The Private Equity Case Interview: Due Diligence Framework
Master the private equity case interview with a due diligence framework covering investment thesis, value creation, and exit strategy for any PE deal.
Private equity cases are high-stakes strategy cases with a financial lens. They ask you to evaluate a potential investment, determine whether the target can deliver the returns the fund requires, and recommend whether to proceed. These cases appear in interviews at consulting firms with active PE practices and are essential preparation for any candidate targeting McKinsey's private equity practice or serving PE clients at BCG or Bain.
This guide gives you a due diligence framework built around the questions PE firms actually care about, shows you how to connect operational analysis to financial returns, and walks you through how to structure your recommendation. After reading this, you will know how to approach any PE case with the analytical discipline that earns an offer. Reading the profitability case interview framework alongside this one is valuable — PE due diligence always involves a deep profitability diagnosis of the target, and the same diagnostic logic applies.
"In private equity, you don't buy a company. You buy a thesis. The due diligence is about stress-testing whether the thesis holds."
Why PE Cases Are Different from Standard Strategy Cases
Private equity cases add a return requirement constraint that changes everything.
Imagine you are evaluating a house to flip. A normal real estate agent asks: is this a good house? Is it priced right? Is the neighborhood attractive? A house flipper asks a different set of questions: what can I buy it for, what does it take to fix it up, what can I sell it for, and does the delta justify the capital I'm locking up for 12 months? The house flipper doesn't care whether the house is nice. They care whether the economics work.
PE cases work exactly this way. The target might be a genuinely excellent business. But if the entry price implies a return profile that doesn't hit the fund's hurdle rate (typically 20%+ IRR for a buyout fund), it is not a good investment regardless of business quality. Candidates who evaluate PE cases like strategy cases, without anchoring to the return requirement, miss the entire point.
The PE Due Diligence Framework: Five Questions
Structure your PE case around five questions: Is the thesis credible, what are the value creation levers, does the entry price work, what is the exit path, and what are the key risks?
Investment thesis. What is the theory of value creation? PE returns come from three sources: multiple expansion (buying at 8x EBITDA and selling at 12x), earnings growth (improving EBITDA during the hold period), and leverage (using debt to amplify equity returns). The best deals use all three. The thesis must specify which levers are primary and why this specific asset is positioned to deliver them.
Value creation levers. What specifically can the PE sponsor do to improve the business during the 4-6 year hold period? Revenue growth levers (new markets, new products, pricing), margin improvement levers (procurement, operations, cost structure), and financial engineering (optimal leverage, dividend recapitalizations). Each lever needs a magnitude estimate and a timeline.
Entry price and returns math. At the proposed purchase price, what IRR does the deal generate under base, upside, and downside scenarios? Back-of-envelope: if you buy at 10x EBITDA with 60% leverage, and EBITDA grows 15% per year for 5 years, and you exit at 12x EBITDA, the equity value roughly triples. Map the math before you recommend.
Exit strategy. PE returns are only realized at exit. What is the exit path? Strategic sale, secondary sale to another PE fund, or IPO? Each path has different buyer pools, different valuation dynamics, and different timeline assumptions. A business that has a rich universe of strategic buyers has better exit optionality than one with a narrow acquirer pool.
Key risks. What are the two or three assumptions in the investment thesis that, if wrong, would make this a bad investment? Identify them explicitly. A candidate who surfaces and quantifies the key risks demonstrates investment maturity. One useful check is to review the target's balance sheet for hidden liabilities, underfunded obligations, or off-balance-sheet commitments that could reduce the equity value the model assumes.
How to Open a PE Case on Interview Day
Your opening signals whether you understand the PE context or are treating this like a generic strategy case.
Lead with: "Before I structure the due diligence, I want to understand the investment context: what is the fund's target IRR, what is the proposed entry price as a multiple of EBITDA, and what is the anticipated hold period?" These three questions tell you the return hurdle, the entry valuation, and the time horizon, which are the three inputs that define whether any value creation plan actually works.
Then structure: "I'll evaluate the investment thesis, identify the primary value creation levers, build a rough returns model, assess the exit path, and flag the key risks. The goal is to determine whether this investment can realistically hit the fund's return target."
Practice this framework on a real case: the WeWork IPO 2019 case on BoardroomIQ puts you at the moment when one of the most aggressively valued startups of the decade attempted to go public and saw its valuation collapse under due diligence scrutiny. The gap between the investment narrative and the underlying unit economics is one of the most instructive PE analysis exercises available.
Practice this framework
Work through the WeWork 2019: The IPO Collapse case with AI coaching.
The Returns Math: Doing It Without a Spreadsheet
In a case interview, you need to be able to estimate deal returns in your head with reasonable accuracy.
Start with EBITDA at entry. Apply the purchase multiple to get enterprise value. Subtract debt to get equity value at entry. Then project EBITDA growth over the hold period. Apply an exit multiple (which may be different from the entry multiple) to get exit enterprise value. Subtract remaining debt to get exit equity value. Divide exit equity by entry equity, then convert to annualized IRR using the rule of thumb: 2x in 5 years is roughly 15% IRR, 3x in 5 years is roughly 25% IRR. When the value creation thesis relies primarily on future cash flows rather than current earnings, complementing the EBITDA model with a net present value analysis of the projected synergies gives you a more rigorous check on whether the deal creates value at the proposed price.
Practice this mental math until it takes under two minutes. It is the one quantitative skill that differentiates PE case performance more than any other.
How to Practice PE Cases Before Your Interviews
Exercise 1: Public deal deconstruction. Find a PE deal announcement in the financial press. Reverse-engineer the investment thesis from the press release and the reported purchase price. Estimate the IRR range under different EBITDA growth and exit multiple assumptions. This builds intuition for how deal structures translate to return profiles.
Exercise 2: Value creation lever identification. For any company you know well, identify three specific value creation levers that a PE sponsor could pull in a 4-5 year hold period. Estimate the magnitude of each lever as an improvement in EBITDA percentage. This builds the practical creativity that due diligence work requires.
Exercise 3: Risk stress-testing. Take a hypothetical investment thesis and identify the single assumption whose failure would make the deal a loss. Then quantify what "wrong" looks like: if the assumption is 30% off, what does the IRR look like? This type of sensitivity analysis is what separates good PE candidates from excellent ones.
The best way to practice private equity cases is under realistic pressure, with a case that fights back.