Private equity associates are the workhorses of the private equity team. They are typically closest to the financial modeling, analytical work, and diligence that private equity firms perform. Being closest to the investments makes being a private equity associate a very demanding but rewarding role.
Private equity associates are responsible for supporting the evaluation, execution, and management of investments made by their private equity firms. Some of their key responsibilities may include:
Private equity associates may be staffed to help source new deals and add-on acquisitions for portfolio companies. To source, associates email and cold-call executives from potential targets on an acquisition list that fits the investment fund’s strategic priorities. Private equity associates performing sourcing duties are more common at growth equity firms given the smaller size of acquired companies. At larger private equity firms, more senior team members may oversee sourcing through their professional contacts.
Initial Investment Screening
After a senior team member or associate has sourced a potential new investment, the associate is tasked with taking a first look at the target company. This initial analysis usually involves reading through the target’s investor presentation (Confidential Information Memorandum – CIM) and making an initial decision on whether it is worth it for the firm to continue to spend time and effort analyzing the company.
After a team decides to go forward with an investment, private equity associates are integral to the research and diligence that go along with deciding whether to make the investment or not.
1. Market Research: The associate is a key team player performing market research. Associates conduct calls with industry experts, gather and digest market research from banks and consulting firms, and summarize their findings in emails and writeups.
2. Financial Modeling: An integral part of the diligence process is creating and maintaining the LBO (Leveraged Buyout) model. The associates will start with the model provided by management to put together a preliminary model. As the diligence process goes further, the associate will update assumptions and improve the model to reflect the views of the investment team more accurately.
3. Management & Company Diligence: To help the firm come to a view of the target company, private equity teams have long diligence sessions where they ask the company about different aspects of the business model. It is the associate’s job to help come up with and compile a list of diligence questions to ask the management.
4. Managing Third-Party Vendors: Private equity firms hire third-party consultants, accountants, lawyers, etc. to help them diligence a new investment. These experts are crucial to helping the private equity team diligence areas of the company and market the team is not familiar with or just need manpower to complete. Associates typically help manage the workstreams the third-party vendors are helping with. To do this, associates communicate with the vendors, review their work and presentations, and give guidelines for what the private equity team wants to see in their reports.
Investment Memo Writing & Presentation
Throughout the diligence process, private equity teams will go to the investment committee to present their pitch to acquire the target company. Associates are integral in writing the investment memo for the team. While some of the more senior team members may drive the outline and key points of the memo, the associate is usually in charge of the financial analysis and modeling in the investment memo. Associates are typically closest to the model and are expected to write the pages that outline the potential returns of an investment. Depending on the practices of the fund, associates may be expected to present part or all of the investment committee memo.
Portfolio Company Monitoring and Reporting
Aside from finding new investments, private equity associates spend a considerable amount of time monitoring and reporting on the portfolio companies the fund has invested in. Each associate is typically tasked with monitoring a handful of portfolio companies.
One of the most important tasks that associates help their portfolio companies with is add-on acquisitions. A key driver of many private equity investments is acquiring smaller companies and merging them with the portfolio company. Associates help the portfolio company with finding these companies, performing diligence, and closing the transaction. Associates’ experience in sourcing is key to helping find the add-on investments. Associates’ experience with working with third-party vendors and digging into financials helps the portfolio company with diligence. Finally, some portfolio companies do not have fully built-out financial and business development teams and require the assistance of a private equity associate who is well-versed in financial and accounting topics to wear many hats for them during the diligence and closing process.
In addition to assisting the portfolio companies, associates report on the health and status of their investments. Every quarter, private funds will briefly review and value their investments for their LPs. The process includes updating the financial model for new quarterly financial and market data, reporting on any key changes, and providing an updated IRR valuation of the company. Associates are typically in charge of working with the portfolio company’s internal finance team to update the model and status of the business. Additionally, associates will work with the fund’s valuation team to come up with an appropriate updated valuation for the business. These quarterly updates can be lengthy and monotonous, but they help the associate gain valuable experience working with different management teams and becoming more fluent in the fund’s investments.
Working as a private equity associate can be a very difficult and demanding job. However, as with any demanding job, private equity associates can learn a lot about different businesses, make great professional connections, and take on incredible responsibility for the fund. The more associates contribute to the fund and their portfolio companies at an early stage, the more valuable they become to their teams and the fund at large. Through performing all these tasks, associates learn how to both become better investors that they can transfer to any future investment-related role and better operators of companies that can be transferred to corporate roles.
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