Private equity cases: how to decide whether to buy the company

What is a private equity case interview, and is it the same as an LBO test?

It is a consulting case whose client happens to be an investor. A private equity fund has been offered a company, or is thinking of bidding for one, and wants an outside view before it commits money. You are the consultant. You have about thirty minutes to say whether the fund should go ahead, at what price, and what could go wrong.

That is different from the modelling test a fund gives its own analyst candidates. A PE fund's test is normally a spreadsheet or paper exercise: sources and uses, a debt schedule, a returns table, built against a clock. Nobody in a consulting interview asks you to build one. What you get is a spoken case, some numbers you work by hand, and an interviewer watching whether your judgement holds up when the price is on the table. If you are preparing for a buyout fund's recruiting, this guide will help with the thinking but not with the model, and we would not pretend otherwise.

Why do the firms use it? Because it puts the whole case interview into one question. You need a structure (the frameworks guide covers the general skill), market thinking, a small piece of arithmetic on profit, and a recommendation someone could act on. It is also close to real work. Bain describes its private equity practice as advising funds through commercial, operational and technology due diligence, and its M&A practice as helping corporate buyers test a deal thesis and plan integration (both descriptions come from Bain's own pages, listed at the foot of this article). Candidate reports and prep sites commonly describe Bain as the firm most likely to give you a PE case. Bain's interview page itself says only that cases reward precision and creativity and that there is not necessarily a single right answer, so treat the firm-by-firm claim as folklore that happens to be common.

What do private equity and due diligence prompts sound like?

The wording varies, but the prompts come in three shapes. The blunt one is "our client is a private equity fund and is considering acquiring Target X, should they?" The second is a commercial due diligence brief: the fund has done its own numbers and hired you to test the market and the customers, so your job is narrower. The third is a strategic acquirer, a company rather than a fund, asking whether buying a competitor makes sense, which brings synergies into the picture.

Underneath all three sit the same five questions. Is the market attractive? Is the target strong within it? Can the buyer create value that the seller has not already priced in? What could break the deal? And what is the price, and who will buy it from us afterwards? Each question becomes a branch of your structure in the next section. If a prompt only names one of them (a due diligence brief often names the first two), say so and ask whether price and exit are in scope. The answer changes your plan, and asking is a mark of commercial instinct, not a delay.

Some cases are interviewer-led: the interviewer sets each question and hands you data as you go. Our Yumeji Onsen case is built that way. A Tokyo mid-market fund is offered a group of twelve family-run hot-spring inns and has a week to decide whether to bid. If you have not met the format before, the interviewer-led guide explains how to keep your structure alive when someone else is driving.

How do you structure a due diligence case?

Build the structure around the decision, not around a checklist. The decision is "buy at this price or not", and a buyer's return comes from only a few places, so five branches cover it: the market, the target's position in it, the ways value can be created, the risks that would end the deal, and price with exit. Say the top-level question in your opening line so the interviewer can see the branches hang from one thing.

Notice that the tree ends in a price. A frequent slip is to build a beautiful analysis of the market and the target and then run out of time before saying what the business is worth. A candidate can be right about everything qualitative and still fail the case, because the client did not ask whether the business is good. The client asked whether to pay the asking price for it.

The market branch is quick, and the target branch is where you find the story

Spend a minute or two on the market: is demand growing, is the profit pool healthy, is anything coming that could break it? Then move on. The target branch is where cases are usually decided, because the same market can hold a strong business and a weak one. Ask what the target does better or worse than its peers, in numbers: occupancy, price, margin, retention. A company running below peer performance in a healthy market is often an under-managed asset, which is the situation buyers most like to pay for. A company running below peers in a shrinking market is a different story with a different price.

Value creation is four levers, and one of them is usually a trap

A fund earns a return from four sources. It can grow revenue, improve the margin, sell at a higher multiple than it paid, or pay down the debt it borrowed. Growth and margin together raise EBITDA, which is the real engine. Debt paydown is mechanical: the business's cash repays the loan, and that repayment goes to the fund's side of the ledger. The multiple is the one to be suspicious of. Bain's Global Private Equity Report 2026 frames the current market around the point that low prices, cheap debt and easy multiple expansion cannot be assumed any more, so deals need faster EBITDA growth to earn the same return. In an interview, assume the exit multiple is equal to or lower than the entry multiple unless you can say what has made the business more valuable. A candidate who assumes a higher exit multiple without saying why is borrowing returns from a future nobody has described.

How do you value the target in a PE case?

The interview version is one line: enterprise value equals EBITDA times a multiple. EBITDA is profit before interest, tax, depreciation and amortisation, a rough stand-in for the cash a business throws off from operations. The multiple is what buyers have recently paid per dollar of that profit, often for comparable companies. If a business earns $30 million of EBITDA and comparable deals happen at 8 to 9 times, it is worth somewhere between $240 million and $270 million. The interviewer will usually hand you the multiple, or ask you to reason to a sensible range.

We will use one example through the rest of the article, so the numbers connect. A regional dental-clinic chain (invented, all figures illustrative) has $200 million of revenue and a 15% EBITDA margin, so $30 million of EBITDA. The seller is asking $300 million, which is 10 times EBITDA. Comparable deals sit at 8 to 9 times, and the market is growing at about 4% a year. The fund wants to double its money in five years, borrows four times EBITDA ($120 million) to pay for the deal, and expects to repay $30 million of that by the time it sells.

Start with the price against the range. At 10 times the ask is above the 8 to 9 times comparables, roughly 18% above the price you would get at 8.5 times ($255 million). That is not automatically wrong, since a better-than-peer business deserves a premium, but it means the fund is paying for something. The case is to find out what.

Notice what that screen did. In two minutes and four lines of arithmetic it turned a question about whether the business is good into a question about what has to be true, which is how a PE partner thinks. The ask stops being a fact and becomes a bet, and you can say how big.

How do you calculate money multiple and IRR in your head?

The fund cares about two returns measures. The money multiple (MoM) is the cash it gets back divided by the cash it put in, and it is most of what an interviewer wants. The internal rate of return (IRR) is the yearly rate that turns the money in into the money out over the hold. It penalises slow exits, which is why funds care about it.

You can compute the first one to the decimal. For the second, you want a rule of thumb you can say without a calculator: doubling your money in five years is roughly 15% a year. Precisely, 2 to the power of one fifth is 1.149, so 14.9%. Doubling in three years is about 26%, and in four years about 19%. Tripling in five years is about 25%. The table below is worth memorising in outline, not by digit.

The chart shows the five-year column on its own, because that is the hold you will be given most often. Notice how slowly the rate climbs: going from 2.0x to 3.0x adds only about ten points of IRR.

Now we can give the dental chain a proper return. The fund pays $300 million with $180 million of its own equity. Five years later EBITDA is $44.1 million (8% a year growth from $30 million), and the business sells at 8.5 times for $374.7 million. Subtract $90 million of remaining debt and the fund gets $284.7 million. That is a money multiple of 1.58x on $180 million, or about 9.6% a year. At the ask, the fund would be growing profit by 8% a year, a healthy rate, and still not reach two times its money.

The next calculator does the same job on the fund's side. Money multiple is the one number you will compute most often in a PE case, so it is worth having a feel for how it moves.

That last line is the lesson. The same business, the same plan, the same exit: 1.58x at $300 million and 2.11x (about 16% a year) at $255 million. The business did not get better. The price did. When a partner says "the price is the only thing we control", this is what they mean.

Where do the returns come from?

Take the 1.58x outcome and ask where the $104.7 million of gain came from. It splits into three pieces that add up to the full amount, and seeing them is the fastest way to a good answer on value creation.

Growth produces more than the whole gain, and the multiple takes a large part of it back because the fund paid 10 times and sells at 8.5. So the business has to grow well just to make up for an entry price above the market. Debt paydown is small only because we assumed $30 million of repayment. If the interviewer asks what else could raise the return, the answer is a better price, faster growth, or a higher margin, and you should be able to point at each line of this table and say how big it would need to be.

Borrowing deserves a plain explanation because candidates freeze on it. When the fund borrows $120 million and puts in $180 million, it owns a $300 million business with a smaller cheque, so each dollar of equity is exposed to more of the business's profit growth. That helps if the business does well and hurts if it does not: a business that fell short, for instance, would leave the lenders repaid first and the fund with the remainder. Debt magnifies whatever happens. For a case, say it that way and note that a business with steady cash flow can carry more debt than one with volatile profits.

The other lens on value creation is the one Bain wrote about for funds in 2019: treat strategy, operations and commercial excellence as one investigation rather than three, because a cost cut in one place can damage growth somewhere else. In an interview, that means never proposing a margin lever without asking what it does to revenue.

How is a strategic acquirer case different from a private equity one?

The change is the buyer. A fund pays for a business's own profit and hopes to improve it. A company pays for the target's profit plus whatever the two businesses can do together, which are synergies. That extra value can justify a higher price, and it is also the easiest number in the case to inflate.

Here is the arithmetic. Suppose a larger clinic group buys the dental chain and expects to remove $6 million a year of overlapping costs. That is about 3.5% of the chain's $170 million cost base ($200 million of revenue less $30 million of EBITDA), which is plausible without being heroic. At 8.5 times, $6 million of extra EBITDA is worth $51 million. Getting there costs, say, $9 million of one-off integration spending, so the net value is $42 million. The standalone value is $255 million, so the most the buyer could pay before it destroys value is about $297 million. If it pays the $300 million ask, it has handed over all the synergies and a little more, and taken all the risk for none of the reward.

A sensible stance is to offer the seller a share of the synergies and keep the rest, for instance paying about $276 million (half of the $42 million on top of $255 million). Treat that as a negotiating position that you state as your own view, since no rule fixes the split. Two cautions for the interview. Cost synergies are far more believable than revenue synergies, so discount the second heavily or leave them out. And phase them in: synergies rarely arrive on day one. Bain's own material on strategic buyers puts weight on how feasible synergies are, where the risk sits and what the timing should be, which is a fair account of what an interviewer wants to hear.

How does a private equity partner listen differently?

Most MBB interviewers are watching for structure and judgement in general. When the case is a PE case, the interviewer is often imagining the client's investment committee, and that committee listens in three ways that differ from a strategy case. Numbers come first, because a claim without a number is a story. Downside comes before upside, because a fund can lose its money and only ever makes a multiple of it. And there is one question in the room that a strategy discussion rarely asks out loud: what would make you walk away?

Answer that last question before you are asked. Halfway through your analysis, say something like "the deal-breaker for me is customer concentration; if one customer is more than a quarter of revenue and cannot be locked in, I would not bid at this price." That sentence does more for your commercial credibility than a page of upside. The number is yours to set, and you should say it is a judgement.

The other habit to build is using ranges without hiding behind them. If the multiple could be 8 or 9, work both and say which you would use. If growth could be 4% or 8%, show what each does to the return. A partner is not looking for a point estimate; they are looking for whether you know which assumption the answer is most sensitive to. In the dental chain, that is price, and it is worth saying aloud.

What does a strong go or no-go answer sound like?

A thirty-minute PE case has a rhythm, and knowing it stops you spending eight minutes on the market. The timeline below is what we would expect from an interviewer-led version; a candidate-led one has the same stages, and you choose the pacing.

The close is where many candidates lose the last of the marks. You have the numbers; now you have to commit. A strong close does four things: a clear recommendation, a price, the conditions that must hold, and the next step. Here is what that sounds like for the dental chain.

Look at how the script is built. The answer comes first. The price is a number, and it is tied to a return. The conditions are things you can check, not general worries. The walk-away is stated aloud. It takes under a minute, and it is the version an investment committee would want to hear.

What mistakes do candidates make in PE and due diligence cases?

These are the patterns we see across the transcripts we mark, and they cluster around the same few habits.

• Loving the business and forgetting the price. The most frequent one. The candidate builds a case for why the target is excellent and never asks what it costs. Strong cases stay attached to a number.
• Banking multiple expansion. Assuming the fund sells at a higher multiple than it paid, without saying what changed. It inflates the return and a partner spots it at once.
• Skipping downside. Giving the upside case only. Even a good deal has a version where it goes wrong, and the interviewer wants to hear you have thought about it.
• Using a generic framework. Reciting the four-box market entry checklist for a deal question. A due diligence structure ends in price and returns; a generic one does not.
• Mixing units. Millions with billions, or yen with dollars, in a case where the numbers are large. Say the unit each time you state a figure.
• Stopping at "it depends". A recommendation with conditions is right; a refusal to recommend is not. Give the answer, then the conditions.
• Treating IRR as a mystery. You only need the rule of thumb: about 15% a year for double in five. Being able to say it calmly is worth more than a precise figure you have to stop to work out.

Practise this out loud, because the failure points are mostly in the talking: staying with the decision, saying units, committing. The case maths guide covers the arithmetic drills, the profitability guide covers the profit logic every deal case borrows, and the market entry guide covers the market branch in more depth. If Bain is your target, our Bain case interview guide sets out what its cases tend to look like. Voice practice with an AI coach cannot replace a human partner for everything (a good peer will push back in ways we do not yet match). For repetition of the two-minute screen and the spoken close, a coach who marks against the published rubric is a fair place to start. Our coaches are AI personas built by ex-MBB interviewers, and we are not affiliated with McKinsey, BCG or Bain.