Finance: Instructions for entering the world of Private Equity

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

Once in the post, I was able to discuss with the analyst, discover his paths and previous experiences. So I realized at that time that Private Equity could appeal to me and from my second part of the gap, I launched in this sector.

How do 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 allows complete a first bank financing and to carry out recruitment, development and growth projects.

In exchange for the sums invested, investment funds become shareholders of the company. In general, after 5 to 8 years, the Private Equity fund sells 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 can rather talk about a operation by investment cycle or by file. So there is a standard procedure that we can follow for a few months. It is done 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 usually carried out by the most “senior” people in the fund (investment director and partners) who must have an adequate address book to allow this “commercial” approach to be carried out.

  • Reception of the Info Memorandumwho 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, asking him for discussions with him.
  • Constitution of the investment note : When the previous step is completed and if the investor is ready to continue the process, he will establish an investment evaluation, which is a document of several pages where we want to all our analysis. 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 company directors. Return 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 and the percentage of the expected capital ).
  • When both parties agree, the process continues the drafting of the shareholders’ agreement which establishes the relationship between investors and managers.

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

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, managers, top managers)

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

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

Also, in some large funds, PE days can be similar to M&A days with schedules that can be tight. Although in general Private Equity allows you 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 with a permanent contract.

During the interview, we are often tested on our knowledge of business, on investment processes. Some technical problems on business valuation, modeling or accounting aspects are frequent. More rarely we may have questions regarding legal and tax issues.

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

Read more: What is screening?

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

My first advice, even if it seems obvious, would be to prepare as best as possible first, because the competition is fierce. I discussed with a headhunter in PE who told me to receive on average more than 300 CV 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 understand 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 consists of 5 modules around (i) understanding the investment process, (ii) interview questions, (iii) accounting aspects, (iv) valuation and finance issues, business and (v) legal aspects and fiscal

The training also includes several standard questions and Excel template cases that were interviewed.

Read more: Private Equity Blog

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