Buyout Equity Career Profile

Buyout Equity Career Overview

Private equity (PE) is a common career progression for investment bankers (IB). Analysts in IB often dream of “graduating” to the buy side, where they are many advantages, but hours are still extremely long and require extensive financial modeling work. Some roles in private equity are less client-facing/sales-oriented than investment banking; however, senior principals at PE firms do a lot of fundraising, which involves a good deal of relationship management.

Buyout equity jobs manage to attract top talent in the financial services sector. There are a number of key positions to fill at a private equity firm, and virtually all of them require experts in one field or another to fill the positions.

Private equity firms tend to be noticeably smaller, staff-wise, than investment banks, which translates to intense competition for a limited number of slots. Like investment banks, private equity firms usually have a clear staff structure between junior and senior personnel. Basically, those occupying senior executive positions, such as individual fund managers, are responsible for making key investment decisions, while less experienced junior-level personnel handle researching companies, writing reports, and preparing investment memos.

Because private equity firms expect to employ the cream of the crop, so to speak, they typically pay their employees top-dollar salaries and generous performance bonuses, which can be well above investment banking compensation. Private equity firms are among the highest-paying employers in the financial world.

Personality

The personality of someone well suited for working in buyout equity typically has the following character traits:

• Highly ambitious
• Competitive
• Detail-oriented
• Quantitative
• Problem solver
• Polished and presentable

Key Skills for Succeeding in Buyout Equity

There are a number of key skills the most successful players in the private equity business have in common. The first of these is solid business analysis skills. Private equity employees have to be highly skilled, both technically and intuitively, in order to evaluate companies as potential investments. In other words, PE employees need to think like investors. This is in contrast to investment banking, since the sell-side is more interested in doing deals and is not acquiring companies as a long-term investment. In addition, PE employees have to stay on top of the market and overall economic trends.

Specific technical skill requirements include:

• Financial modeling
• LBO modeling
• M&A modeling
• General financial analysis

People skills, such as management skills, communication skills, negotiating skills, and networking skills, are also critically important. Private equity investing is very much a team effort within the firm and also depends heavily on successfully interacting with other financial professionals outside the firm and with the personnel at the firm’s portfolio companies.

Getting into Buyout Equity

There are two main entry points into buyout equity: investment banking or an MBA program.

Associates are typically recruited from top MBA programs. They may or may not have prior banking experience. They usually spend two to three years as associates before they may be promoted to VP or move on to something else.

Associates are also frequently recruited from investment banks, where it is assumed that they have done a lot of financial modeling and valuation.

Most private equity firms rarely hire undergraduates directly out of college; however, some of the larger firms will hire analysts from top undergraduate programs.

Private Equity Jobs: Associates

Associates are usually the most junior professionals working at private equity firms. Many of them enter private equity work after having gained a couple of years of experience working for an investment bank.

Associate work consists mainly of research, due diligence, financial modeling, and report writing. Like analysts and associates in an investment bank, if they aren’t experts at preparing spreadsheets in Excel when they arrive, they become experts soon after arriving. One task typically assigned to associates is reviewing and summarizing confidential information memorandums (CIMs), which are documents produced by investment banks that contain information about potential investment opportunities.

Associates also assist senior personnel in tasks such as monitoring companies in the firm’s portfolio, sourcing deals, handling transactions, interviewing management and industry experts, working with accountants (who prepare a quality of earnings analysis), and reviewing credit documents from lenders.

At the end of the associate’s first two to three years, associates commonly embark on completing an MBA degree or, if they already have one, are promoted to positions of senior associates, vice presidents, or principals.

A day in the life of a buyout equity associate

A day in the life of an associate can vary depending on specific responsibilities, the size of the firm, and whether there is a transaction in the works. Associates will usually spend most of a typical day working on the model for a potential buyout. The associate will incorporate information from the CIM and discussions with management and industry experts to refine the model projections.

Additionally, the model will incorporate information on the debt the PE firm will raise to acquire the target company. This requires speaking with potential lenders and evaluating the lenders’ term sheets or credit agreements.

Associates will also monitor the performance of existing portfolio companies and report their findings to the PE firm’s vice presidents and/or managing directors.

Private Buyout Equity Interviews

Interview prep is critical for landing a job in PE. There are three main categories of questions in PE interviews: behavioral, technical, and prior deal experience. For behavioral and technical questions, check out our investment banking interview guide, which will bear a strong similarity to the types of questions you’ll be asked in PE interviews.

When talking about your deal experience, you should discuss it in a way similar to how you have it written on your resume. Start with a summary describing the main deal/overview, and then dive into two or three key issues or pieces of analysis that you played a big role in, and how they impacted the outcome of the deal.

Preparing for a Private Equity Career

A career in private equity can be highly rewarding, both financially and personally. Buyout equity managers often take a great deal of satisfaction from successfully guiding their portfolio companies to new, higher levels of profitability.

You can help yourself hit the ground running in the private equity business by arriving as an applicant at a firm with an MBA degree and several years of experience in the banking industry already under your belt.