Private equity due diligence cases are among the most complex case types in consulting interviews. PE-related consulting revenue has grown at roughly 12-15% annually over the past decade, and firms with strong PE practices — including Bain (PE work accounts for an estimated 40%+ of revenue), L.E.K., and OC&C — test these cases heavily. A PE due diligence case combines strategic analysis with financial reasoning: you need to assess whether a business is worth buying and how to create value after acquisition.
What Is a PE Due Diligence Case?
A PE due diligence case simulates a real consulting engagement where a private equity fund is considering acquiring a target company and has hired your firm to evaluate the deal. Your job is to answer one central question: Should the PE fund invest, and at what price?
This differs from a standard M&A case in three important ways:
| Dimension | Corporate M&A | PE Due Diligence |
|---|---|---|
| Buyer’s goal | Strategic fit, synergies | Financial returns (20-25% IRR) |
| Time horizon | Indefinite (buy and integrate) | 3-7 year hold, then exit |
| Value creation | Primarily synergy-driven | EBITDA growth + multiple expansion + deleveraging |
| Key question | “Does the target complement our business?” | “Can we generate 2-3x return on invested capital?” |
The Commercial Due Diligence (CDD) Framework
Commercial due diligence is the core analytical framework for PE cases. It answers: “Is this a good business in a good market?” In our experience coaching candidates, structuring your CDD around five dimensions provides both completeness and clarity.
1. Market Assessment
Market assessment determines whether the industry is attractive and growing. PE firms want to invest in markets with secular tailwinds — not businesses that need to fight for every point of growth.
Key analyses:
- Market size and growth rate: Is the market growing at 5%+ annually? What are the underlying drivers?
- Market structure: Fragmented (consolidation opportunity) or concentrated (hard to gain share)?
- Regulatory landscape: Are there barriers to entry that protect the target, or regulatory risks that threaten it?
- Secular trends: Technology shifts, demographic changes, or policy developments that could accelerate or disrupt growth
Based on our analysis of PE case data, approximately 60% of interview PE cases involve a target in a growing market — but the strongest candidates also consider what would happen if market growth slowed.
2. Competitive Position
Competitive position analysis determines whether the target can maintain its market share and margins over the PE fund’s hold period of 3-7 years.
- Market share and trajectory: Is the target gaining or losing share? A company with 25% share in a fragmented market has more runway than a 60% player in a mature market.
- Competitive moats: Brand, scale, network effects, switching costs, or proprietary technology. Key test: “Could a well-funded competitor replicate this within 3 years?”
- Threat assessment: New entrants, substitutes, and disruptive technologies. Interviewers value candidates who proactively raise disruption risk.
3. Customer Analysis
Customer analysis evaluates the quality and sustainability of the target’s revenue base.
| Metric | What It Tells You | Red Flag Threshold |
|---|---|---|
| Customer concentration | Revenue dependency on top clients | Top 10 customers > 50% of revenue |
| Retention / churn rate | Revenue predictability | Annual churn > 15% for B2B |
| Net revenue retention | Expansion within existing accounts | Below 100% (customers shrinking) |
| Switching costs | Stickiness of the product | Low switching costs + commodity product |
| Customer satisfaction (NPS) | Forward-looking indicator of retention | NPS below 30 |
A target with 90%+ gross retention, low customer concentration, and high switching costs represents a defensible revenue base — exactly what PE firms look for.
4. Financial Performance
Financial analysis in a PE case goes deeper than revenue and profit. PE firms evaluate the quality and sustainability of earnings.
- Revenue growth trajectory: Consistent 8-15% organic growth is PE’s sweet spot. Hyper-growth (30%+) carries execution risk; flat growth limits return potential.
- EBITDA margin and trends: Expanding, stable, or declining? What drives the trend?
- Cash flow conversion: EBITDA must convert to free cash flow. Examine working capital and capex intensity. Rule of thumb: FCF conversion above 70% of EBITDA is healthy.
- Revenue quality: Recurring vs. one-time? Subscription revenue is more valuable than project-based.
- Capex requirements: Asset-light businesses (software, services) generate higher ROIC than asset-heavy ones (manufacturing, infrastructure).
5. Value Creation Plan
The value creation plan is what separates a good PE case answer from a great one. PE firms do not simply buy and hold — they actively improve the businesses they acquire.
| Value Creation Lever | Typical Impact | Timeline | Risk Level |
|---|---|---|---|
| Revenue growth (organic) | 5-15% annual growth | Ongoing | Moderate |
| Pricing optimization | 2-5% margin improvement | 6-12 months | Low |
| Cost reduction | 3-8% margin improvement | 6-18 months | Low to moderate |
| Add-on acquisitions | 20-50% revenue step-up | 12-36 months | Moderate to high |
| Working capital optimization | Improved cash conversion | 3-6 months | Low |
| Management upgrades | Varies | 3-12 months | Moderate |
Based on our analysis, the strongest PE case answers propose 2-3 specific value creation levers with quantified impact. For example: “We could improve EBITDA margins by 3-5 percentage points through procurement consolidation and operational efficiency, while pursuing 2-3 add-on acquisitions to expand the geographic footprint.”
LBO Basics for Consulting Interviews
You do not need to build a full LBO model in a consulting interview, but you should understand how PE firms generate returns. An LBO (leveraged buyout) uses significant debt to fund an acquisition, amplifying equity returns.
Key mechanics:
- Entry valuation: Entry EBITDA multiple x EBITDA = Enterprise Value. Typical entry multiples: 8-12x EBITDA.
- Capital structure: Typically 40-60% equity, 40-60% debt. Higher leverage amplifies returns but increases risk.
- Three sources of return: (1) EBITDA growth through revenue and margin expansion, (2) Multiple expansion — exit at a higher multiple than entry, (3) Debt paydown using free cash flow.
- Target returns: 20-25% IRR and 2-3x MOIC over a 3-7 year hold period.
Quick example: PE fund acquires a company for $500M at 10x EBITDA ($50M), using $200M equity and $300M debt. Over 5 years, EBITDA grows to $75M, debt falls to $200M, exit at 11x. Exit EV = $825M. Equity = $825M - $200M = $625M. MOIC = 3.1x.
Structuring Your PE Case Answer
Follow this sequence when you receive a PE case:
- Clarify the setup. Who is the PE fund? What is the target? What stage of diligence are we at?
- Assess market attractiveness. Size, growth, structure, regulatory environment.
- Evaluate competitive position. Market share, moats, threats.
- Analyze customers. Concentration, retention, switching costs.
- Review financial performance. Revenue growth, margins, cash conversion.
- Propose a value creation plan. 2-3 specific levers with quantified impact.
- Give a recommendation. “Invest” or “Pass,” with 2-3 supporting reasons and a proposed valuation range.
For hands-on practice, explore financial services cases and M&A cases in our case library, which include PE-style due diligence scenarios.
Common Pitfalls in PE Cases
| Pitfall | Why It Hurts | How to Avoid |
|---|---|---|
| Treating it like a standard strategy case | Misses the financial return lens | Always anchor on “Will this generate 20-25% IRR?” |
| Ignoring the exit | PE is about buying AND selling | Discuss exit options: IPO, strategic sale, secondary buyout |
| Overcomplicating the LBO math | Wastes time and increases error risk | Use simple round numbers; show the logic, not a spreadsheet |
| No value creation plan | Shows passive analysis, not PE thinking | Propose 2-3 levers with quantified margin or growth impact |
| Forgetting downside scenarios | PE investors are risk-aware | Mention 1-2 key risks and how they could be mitigated |
Key Takeaways
- PE due diligence cases are among the most complex interview case types, testing both strategic thinking and financial reasoning simultaneously
- The CDD framework covers five dimensions: market assessment, competitive position, customer analysis, financial performance, and value creation plan
- PE returns come from three sources: EBITDA growth, multiple expansion, and debt paydown — with target IRRs of 20-25% over a 3-7 year hold
- The value creation plan differentiates strong answers from average ones; propose 2-3 specific, quantified levers
- Customer metrics (retention > 90%, low concentration, high switching costs) are leading indicators of revenue defensibility
- Always discuss the exit strategy — PE investments are time-bound, and the exit is where returns are realized
Build your PE case skills with focused practice. Browse M&A and PE-related cases in our library, or sharpen your analytical speed with a timed AI Mock Interview that challenges your due diligence structuring and financial reasoning.