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Finance: The instructions for entering the world of Private Equity

Finance: The instructions for entering the world of Private Equity

When I did my first internship, I didn’t know exactly which business finance profession to turn to. So it was on the advice of friends and professors that I applied for investment banking. This allowed me to have a first experience in corporate finance, to be in contact with different departments and to form an opinion on what might interest me.

Once in post, I was able to discuss with analysts, discover their paths and previous experiences. So I understood at that time that Private Equity could please me and from my second part of the gap, I launched into this sector.

How would you define Private Equity?

Private Equity consists of invest in unlisted companies. Private Equity funds (also called investment funds) will become shareholders of the companies in which they invest.

The capital contributed to the company often enables it to complete a first bank financing and to carry out recruitment, development and growth projects.

In return for the sums invested, investment funds become shareholders of the company. Generally, After 5 to 8 years, the Private Equity fund resells its shares in the company seeking to generate a capital gain.

What are the main missions of a Private Equity investor? Is there a typical day?

The PE investor does not operate on a typical day. We could rather speak of a operation by investment cycle or by file. So there is a standard procedure that we will be able to follow for a few months. It takes place in several stages:

  • Origination / Prospecting : Exchanges with managers, business contributors which will allow the investor to be in contact with the most interesting companies for his fund.

This stage is generally carried out by the most “senior” people in the fund (investment director and partners) who will have an adequate address book to enable them to carry out this “commercial” approach.

  • Reception of the Info Memorendumwho is a document that summarizes the presentation of the company, its managers, its project. It is therefore the first basic information that the investor receives. This will lead the investor to meet the manager, ask him questions and discuss with him.
  • Constitution of the investment note : Once the previous step is completed and if the investor is ready to continue the process, he will establish an investment rating, which is a document of several pages where we come back to all of our analyses. It presents the company, its strategy, its market, its management, its financial history, its Business Plan, the expected profitability of the investment operation…
  • Drafting of the LOI (Letter of Intent) = It is a document intended for the directors of the company. He returns to the presentation of the investment fund, its qualities, its strengths and the contours of the offer (the price at which one is ready to buy the shares of the capital as well as the percentage of capital expected).
  • Once both parties agree, the process continues with the drafting of the shareholders’ agreement which establishes the relationship between investors and managers.

During his first 2-3 years, an analyst will mainly deal with the analysis of the Info Memorandum, the preparation of lists of questions upstream of the investment committee. He will be called upon to participate in the drafting of the investment note and the development of the Business Plan. Subsequently, he can also be mobilized on the LOI and attend legal exchanges for the implementation of the shareholder pact.

What are the advantages and disadvantages of Private Equity?

I would say the first benefit is the interest of the profession and human contacts : We support companies in the different phases of their development, their search for growth and job creation. It is also a job that allows you to interact with key positions in a company (financial managers, executives, main managers)

The second advantage concerns the interest of the missions. We are led to analyze companies under different spectra (market, competition, strategy, financial, legal, tax, etc.)

Regarding the disadvantages, it is true that the multiplicity of analysis criteria makes the job demanding technically. It is also a very selective job because it is coveted by many juniors.

Moreover, in some large funds, PE days can be similar to M&A days with schedules that can be dense. Although generally Private Equity makes it possible to better reconcile professional and personal life.

How does the Private Equity recruitment process work?

Obviously, the process of recruiting an intern is less demanding than that of an analyst on a permanent contract.

During interviews, we are often tested on our understanding of the business, on the investment processes. Some technical questions on business valuation, modeling or accounting aspects are frequent. More rarely we can have questions concerning legal and tax matters.

Finally, we can also have Excel modeling cases to be completed in a limited time. These cases are more often requested from candidates for permanent positions.

Read more: What is screening?

Finally, do you have any advice/tips for a candidate taking an interview in PE?

My first piece of advice, even if it seems obvious, would be to prepare as well as possible beforehand, because the competition is fierce. I discussed it with a headhunter in PE who told me to receive on average more than 300 CVs for each CDI offer in PE.

As such, when you are lucky enough to be called back, whether for an internship or a permanent contract, you have to realize the opportunity you have and do absolutely everything you can to transform the interview. . This obviously requires good preparation for the technical aspects of the job.

During the interview, it is obviously necessary show his motivation for the activity but also for the fund, understand his strategy and study the companies in which he has invested.

It is precisely to help finance students and juniors in their preparation for Private Equity interviews that I launched the Invest Prep training. This is made up of 5 modules around (i) understanding the investment process, (ii) interview fit questions, (iii) accounting aspects, (iv) valuation and finance questions. business and (v) legal and tax aspects.

The training also includes many standard questions and Excel modeling cases that have been interviewed.

Read more: Private Equity Blog

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