The Importance of Case Studies in Private Equity Interviews

The private equity case study is in the recruitment process for a reason – to see if you can think for yourself, says Gail McManus of Private Equity Recruitment. Its purpose is to make you answer one question: ‘Would you invest in this company?’[1]

To effect the study, the candidate will be given a ‘Confidential Information Memorandum’ (CIM) relating to a company the private equity fund could invest in. They will be expected to a) value the company, and b) put together an investment proposal – or not.

Sound easy? It isn’t.

“For many candidates, this can be one of the most challenging elements of the interview process,” says McManus.

The candidate needs to demonstrate that they can evidence the critical thinking required to succeed in the role.  The private equity case study should introduce variables internal to the company as well as elements related to the industry, the competition, external pressures, growth prospects, change of control, leverage and more.  The more sophisticated the PE case study, the more likely it will offer elements of differentiation between candidates.

For an experienced PE professional, these points are obvious as are all the subpoints they imply. A recent MBA can probably chat knowledgeably about all these concepts but may not have the knowledge or experience to assess them, particularly under the pressures of an interview. The use of the case study can be a powerful tool to separate out those who can think like investors from the theoreticians. The end decision [on whether to invest] is not important. The important thing is for the private equity candidate to show their thinking/logic behind each interview answer.

A way to add pressure to the case study process is to use a company that the firm is already invested in. This faces the candidate with the added issue of standing by their analysis vs. acquiescing to what the firm has already done, with no assurance that the numbers in the study are what the numbers were when the firm invested in or acquired the company. This adds an element of character or personality assessment to the technical aspects of the case study method.

Finally, let’s ponder an important question: why should Private Equity firms focus on Case Studies as part of the interview process?  After all, the firm already knows the candidate’s work experience, GPA and all their accomplishments. Why run the risk of scaring off so much good potential talent, or threatening their candidacy for the job with such a (seemingly) daunting interview component?

The key reason is that case studies are highly reflective of the daily work of a member of a PE firm. Thinking on their feet, being structured and articulate in communication, synthesizing information, and demonstrating their ability to respond well under pressure are all central to being effective in the industry. Case studies offer a method to evaluate who the firm believes will be the best among many qualified and talented candidates. In other words: it doesn’t matter how much “raw talent” the candidate may have—if they cannot succeed in the Case Studies portion of interviews, there is a good chance that PE may not be the right field for them.

[1] https://www.efinancialcareers.com/news/finance/how-to-handle-the-cunning-case-study-part-of-the-private-equity-interview

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