A paper LBO is a quick, pen-and-paper returns calculation, usually under 10–15 minutes, that tests whether you understand leveraged buyout mechanics and can do mental maths. A PE case study is broader: a timed or take-home exercise where you assess a business, often build a model and give an investment recommendation. Most private equity processes include several of these stages, so prepare for all of them.
Where do these exercises sit in PE recruiting?
Private equity associate recruiting typically includes a headhunter screen, fit questions, deep discussion of your past deals, technical questions, a paper LBO, a modelling test and a case study, although each firm combines them differently. On-cycle recruiting is compressed, headhunter-driven and can move from first interview to offer within days. Off-cycle recruiting is slower and runs year-round.
Timing has been volatile. Business Insider reported that Apollo, General Atlantic and TPG paused on-cycle recruiting in mid-2025 after JPMorgan's Jamie Dimon criticised future-dated hiring of junior bankers, and that more than a dozen firms, including Blackstone, Apollo, KKR and Thoma Bravo, restarted the process with most interviews on 5 January 2026, with some running into the following day. Business Insider also quoted an Apollo spokesperson: "We generally fill less than 50% of our class in on-cycle recruiting." Timelines can change suddenly, so be technically ready early.
What is a paper LBO?
A paper LBO asks you to work out an approximate internal rate of return (IRR) and multiple of invested capital (MOIC) from a few assumptions, without Excel. You'll usually be given:
- Entry EBITDA and an entry multiple
- Leverage (debt as a multiple of EBITDA, or a percentage of price)
- Revenue or EBITDA growth and margins
- Holding period and exit multiple
- Sometimes tax, capex and working capital assumptions to estimate free cash flow
A worked example (illustrative numbers)
- Entry EBITDA £50m at 10.0x gives an enterprise value of £500m.
- Debt of 6.0x EBITDA is £300m, so sponsor equity is £200m (ignoring fees for simplicity).
- EBITDA grows to £70m by year 5, exit at 10.0x gives exit EV of £700m.
- Cumulative debt paydown from free cash flow is £150m, so remaining debt is £150m.
- Exit equity = £700m − £150m = £550m.
- MOIC = £550m ÷ £200m = 2.75x.
- IRR: 2x in five years is roughly 15%, 3x is roughly 25%, so 2.75x is about 22%. (More precisely, 1.224⁵ ≈ 2.75.)
What are interviewers looking for?
- A correct sources-and-uses logic (price = debt + equity)
- The three return drivers: EBITDA growth, multiple expansion and deleveraging
- Clean, quick arithmetic and sensible rounding
- Commentary such as "most of the return comes from EBITDA growth, not multiple expansion, which is healthier"
Learn the IRR shortcuts: a doubling over 3 years is about 26%, over 5 years about 15%. A tripling over 5 years is about 25%.
What is a PE modelling test?
Commonly a timed Excel exercise, often reported as one to three hours, where you build an LBO from a prompt: operating model, debt schedule, returns and sometimes sensitivity tables. Some firms add complications such as add-on acquisitions, dividend recaps or PIK (payment-in-kind) debt. Accuracy and a clean, checkable structure beat elaborate formatting.
What is a PE case study?
Case studies vary the most:
- In-person or timed case: you receive a CIM (confidential information memorandum) extract or company pack and have a few hours to build a model and prepare a recommendation.
- Take-home case: typically longer, sometimes days, with an investment memo and model.
- Discussion case: an open-ended "Would you invest in this business?" conversation, closer to a consulting case.
What makes a strong case study answer?
- Investment thesis: why this business, why now, and why we can make money.
- Key risks and mitigants: customer concentration, cyclicality, leverage capacity.
- Returns analysis: base, upside and downside cases.
- Diligence questions: what you'd need to verify.
- Clear recommendation: invest, pass, or invest at a different price or structure.
How do PE case studies relate to consulting cases?
The commercial thinking overlaps heavily. Market attractiveness, competitive position and the sustainability of margins are classic consulting questions, and many PE firms use consultants for commercial due diligence. The difference is that PE cases always come back to returns and risk to capital. Practising consulting-style business assessment is good preparation for the qualitative half. An AI case partner such as caize.ai can run due-diligence-style cases where you assess a target's market and economics, which complements your modelling practice.
How should you practise?
- Paper LBOs: do many, timed. Aim to finish simple ones in under 10 minutes.
- Modelling tests: build several LBOs from a blank workbook under time pressure.
- Case studies: practise writing a one-page investment memo on a real listed company using public filings.
- Deal discussions: prepare to talk about every deal on your CV in depth: rationale, valuation, your role and what you'd do differently.
FAQ
Do all PE firms give a paper LBO?
Not all, but it's very common, especially in early or compressed rounds. Assume you'll get one.
Can I use a calculator for a paper LBO?
Usually not. Practise mental shortcuts for multiplication and IRR.
How long is a typical modelling test?
It varies widely, commonly one to three hours in person, with longer take-homes. Check with your headhunter.
Is a PE case study like a consulting case?
Partly. The business assessment overlaps, but PE cases centre on returns, leverage and downside protection.
