Private Equity interview preparation

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100

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83

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September 2026

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1. 072How does purchase accounting work in a buyout, and why does the goodwill matter?LBO mechanicsHardtechnicalLazardInvestment Banking · New York · 2026

   Say this

   The target's assets are written up to fair value, identifiable intangibles are recognised, and whatever is left of the purchase price becomes goodwill. The write-up creates extra depreciation and amortisation, which reduces reported earnings.

   Then walk it

   1. Start with the equity purchase price, add assumed debt, and allocate that total across the target's assets at fair value.
   2. Tangible assets get written up to market value. Identifiable intangibles are recognised separately: customer relationships, technology, trade names, order backlog, each with its own amortisation life.
   3. Whatever cannot be allocated becomes goodwill, which is not amortised but is tested annually for impairment.
   4. The earnings effect: the write-up of tangibles and the new intangibles both generate incremental D&A, which depresses reported net income for years after the deal even though the cash economics are unchanged.
   5. The tax question is what matters commercially. In a stock deal the step-up is usually not deductible, so the extra D&A is a book charge only. In an asset deal or with a 338(h)(10) election, the step-up is tax-deductible and creates a real cash tax shield, which is worth paying for.
   6. Also write off the target's existing goodwill and reset deferred taxes. And note that a deferred tax liability is usually created against the non-deductible write-up, which is a common modelling error to miss.

   Where candidates lose it

   Saying the step-up always creates a tax benefit. It only does in an asset deal or with a 338(h)(10) election. Distinguishing the book effect from the cash tax effect is the entire technical content of the question.

   Expect next

   • When is the step-up actually deductible?
   • What is the deferred tax liability doing there?
   • How does this change your accretion-dilution analysis?

   Reported by candidates at Lazard (Investment Banking, New York, 2026). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.