Private Equity Case Interview Guide: LBO Basics, Deal Screening, Commercial Due Diligence, and Worked Examples (2026)

A private equity case interview asks you to evaluate whether to acquire a target company, at what price, and whether the deal can deliver a 20%+ IRR — typically 2.5–3.0× MOIC over a 5–7 year hold. Unlike consulting case interviews that reward strategic breadth, PE cases demand a binary buy/don't-buy decision backed by LBO math, commercial due diligence, and a credible exit thesis. Private equity managed approximately $8.6 trillion in assets globally as of 2024, with firms like KKR, Blackstone, and Apollo hiring candidates who combine rigorous market analysis with financial modeling. The standard PE case structure covers 4 layers: market assessment, competitive position (commercial due diligence), financial profile and entry valuation, and exit strategy with return analysis.

PE Case Interview vs. Consulting Case Interview: The Core Difference

The framing matters more than you think. Most candidates who come from consulting backgrounds make the same mistake: they spend 80% of their time on qualitative analysis and forget to anchor their answer in a return target. Candidates from banking backgrounds make the opposite error — they get lost in the numbers and can't articulate why the business is worth buying.

According to eFinancialCareers, "consultants are often too focused on the qualitative elements and bankers are too focused on getting the numbers right." The PE interviewer wants both — in the right proportion.

Here's how the two case types differ structurally:

The deepest conceptual difference: "The difference between a good business and a good investment is the price." A great company at a 20x EBITDA multiple might be a terrible investment. A mediocre business at 5x EBITDA might be a home run if you can cut costs and exit at 8x. PE interviews test whether you can hold both ideas simultaneously.

The 4-Layer Deal Screening Framework

When you receive a PE case prompt — whether live or as a take-home CIM — structure your analysis across four layers. These map directly to what a real investment team evaluates before an IC (Investment Committee) presentation.

Layer 1: Market Assessment

Start here because a structurally bad market kills even great businesses. Ask:

• Size: Is the addressable market large enough to justify a PE-scale investment? For most mid-market deals ($100M–$1B EV), you want a TAM of at least $5B.
• Growth: Is market revenue growing, flat, or declining? CAGR of 5%+ provides a tailwind that helps you exit at a higher multiple than you entered.
• Cyclicality: Healthcare and software are relatively non-cyclical. Industrial manufacturing and retail are highly cyclical — PE funds avoid full-cycle downturns eating into IRR.
• Regulatory risk: Changes in regulation (e.g., healthcare reimbursement changes, environmental compliance) can destroy value unpredictably.

According to Baker Tilly's framework for market diligence, the three core pillars are: market conditions, competitive landscape, and customer preferences — a useful structure for your verbal answer.

Layer 2: Competitive Position

This is the commercial due diligence layer. We'll expand it in its own section below, but at a screening level ask: what's the moat?

A company with no identifiable moat is dangerous for PE — without pricing power, you're dependent entirely on financial engineering to generate returns.

Layer 3: Financial Profile

Pull these numbers from the CIM data room (or the case prompt):

• Revenue growth: 3-year CAGR. Distinguish organic from acquisition-driven growth.
• EBITDA margin: And the trend direction. Expanding margins = operational leverage. Contracting margins = structural problem.
• Free cash flow conversion: EBITDA × conversion rate (typically 60–80%). High capex businesses eat into FCF and limit debt paydown.
• Working capital cycle: Negative working capital (collect before you pay) is a cash engine. Extended receivables are a warning sign.
• Leverage capacity: Most lenders will provide 4–6× EBITDA in debt for quality businesses.

Layer 4: Exit Strategy

The exit is how LPs get paid. You need a credible exit path before committing capital:

• Strategic buyer: Who in the industry would acquire this asset and pay a strategic premium (typically 1–2x additional multiple turns)?
• Secondary PE: Another PE fund acquires after you — works if the business is still growing and there's more operational upside.
• IPO: Viable only for large ($500M+ revenue), high-growth businesses with clean financials.

LBO Basics: The Math You Must Know

An LBO (leveraged buyout) is the defining transaction type in private equity. The mechanics are simpler than most candidates think.

Core concept: Acquire a company using mostly debt (50–80% of purchase price), improve the business over 5–7 years, pay down debt with free cash flow, then sell at a higher valuation. The equity holders — the PE fund — capture the difference between entry equity value and exit equity value.

According to Wall Street Prep's LBO primer, debt typically constitutes 50–80% of purchase price in a standard LBO, meaning post-acquisition debt/equity ratios often exceed 1.0x.

The LBO Return Drivers (Memorize These)

Returns in an LBO come from three sources — ranked by typical contribution:

1. Debt paydown (~40%): Every dollar of debt paid off by FCF is a dollar of equity gain at exit. This is the "compounding" effect of leverage.
2. EBITDA growth (~35%): Organic growth + operational improvements increase the exit EBITDA base.
3. Multiple expansion (~25%): Buying at 7x and selling at 9x adds 2 turns of EBITDA to your exit equity. This is market-dependent and the riskiest assumption.

Paper LBO — The Mental Math Format

Many first-round PE interviews use a paper LBO: a 5–30 minute calculation on pen and paper. Corporate Finance Institute describes the format as a simplified version of the full LBO model used to test whether candidates can quickly assess deal returns without Excel.

Standard paper LBO setup:

• Entry EBITDA: $50M
• Entry multiple: 8×
• Debt: 5× EBITDA ($250M debt, $150M equity)
• Hold period: 5 years
• EBITDA growth: $10M/year (reaches $100M at exit)
• Exit multiple: 9×
• Debt paydown: $100M over 5 years (assumes ~$20M FCF/year applied to debt)

Paper LBO calculation:

This is an exceptional deal — real-world targets are 2.5–3.0× MOIC (≈20–25% IRR). Use the MOIC-to-IRR approximation table in interviews:

A 20%+ IRR is the industry standard threshold for most PE funds. If your deal can't clear that hurdle, it fails the basic investment test.

For mental math fluency with the calculations PE cases require, read our guide to mental math shortcuts for case interviews — the same number skills apply directly.

Commercial Due Diligence: The Consulting Layer of PE Cases

This is where consulting candidates have a natural edge — if they know how to deploy it correctly.

Consulting firms are frequently hired by PE firms to conduct commercial due diligence on acquisition targets. Investment banks handle financial DD; law firms handle legal DD; consultants assess the market opportunity and competitive position. CDD answers the fundamental question: is the business model defensible after acquisition?

CDD Framework: Five Commercial Questions

The Customer Concentration Warning Sign

One metric interviewers love to stress-test: customer concentration. If the top 3 customers represent 50%+ of revenue, there's existential risk in every contract renewal. When evaluating a PE target:

• Healthy: Top 10 customers < 30% of revenue, churn < 5% annually
• Acceptable: Top 10 customers 30–50% of revenue, multi-year contracts in place
• Red flag: Single customer > 20% of revenue with no long-term contract

This connects directly to our PE due diligence framework — one of the most detailed standalone guides on structuring diligence analyses for deal interviews.

Worked Example: Full PE Case Walkthrough

Case prompt: Your PE firm is evaluating an acquisition of MedTrack, a software company that provides scheduling and compliance tools to outpatient physical therapy clinics. Current financials: $40M revenue, $12M EBITDA (30% margin), growing at 12% annually. Asking price: $96M (8× EBITDA). The seller wants a decision in 3 weeks.

Should you invest?

Step 1: Market Assessment

• TAM: US outpatient PT market: ~35,000 clinics × ~$3,000/yr software spend = ~$105M addressable market. MedTrack has ~$40M revenue = ~38% market share — high, but the market is underpenetrated (many clinics still use paper).
• Growth drivers: Rising demand for outpatient care vs. inpatient (cost pressure on hospital systems), aging population, ACA-driven coverage expansion for PT services. Market growing ~8–10%/year.
• Cyclicality: Healthcare software is among the most recession-resistant verticals — clinics don't stop operating during downturns.
• Assessment: Strong market backdrop. ✓

Step 2: Competitive Position

• MedTrack has 38% market share in a fragmented space (next competitor at ~15%).
• B2B SaaS for healthcare has high switching costs — migrating scheduling + compliance data is painful.
• NPS is 72 (above industry average of 45 for healthcare software). Customer churn: 4%.
• Assessment: Durable competitive position. ✓

Step 3: Financial Profile & Entry Valuation

Entry structure:

• Purchase price: $96M
• Debt: 5× EBITDA = $60M
• Equity: $36M

Step 4: Exit Analysis (5-Year Hold)

• EBITDA at year 5: $12M growing at 12%/yr ≈ $21M (compounding: 12 × 1.12⁵)
• Exit multiple assumption: 10× (SaaS businesses with high retention command premium multiples)
• Exit EV: $21M × 10× = $210M
• Debt paydown: $9M FCF/yr × 5 years = $45M repaid → remaining debt = $15M
• Exit equity: $210M – $15M = $195M
• MOIC: $195M / $36M = 5.4×
• IRR (5-year): ≈ 40%+

Recommendation: Strong invest. Even with a conservative 8× exit multiple and slower 10% EBITDA growth, MOIC is ~3.5× (≈28% IRR) — well above the 2.5× hurdle. The key risk is customer concentration in larger clinic chains; mitigation is negotiating multi-year contracts as a closing condition.

This type of rapid sensitivity analysis is what separates candidates who have genuinely internalized PE logic from those who've memorized frameworks. The same discipline applies in M&A case frameworks — knowing how to stress-test valuation assumptions in a live interview.

What PE Interviewers Are Actually Testing

Beyond the framework and the math, Mergers & Inquisitions notes that PE interviews test a specific set of skills that go beyond case interview basics:

1. Investment judgment: Can you distinguish a great company from a great investment? High-quality businesses at premium prices often return less than mediocre businesses bought at value prices.

2. Defensibility under pressure: Peak Frameworks emphasizes that "the worst thing you could do is not pick a side." You need a clear thesis and you need to defend it when challenged.

3. Return orientation: Every qualitative statement must connect back to value creation. "They have strong brand loyalty" → "which supports pricing power" → "which should sustain 30% EBITDA margins at exit" → "which gives us confidence in an 8–9× exit multiple."

4. Structured communication: Deal summary presentations follow a standard sequence: investment thesis → market and competitive analysis → financial profile → transaction structure → risk/mitigation → recommendation. Practice delivering this in under 3 minutes.

How PE Cases Differ by Firm Type

If you're targeting KKR's student programs or Blackstone's campus recruiting, expect a rigorous multi-round process with both behavioral and technical case components. Consulting PE practices lean more heavily on commercial analysis and are closer to the case interview format you may already know.

Preparation Plan

Related Frameworks and Articles

The PE case interview sits at the intersection of several skill areas. If you're systematically building this knowledge:

• Our PE due diligence framework digs into the operational and financial diligence layers in depth — highly relevant for round 2 take-home cases.
• The M&A case framework covers synergy analysis and deal structure questions that overlap significantly with PE investment cases.
• Profitability framework cases build the margin analysis discipline you need for assessing EBITDA improvement potential.
• Market entry frameworks translate directly to market assessment questions in deal screening.
• For cases requiring rigorous market sizing (e.g., "estimate the TAM for this software vertical"), our market sizing guide walks through the structured approach.

Test Your Knowledge

Interactive Drills

Sources and Further Reading (checked March 15, 2026)

• Hacking the Case Interview — PE case guide: https://www.hackingthecaseinterview.com/pages/private-equity-case-interview
• Mergers & Inquisitions — Private equity interviews: https://mergersandinquisitions.com/private-equity-interviews/
• Wall Street Prep — LBO model basics: https://www.wallstreetprep.com/knowledge/basics-of-an-lbo-model/
• Wall Street Prep — Paper LBO guide: https://www.wallstreetprep.com/knowledge/paper-lbo/
• Corporate Finance Institute — Paper LBO tutorial: https://corporatefinanceinstitute.com/resources/career/paper-lbo/
• Preqin — 2025 Global Private Equity report: https://www.preqin.com/insights/global-reports/2025-private-equity
• McKinsey — Global Private Markets report: https://www.mckinsey.com/industries/private-capital/our-insights/global-private-markets-report
• Bain & Company — Global PE Report 2025: https://www.bain.com/insights/outlook-is-a-recovery-starting-to-take-shape-global-private-equity-report-2025/
• Baker Tilly — Three aspects of market diligence for PE: https://www.bakertilly.com/insights/three-aspects-of-market-diligence-private-equity-firms
• Consultport — Commercial due diligence case study: https://consultport.com/resources-library/case-study-commercial-due-diligence-private-equity/
• Peak Frameworks — Deal summary guide: https://www.peakframeworks.com/post/deal-summary
• eFinancialCareers — PE case study interview: https://www.efinancialcareers.com/news/private-equity-case-study-interview
• KKR student careers: https://www.kkr.com/careers/student-careers
• Blackstone student recruiting: https://www.blackstone.com/careers/students/