.
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Wall Street Oasis Private Equity Interview Course. ... With 15+ hours of LBO modeling tests, case studies, interview Q&A and nuanced industry background, the content coverage is thorough and all-encompassing. The last section on the history and current trends in fund strategies, tactics and evolution of deal types is particularly helpful if you ...
Private Equity Case Study: Example, Prompts, & Presentation
Types To Private Equity Case Studies. Case studies are strong common in private objectivity interviews, and they are a key part starting of overall recruiting process. ... Wall Street Oasis. Conclude. Private equity case studies are adenine tough but necessary part of the home objectivity recruiting process. Candidates can demonstrate they ...
Paper LBO Tutorial
Paper LBO Tutorial: Practice Training Guide. Starting off, the interviewee typically receives a "prompt" - a short description containing a situational overview and certain financial data for a hypothetical company contemplating an LBO.. The interviewee will be given a pen and paper and between 5 and 10 minutes to arrive at the implied internal rate of return (IRR) and multiple on ...
Watch Me Solve a REPE Technical Interview Modeling Test
Hard Costs: $300 psf. Soft Costs: (excluding TI's, LC 's and Debt): 15% of hard costs. TI 's: $60 psf - paid at tenant occupancy. LC's: $18 psf - paid six months before tenant occupancy. Construction & Lease-up. 24 Month Construction Period, beginning at land close date. Costs spent evenly over construction period.
Private Equity Interview
Private Equity Recruiting Process. ... Testing for investing acumen can come in the form of a broad 20-minute, consulting-like case study, or a detailed 3-5 hour investing exercise wherein the candidate has to research a company, go through the company's filings, and write an investment memo on the sample target company. ...
Private Equity Interview Questions
The types of questions asked in a private equity interview can be broken into four categories: Behavioral Questions ("Fit") Technical LBO Questions. Investing Acumen Questions. Firm-Specific Industry Questions. Understanding the fundamental LBO concepts is essential to perform well on the LBO modeling and case study portions of the ...
Wso Private Equity
2 Wso Private Equity 2022-04-10 concise reference for the industry expert A step-by-step guide for students and casual observers of the industry A theoretical companion to the INSEAD case book Private Equity in Action: Case Studies from Developed and Emerging Markets Features guest comments by senior PE professionals from the ﬁrms listed below:
Real Estate Private Equity (REPE)
Real Estate Private Equity (REPE): Career Guide. As the "private" in "private equity" suggests, these firms raise capital from private investors and deploy that capital to make investments in real estate. There is little standardization to how real estate private equity firms are structured, but they all generally engage in five key ...
LBO Modeling Test Example
LBO Case Study: Conclusion and Final Comments. We hope that this case study provides some insight into all of the considerations that need to be made in building a realistic LBO model based on a case study in a Private Equity interview, and that the 9-step breakdown helps you simplify the task into easy-to-replicate and easy-to-execute steps.
BIWS vs. Wall Street Prep, Training the Street, Street of ...
Can You Share the LBO Modeling Tests and Case Studies? I shared a zip folder in the past with resources to learn financial modeling, mostly around the basics of building an LBO model, the theory aspect, and practice LBO modeling tests from private equity firms. However, Gofile removed the files because of some user submitted a complaint.
Infrastructure Private Equity: Deals, Interviews, Salaries, and Exits
Infrastructure Private Equity Salary and Bonus Levels. Now to the bad news: salary and bonus levels in infrastructure range from "a bit lower" to "quite a bit lower" than traditional private equity compensation because:. Management fees tend to be lower (1.0% to 1.5% rather than 2.0%).; Carry is still based on 20% of the profits and an ~8% hurdle rate, but since holding periods are ...
AI and Machine Learning in Private Equity: A Case Study
Nov 9, 2023 9:06:55 AM. Feat. Blueprint Prep, a New Harbor Capital portfolio company. In today's ever-evolving technological landscape, private equity firms must remain agile and adaptable to stay on top of advancing technology such as artificial intelligence (AI) and machine learning. AI has the power to revolutionize how private equity firms ...
The demise of Red Lobster is a perfect case study in how to kill a business
The move was not a smart one. While Red Lobster increased traffic somewhat, people coming in to chow down on all-you-can-eat shrimp was a money bleeder. The company blamed Endless Shrimp for its ...