Module IV· Interview EssentialsAdvanced
Question
Explain the 'investment lifecycle' of a PE deal from sourcing to exit in 5 phases.
Answer
Mechanics
A PE deal typically runs through 5 phases over 5–7 years.
- Sourcing (ongoing): targets come from banker networks, advisors, family offices, and in-house sector teams.
- Due diligence & structuring (3–6 months): commercial, financial, legal, tax, ESG. Ends with the investment memo and IC approval.
- Transaction execution (1–3 months): from NBO to closing, in parallel with financing and regulatory clearances (foreign-investment screening, antitrust).
- Value creation (3–5 years): a 100-day plan, then add-ons and operational improvements.
- Exit (6–12 months): an auction with a sell-side advisor, proceeds flow to the LPs.
Deep diveShow more details
Phase details — what concretely happens
- Sourcing: A sector team screens around 100 targets per year and filters down to 5–10 active deals. In the middle market, family offices are especially important, because many owners sell directly to sponsors.
- Due diligence: In parallel run Q of E (quality of earnings), commercial DD, legal, and tax structuring with tax lawyers. The investment memo pulls all workstreams together and is approved by the investment committee.
- Transaction execution: From the non-binding offer through SPA negotiation and satisfaction of the closing conditions (antitrust clearance, foreign-investment screening for foreign investors) to closing. The debt documentation runs in parallel.
- Value creation: Value comes from three levers — EBITDA growth (organic and through add-ons), debt paydown via cash sweep, and multiple expansion at exit. Quarterly operating reviews steer performance.
- Exit: A sell-side advisor organizes an auction. Possible routes: a strategic buyer, a secondary buyout, an IPO, or a continuation vehicle (LPs reinvest in the same investment). Proceeds flow to the LPs as capital + carry.
Pitch tip
Question: "Walk me through a PE deal lifecycle"
Answer: "name the 5 phases with durations, then go a bit deeper on phase 4 (value creation) — that shows you understand the operational part and not just the transaction mechanics"