Private Equity interview preparation

Questions

100

Traced to a firm

83

Firms

40

Updated

September 2026

Asked at

All firmsAdvent International6Apollo Global Management6Audax Group6Carlyle Group6EQT6Silver Lake6Vista Equity Partners6WPWarburg Pincus6HIH.I.G. Capital5Oaktree Capital Management5Platinum Equity5TPTPG5General Atlantic4AMAres Management3Blackstone3Clayton Dubilier and Rice3GSGuggenheim Securities3Insight Partners3Invesco3Lazard3Neuberger Berman3NUNuveen3TSTruist Securities3Bain Capital2HWHarris Williams2Kohlberg Kravis Roberts2Millennium Management2Moody's2Rothschild & Co2WBWilliam Blair2Bessemer Venture Partners1Citi1Evercore1FTFranklin Templeton1Houlihan Lokey1HPS Investment Partners1KKR1Mizuho1MSMorgan Stanley1Sycamore Partners1

Topic

All topicsLBO mechanics7Value creation5Returns2Fund economics9Investment judgement18Valuation6Firm knowledge2Credit and financing9Operations4Due diligence8Career and fit11Sector knowledge4Accounting2Deal structuring7Industry knowledge3Brainteasers3

Level

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Type

AnyTechnicalCaseFitMarket viewBrainteaser

1. 048What is an earnout and when would you use one?Deal structuringIntermediatetechnicalMiddle-market private equityM&A

   Say this

   Deferred consideration contingent on the business hitting agreed targets. You use it to bridge a valuation gap when the buyer does not believe the seller's forecast and the seller will not accept a lower price.

   Then walk it

   1. The mechanism: part of the price is paid at closing and the rest depends on performance over one to three years, usually against revenue or EBITDA targets.
   2. It resolves genuine disagreement. The seller says growth will continue; the buyer is sceptical. An earnout lets each be paid according to what actually happens.
   3. It also retains the seller, which matters most in founder-led and people-dependent businesses where the relationships walk out of the door.
   4. The problems are well known. Revenue-based earnouts incentivise selling at any margin. EBITDA-based earnouts create arguments about cost allocation, because the buyer now controls the accounting. Integration is often delayed to keep the earnout measurable, which destroys value.
   5. So the documentation has to be very precise: exactly how the metric is defined, what the buyer may and may not do during the period, dispute resolution, and treatment on a subsequent sale.
   6. My own view: earnouts solve a negotiation problem and create an operating problem. For a business you intend to integrate immediately, a lower price with no earnout is usually cleaner than a higher price with one.

   Where candidates lose it

   Describing the mechanics without the misalignment problem. The reason experienced buyers dislike earnouts is that they constrain what you can do with the business during the period, and that is the answer worth giving.

   Expect next

   • Revenue or EBITDA based, and why?
   • What if the buyer wants to integrate immediately?
   • How would you handle a dispute?
2. 049What is a working capital peg and why does it matter?Deal structuringHardtechnicalTransaction services

   Say this

   It is the normalised level of working capital the business is expected to be delivered with. At completion, actual working capital is compared to the peg and the price adjusts dollar for dollar for the difference.

   Then walk it

   1. The purpose: a buyer pays an enterprise value on the assumption that the business comes with enough working capital to operate normally. Without a peg, a seller could collect receivables and stop paying suppliers before closing, extract the cash, and hand over a business that immediately needs funding.
   2. Setting it: usually the average monthly working capital over the last twelve months, adjusted for seasonality and for any abnormal items. The twelve-month average is the standard, precisely because it is harder to manipulate.
   3. The adjustment: if actual working capital at completion exceeds the peg, the buyer pays more; if it falls short, the price reduces. It is a true-up, not a negotiation.
   4. Where the money is: the definition of what counts as working capital versus debt-like items. Deferred revenue, accrued bonuses, capex creditors and customer deposits are all argued over, and each can be worth millions.
   5. The seller's incentive is to set the peg low and deliver high. So in diligence you build your own normalised figure from monthly data rather than accepting the seller's average.
   6. And it interacts with the locked box alternative: in a locked box deal there is no completion adjustment at all, the price is fixed at a historic balance sheet date and the buyer takes the risk from then, which is common in Europe.

   Where candidates lose it

   Not knowing this exists. It is unglamorous and it is where real money moves at completion. Naming the debt-like items argument, and the locked box alternative, marks out someone who has been on a live deal.

   Expect next

   • What is a locked box and when would you prefer it?
   • Which items are argued over as debt-like?
   • How would you set the peg for a seasonal business?
3. 050What is a locked box, and when would you prefer it to completion accounts?Deal structuringHardtechnicalEuropean private equityM&A

   Say this

   The price is fixed by reference to a historic balance sheet date, and the buyer takes the economic risk and reward of the business from that date. No completion accounts, no true-up, just a prohibition on value leaving the box.

   Then walk it

   1. Mechanics: pick a locked box date with audited or reviewed accounts, fix equity value from that balance sheet, and the seller warrants that no value has leaked out since, other than agreed permitted leakage.
   2. The buyer usually pays interest on the price from the locked box date to completion, compensating the seller for the cash the business generated in between.
   3. Advantages: price certainty on both sides, no lengthy post-completion accounting dispute, and a faster, cleaner process. It also works well in an auction, because bids are directly comparable.
   4. It requires reliable accounts at the locked box date and a short gap to completion. The longer the gap, the more risk the buyer takes on performance it cannot control.
   5. Leakage is the key negotiation: dividends, management fees, related-party payments, bonuses. Permitted leakage is defined narrowly and anything else is recoverable pound for pound.
   6. When to prefer each: locked box in a competitive European auction with good financials and a short signing-to-closing gap; completion accounts where the gap is long, where regulatory approval is needed, or where the financial reporting is not reliable enough to trust a historic balance sheet.

   Where candidates lose it

   Not knowing the term, which is common for candidates who have only seen US deals. Also missing that the buyer takes the risk from the locked box date, which is the whole economic substance of the structure.

   Expect next

   • What counts as leakage?
   • Who bears the risk between the locked box date and completion?
   • Why is it more common in Europe than the US?
4. 057What is warranty and indemnity insurance and why has it become standard?Deal structuringHardtechnicalM&A

   Say this

   An insurance policy that covers breaches of the seller's warranties, so the buyer claims against the insurer rather than the seller. It gives the seller a clean exit and gives the buyer a solvent counterparty.

   Then walk it

   1. The problem it solves: a private equity seller wants to distribute proceeds to its limited partners and close the fund, not hold an escrow for two years against possible warranty claims.
   2. How it works: the buyer takes out a policy, typically covering up to 20 to 30 percent of enterprise value, with a retention or excess of around half a percent to one percent of deal value. Premium is usually one to two percent of the cover.
   3. Benefits to the buyer: recourse against an insurer with a credit rating rather than against a dissolved fund or a founder who has spent the money.
   4. Benefits to the seller: a nominal one-pound indemnity, no escrow, and clean proceeds. That is worth real money to a fund and is often reflected in the price.
   5. The limits matter: known issues identified in diligence are excluded, as are typically pension underfunding, transfer pricing, environmental matters and forward-looking statements. So it does not remove the need for diligence, and the underwriters will read your diligence reports.
   6. It became standard in the mid-2010s and is now the default in European sponsor-to-sponsor deals. Knowing that it is the norm rather than an exotic option is the mark of someone who has seen live processes.

   Where candidates lose it

   Not knowing it exists, or thinking it removes the need for diligence. It does the opposite: underwriters require thorough diligence and exclude anything you already found. It transfers residual risk, not known risk.

   Expect next

   • What does it typically exclude?
   • Who pays the premium in practice?
   • How does it change the negotiation of the sale agreement?
5. 082What is the difference between an asset deal and a share deal, and which would a sponsor prefer?Deal structuringIntermediatetechnicalMSMorgan StanleyInvestment Banking · Hong Kong · 2025

   Say this

   Buyers prefer asset deals for the tax step-up and the ability to leave liabilities behind; sellers prefer share deals for a single layer of tax and a clean exit. Most sponsor deals end up as share deals with indemnity protection instead.

   Then walk it

   1. Asset deal: you choose the assets and liabilities you take, and you get a stepped-up tax basis you can depreciate, which is a real cash tax shield.
   2. Share deal: you take the entity whole, with its history, its liabilities and its existing tax basis. Simpler mechanically, riskier legally.
   3. The seller's tax position usually decides it. A corporate seller in an asset deal can face tax at the entity level and again on distribution, which is why they resist. An individual seller often gets capital gains treatment on a share sale.
   4. Practical friction: asset deals require every contract, licence, permit and employee to be transferred or novated, and some consents cannot be obtained. For a business with thousands of customer contracts that is often prohibitive.
   5. So in practice most sponsor transactions are share deals, and the buyer manages the inherited liability risk through warranties, indemnities, specific escrows and warranty and indemnity insurance rather than through structure.
   6. The middle ground in the US is a 338(h)(10) or 336(e) election, which treats a share sale as an asset sale for tax while avoiding the contractual transfer problem. The tax cost to the seller is usually shared through the price.

   Where candidates lose it

   Stating the preferences without explaining that practicality usually overrides them. Most large deals are share deals despite the buyer preferring assets, and knowing why, plus the 338(h)(10) workaround, is what makes the answer complete.

   Expect next

   • How do you quantify the value of the step-up?
   • How do you protect against inherited liabilities in a share deal?
   • What is a 338(h)(10) election?

   Reported by candidates at Morgan Stanley (Investment Banking, Hong Kong, 2025). Source: Wall Street Oasis.

6. 088How would you think about a minority investment where you do not have control?Deal structuringHardtechnicalGeneral AtlanticGrowth Equity · New York · 2022

   Say this

   You are underwriting the majority owner as much as the business, because you cannot force an outcome. So the protections in the shareholders agreement and the alignment on exit matter more than in a control deal.

   Then walk it

   1. The core risk is that you cannot force a sale, cannot change management, and cannot compel a dividend. Your return depends on someone else deciding to create a liquidity event.
   2. So the exit provisions are the most important terms: tag-along rights so you sell alongside the majority, drag-along thresholds, a put option after a defined period, and sometimes a contractual IPO or sale commitment by a date.
   3. Governance protections: board representation, information rights with defined reporting, and reserved matters requiring your consent, typically changes to the capital structure, related-party transactions, major acquisitions and disposals, and the budget.
   4. Economic protections: a liquidation preference so you rank ahead of the founder's equity, anti-dilution protection on a down round, and pre-emption rights to maintain your stake.
   5. Then the qualitative underwriting: does the majority owner actually want to sell within your horizon, and are your interests aligned? A founder who wants to run the business for thirty years is a bad partner for a fund with a ten-year life, whatever the business quality.
   6. And be realistic about enforcement. Contractual rights against a controlling shareholder in a jurisdiction with slow courts are worth much less on paper than they look, which is why the relationship and the reputation of the counterparty carry real weight.

   Where candidates lose it

   Listing legal protections without acknowledging that enforcement is imperfect and alignment matters more. In practice, minority investors rarely litigate their way to an exit; they rely on having picked a partner who wants the same outcome.

   Expect next

   • What is a drag-along and a tag-along?
   • How would you get liquidity if the founder refuses to sell?
   • How does a liquidation preference work?

   Reported by candidates at General Atlantic (Growth Equity, New York, 2022). Source: Wall Street Oasis.

7. 089How does a liquidation preference work, and why does it matter?Deal structuringHardtechnicalGrowth equityVenture capital

   Say this

   It determines who gets paid first on an exit. A 1x non-participating preference means the investor takes the greater of their money back or their pro rata share of the proceeds, whichever is higher.

   Then walk it

   1. Non-participating 1x: on a sale, you choose either your invested capital back, or convert to ordinary shares and take your percentage. You take whichever is more, so you are protected on the downside and share proportionally on the upside.
   2. Participating: you get your money back AND your pro rata share of the remainder. That is far more aggressive and it takes value from the founders at every outcome, which is why it is contentious.
   3. Multiples above 1x, say 2x or 3x, appear in distressed or late-stage down rounds and are punitive. They are a signal that the company was raising from a position of weakness.
   4. Seniority between rounds matters: a later round often ranks ahead of earlier ones, so in a modest exit the newest investor is paid first and earlier investors and founders can receive nothing.
   5. The consequence people miss: a company can sell for a headline number that sounds like a success while the founders and employees receive nothing, because the preference stack absorbs the proceeds. That is why the stack, not the valuation, determines outcomes.
   6. So when you see a high valuation on a late-stage round, always ask what preference was attached. A high price with a 2x participating preference is a worse deal for existing holders than a lower price with a clean 1x.

   Where candidates lose it

   Only knowing the 1x non-participating case. The examinable insight is the preference stack across rounds and the fact that a high headline valuation with aggressive terms is worse than a lower clean price.

   Expect next

   • What happens to the founders in a modest exit?
   • Why would an investor accept a lower valuation with cleaner terms?
   • How does anti-dilution interact with this?

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.