Private Equity LBO Modeling Tests: The Interview Presentation, How to Practice, and How the Test is Evaluated

Let’s continue our conversation (from the last post) about the private equity LBO modeling test. The LBO modeling test is used by many, perhaps most, PE firms both large and small as part of the interview process to test 3 things:

  • Finance knowledge
  • Excel modeling skills
  • Executive presentation / communication skills

This is a short series that covers the “who” and “what” of the LBO modeling test, the specific components of the LBO modeling slide presentation, delivering the oral presentation to your interview committee, how to practice for the LBO modeling test, and how the modeling test is evaluated in the context of other recruiting considerations.

This post is about how to deliver the oral presentation of your investment thesis to the interview committee, how to practice for the LBO modeling test, and how the modeling test is evaluated in the context of other recruiting considerations. You can see other posts in this series here:

In the last post, I covered the specific components of the LBO modeling slide presentation. Next comes the oral presentation to the investment / recruiting committee.

Oral presentation 

When you deliver your oral presentation, your audience might be to just 1 investment professional or it might be all the partners of the firm. Whatever the size of the interview committee, the firm is not concerned with your actual recommendation as it is with your ability to reason and defend your conclusions thoughtfully.

In this regard, your communication skills are extremely important — more so than perfecting your model or understanding technical finance minutiae. You need to be able to state your recommendation clearly and unequivocally, as well as explain your supporting points simply, concisely, and compellingly.

So you should focus relentlessly on your investment recommendation, and only the most important supporting points (while addressing key risk factors). Do not get bogged down in details; do not say to your interviewers “if you look on page 132 of the investment memorandum….” No – you should be able to tick the key points off in your head for the various deal trade-offs without needing to reference anything more than your short slide deck.

To be sure, much of your presentation quality relates to your public speaking skills. Here are some tips that have always served me well.

  • Speak twice as slowly as you normally would (this may feel unnatural to you, but it will NOT feel strange to your audience), make sure you pause at natural moments to allow your audience to absorb the points you just made, and make eye contact with your interviewers (if there are multiple audience members, be sure to make eye contact with each person every few seconds to keep them engaged)
  • Write memory-jogging bullet points on your slides to remind you what your key points are, but do not write down your presentation verbatim
  • Do a practice dry-run no matter what before you present, even if you only have 5 minutes to practice. Five minutes to collect your thoughts and rehearse your key points is infinitely better than inventing your presentation live and on-the-fly.

 

How to practice 

The LBO modeling test is certainly not for the faint of heart. There are a lot of moving pieces, and a lot of skills tested through the exercise: technical finance and accounting knowledge, Excel modeling skills, consulting-style macro / market analysis skills, slide presentation skills, and oral communication skills. Candidates who do well on the LBO modeling test tend to have practiced beforehand — plain and simple.

You should spend some time doing at least a couple practice iterations of the entire exercise end-to-end — yes, that means reading through an investment memorandum, actually going through the exercise of building a model, creating presentation slides, and then presenting orally (to friends and colleagues if possible, otherwise in front of the mirror).

Try to get a sample investment memorandum (ask a friend in banking if you don’t have direct access to one) and go through the exercise steps detailed above. (Alternatively, you could also just download the 10-K for a public company you don’t know well, and use that as the raw material for your practice test.)

Try to work through the key parts of the LBO model, referencing online resources or asking banking friends for help if you get stuck. See how fast you can get your modeling time down to, and try to systematically decrease the time it takes for you to build a model from scratch.

Do the same exercise with the market / industry analysis portion (which should be easier because little modeling is needed here), as well as rapidly creating your slides, formulating your investment thesis, and collecting your thoughts for your oral presentation.

Then practice delivering your oral presentation to get a feel for the pacing and flow, and where you need to be mindful about how much time you are spending getting through your points, etc.

 

How the LBO modeling test is evaluated 

The modeling test definitely counts for a lot in the evaluation of your candidacy, but you should always keep in mind that it is not the only thing determining whether you get an offer. PE firms tend to have many interview rounds, and since they are generally quite small and can afford to be selective, personal fit is as important (arguably even more important) than your modeling test performance.

To be sure, everyone needs to clear a certain bar for the modeling test, but between a good “tester” with great personal fit vs. an awesome “tester” with poor personal fit, I can’t tell you if one WILL ultimately get an offer, but I can tell you which one will NOT be getting an offer.

So keep in mind that PE interview prep must be balanced between your facility in going through the rigorous LBO modeling test and your personal fit / story for why you want to work in PE and why this firm feels like the next logical step for your career.

Be sure not to neglect the personal fit portions or nailing down the “why” behind your story. Most candidates have poorly thought-out stories for why they made certain career choices and where their careers are going, because they simply haven’t spent quality time thinking about what they actually want to do with their careers, and instead have been chasing the crowd into investment banking, management consulting, private equity and other jobs simply because those things sound prestigious and cool.

But the last thing PE firms need is yet another candidate trying to get into PE because it sounds prestigious and cool — those candidates tend to flame out once the novelty wears off and there is just hard work and long hours remaining, and they are consequently unlikely to perform well at a PE  firm.

So make sure you get your story down cold, you are personable in your interviews, and you perform reasonably well on your LBO modeling test. With those things in place, you will stand a good chance of getting an elite PE offer no matter how many other candidates you are competing against!

 

Found this series useful?

Check out our step-by-step PE modeling training videos for walk-through tutorials on how to build an LBO model, navigate Excel with ruthless efficiency, and rapidly create an LBO PowerPoint deck to present to your PE interviewers.

Also check out our PDF guide “How to Nail Your Private Equity Interview (whether you have finance training or not)” for much more in-depth tips and strategies on how to successfully interview for top private equity jobs!

Andrew Chen

Andrew Chen received an associate offer, without any formal LBO experience, on his first attempt at applying for private equity investing positions in the competitive San Francisco Bay Area. He worked for Huntsman Gay Global Capital, the Bain Capital spin-out founded by the industrialist Jon Huntsman, former Bain Capital Chairman Bob Gay, former San Francisco 49ers Superbowl quarterback Steve Young, and including former CFO of Citigroup and American Express Gary Crittenden. Andrew was previously a member of the Corporate Finance & Strategy Practice at McKinsey & Company and holds a J.D. from Harvard Law School. You can follow him on Twitter and .

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