How would you assess a carve-out opportunity for PE?
An advanced Private Equity question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
Carve-outs are attractive (lower multiples, motivated seller) but risky (standalone costs unknown). Key questions: (1) What's the standalone EBITDA after removing parent overhead and adding replacement costs? (2) What's the TSA scope and cost? (3) Which contracts have CoC clauses? (4) Can the carved-out entity operate IT/HR/finance independently? (5) Is there a management team or do you need to build one?
WHAT INTERVIEWERS LISTEN FOR
- ✓Standalone EBITDA calculation
- ✓Transition Service Agreement (TSA)
- ✓Change of control (CoC) clauses
- ✓Operational independence assessment
- ✓Management team evaluation
COMMON MISTAKES
- ✗Ignoring standalone cost adjustments
- ✗Overlooking TSA dependency risks
- ✗Assuming existing contracts remain unchanged
Reading isn't the same as answering under pressure.
Interviewers don't hand you the model answer — you deliver yours on a clock. Practice this and 1,000+ questions with AI feedback on every answer.
RELATED QUESTIONS
- How do you handle a covenant breach?
- When would you use PIK (Payment-in-Kind) debt?
- What's the difference between an equity cure and a capital injection?
- How do PE firms handle underperforming portfolio companies?
- How does a PE fund handle currency risk in cross-border deals?
- What is a stapled financing and when is it used?