The private equity case study is the modeling and judgment test at the center of PE recruiting. You get a target company, build or sketch a leveraged buyout, and defend a buy-or-pass recommendation. Firms use it to see whether you can price a deal, structure the debt, and reason like an investor under time pressure, not just move cells in Excel.
Key takeaways
- Three formats dominate: the 10 to 15 minute paper LBO, the 1 to 3 hour timed Excel modeling test, and the multi-day take-home case with an investment committee memo.
- The core mechanic is always the same: buy at an entry multiple, fund it with debt and equity, grow EBITDA and pay down debt, then exit at a multiple and measure the return.
- Returns are judged on IRR and MOIC. Most sponsors target roughly a 20 to 25 percent IRR and a 2 to 3x MOIC over a five-year hold.
- Interviewers weigh commercial judgment and a defensible recommendation as heavily as technical accuracy. A clean model with no thesis fails.
- Preparation is repetition. Drill paper LBOs until the math is automatic, then build full models against a timer.
The three case study formats
Firms pick a format based on stage, fund size, and how much of your raw thinking they want to see. Most candidates in a full recruiting cycle face at least two of the three.
| Format | Time | Where it shows up | What it tests |
|---|---|---|---|
| Paper LBO | 10 to 15 minutes | Live in interviews, on-cycle | Mental math, LBO intuition, speed |
| Timed Excel modeling test | 1 to 3 hours | Mega-funds and upper middle market, on-cycle | Excel accuracy, model structure, speed |
| Take-home case with IC memo | 2 days to 1 week | Smaller funds, off-cycle, growth equity | Research, thesis, written and verbal defense |
The paper LBO is done by hand or in your head with round numbers. There is no spreadsheet. The interviewer wants to see that you understand how an LBO actually generates a return, and that you can approximate an IRR without a calculator.
The timed modeling test hands you a prompt, raw figures, and often a template, then asks for a full LBO in Excel. Mega-funds like it because it is a clean speed-and-accuracy filter during a compressed on-cycle process. Expect a three-statement or simplified operating model, a debt schedule with a cash sweep, and a returns output.
The take-home case is the closest to real deal work. You get a company or a data room, several days, and a mandate to produce a model plus an investment committee style memo with a clear recommendation. Off-cycle processes and growth equity funds lean on this because it reveals sourcing instinct and written judgment.
The LBO mechanics every format rests on
Whatever the wrapper, you are pricing the same transaction. Learn this chain and you can rebuild any case from memory.
| Step | What you do |
|---|---|
| Entry valuation | Entry multiple x EBITDA = enterprise value (the purchase price) |
| Financing | Split the price into debt and sponsor equity |
| Hold period | Grow revenue and EBITDA, model interest, use free cash flow to pay down debt |
| Exit valuation | Exit multiple x exit EBITDA = exit enterprise value |
| Equity to sponsor | Exit enterprise value minus remaining net debt |
| Returns | MOIC = exit equity / entry equity; IRR = the annualized version of that |
Three levers drive the return: EBITDA growth, debt paydown, and multiple expansion. Conservative cases assume you exit at the same multiple you paid, so the return has to come from growing the business and deleveraging, not from betting the market rerates the company.
A worked paper LBO
Here is a simplified example with round numbers, the way you would sketch it live. The arithmetic is worked out so you can follow every step.
Entry. A company earns $100M in EBITDA. You buy it at a 10.0x entry multiple, so the purchase price is $1,000M. You fund it 60 percent debt and 40 percent equity: $600M of debt and a $400M equity check.
Hold. Over a five-year hold, EBITDA grows from $100M to $150M. Free cash flow over those five years pays down $200M of debt, leaving $400M of debt at exit.
Exit. You sell at the same 10.0x multiple you paid, a conservative assumption. Exit enterprise value is 10.0 x $150M = $1,500M. Subtract the $400M of remaining debt and the sponsor's equity is worth $1,100M.
Returns. MOIC is $1,100M / $400M = 2.75x. To annualize it, take the fifth root: 2.75 raised to the 1/5 power is about 1.224, so the IRR is roughly 22 percent.
That lands inside the range sponsors want. As quick reference points on a five-year hold, 2.0x is about a 15 percent IRR, 2.5x is about 20 percent, and 3.0x is about 25 percent. Memorize those three anchors and you can eyeball whether any paper LBO clears the bar. The Rule of 72 (72 divided by the IRR gives the years to double) is the fastest way to sanity-check the conversion without a calculator.
What interviewers actually score
The model is table stakes. What separates offers from rejections is judgment layered on top of correct mechanics.
| Dimension | What a strong candidate shows |
|---|---|
| Technical accuracy | Correct LBO structure, working debt schedule, returns that tie out |
| Commercial judgment | Sensible assumptions grounded in the business and its market, not arbitrary numbers |
| Recommendation | A clear buy or pass with the two or three reasons that actually drive it |
| Defense under pressure | Holding up when the interviewer pushes back on an assumption |
| Communication | Leading with the answer, then the support, in plain language |
A common failure is a beautiful model attached to no view. Firms invest, so they need to hear a decision. State your recommendation early, name the key value drivers and the main risks, and be ready to explain how the return changes if a core assumption moves. Sensitivity thinking, showing what happens to IRR when the exit multiple or growth rate shifts, signals that you understand where the money is really made and lost.
How to prepare
Preparation is less about memorizing theory and more about reps until the mechanics are reflex.
- Drill paper LBOs first. Run them until you can produce an approximate IRR in under 10 minutes with clean numbers. This is the foundation everything else sits on.
- Build full models against a timer. Recreate an LBO from a blank sheet, then from a prompt with raw data, under 1 to 3 hours. Speed comes only from repetition.
- Practice the memo and the verbal pitch. For take-home cases, write a one-page recommendation and rehearse defending it out loud. Structured programs from Wall Street Prep, Breaking Into Wall Street, and the Mergers and Inquisitions guides are the standard drilling grounds.
- Pressure-test your assumptions. For every input, be able to answer why. Interviewers probe the reasoning behind the number far more than the number itself.
- Know the return targets cold. If your case spits out a 9 percent IRR, you should immediately recognize it as a pass and be able to say so.
The case study rewards the same thing the job does: sound investment judgment expressed clearly and backed by a model that holds up. For where the role sits and how the career pays, see the private equity hub, the best degree for private equity, and the real estate private equity compensation report. If you are weighing the buyside path against earlier-stage investing, compare it with the venture capital associate route.
Frequently asked questions
What are the three formats of a private equity case study?
The three formats are the paper LBO, the timed Excel modeling test, and the take-home case with an investment committee memo. The paper LBO takes 10 to 15 minutes and tests mental math and intuition. The timed test runs one to three hours and filters for Excel accuracy and speed. The take-home spans two days to a week and reveals research and written judgment.
What IRR and MOIC do private equity sponsors target?
Most sponsors target roughly a 20 to 25 percent IRR and a 2 to 3x MOIC over a five-year hold. As quick reference points on a five-year hold, 2.0x is about a 15 percent IRR, 2.5x is about 20 percent, and 3.0x is about 25 percent. Memorizing those three anchors lets you eyeball whether any paper LBO clears the bar.
What are the three levers that drive returns in an LBO?
Three levers drive the return: EBITDA growth, debt paydown, and multiple expansion. Conservative cases assume you exit at the same multiple you paid, so the return has to come from growing the business and deleveraging rather than betting the market rerates the company. You buy at an entry multiple, fund it with debt and equity, then exit and measure IRR and MOIC.
What do private equity interviewers score besides the model?
Beyond technical accuracy, interviewers score commercial judgment, a clear recommendation, defense under pressure, and communication. A beautiful model attached to no view is a common failure, because firms invest and need to hear a decision. State your recommendation early, name the key value drivers and main risks, and show how the return changes if a core assumption moves.