How do PE firms handle underperforming portfolio companies?
An advanced Private Equity question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
Escalation ladder: (1) Increase monitoring (weekly flash, board calls). (2) Deploy operating team for diagnostic (60-day sprint). (3) Replace management (CEO first, then CFO). (4) Restructure debt (extend maturities, PIK toggle, amend covenants). (5) Inject equity if thesis still valid. (6) Write down and manage for cash if thesis is dead. (7) Fire sale or restructuring as last resort. The worst thing: doing nothing and hoping it gets better.
WHAT INTERVIEWERS LISTEN FOR
- ✓Escalation ladder approach
- ✓Increase monitoring frequency
- ✓Deploy operating team
- ✓Replace management
- ✓Restructure or inject equity
COMMON MISTAKES
- ✗Doing nothing and hoping for improvement
- ✗Immediately firing management without diagnostic
- ✗Ignoring debt restructuring options
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